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International Monetary Fund. African Dept.
Presidential elections in June 2020, a re-run of the canceled 2019 elections, resulted in a change of government, with President Chakwera securing 59 percent of the vote. The new administration is facing a rapid acceleration of COVID-19 cases in Malawi and adverse spillovers from continued deterioration of the global and regional economic situation, significantly worsening the macroeconomic outlook. Consequently, an additional urgent balance of payments need of 2.9 percent of GDP has arisen—bringing the total external financing gap in 2020 to 5.0 percent of GDP. The authorities have requested an additional disbursement of 52.1 percent of quota (SDR 72.31 million) under the “exogenous shock” window of the Rapid Credit Facility (RCF), where 30 percent of the disbursement would finance the government budget. This follows the May 1, 2020 Board approval of a 47.9 percent of quota RCF disbursement (without budget support). The authorities have cancelled the Extended Credit Facility (ECF) and expressed a strong interest in discussing a new ECF—better aligned with their new long-term growth and reform strategy—once conditions permit.
International Monetary Fund
The temporary increase in access limits under IMF emergency financing instruments will expire on October 5, 2020, unless extended. Access limits under emergency instruments (the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI)) were increased in April 2020 for a period of six months, from 50 to 100 percent of quota annually and from 100 to 150 percent of quota cumulatively. The increased limits are subject to review and can be extended before their expiration. It is proposed to extend the period of higher access limits for emergency financing for a period of six months, through April 6, 2021. Against a background of continued pandemic-related disruption, staff expects there could be significant demand for emergency lending in the October 2020–April 2021 period, including from countries with pending requests and from countries that received emergency support at levels less than the maximum amounts available. A six-month extension would give more time for countries to benefit from higher access limits under emergency financing.
Mr. Bernardin Akitoby, Mr. Jiro Honda, and Keyra Primus
Raising revenues has been a formidable challenge for fragile and conflict-affected states (FCS), a fact confirmed once again in the COVID-19 crisis. Nonetheless, achieving sizable gains in tax collection in fragile environments is not impossible. This paper—with empirical analyses and case studies—contributes to policy discussions on tax reform in such challenging environments. Our analyses show that many FCS achieved some recovery of tax revenues, even though they found it challenging to sustain the momentum beyond three years. We also find that changes in the quality of institutions (e.g., government effectiveness and control of corruption) are a key contributory factor to their tax performance (much more so than for non-FCS). Next, we look into the tax increase episodes of four countries (Liberia, Malawi, Nepal, and the Solomon Islands). Although each FCS is unique, their experiences suggest two lessons: (i) tax reforms can be pursued even with initially weak institutions; and (ii) strong political commitment is important to sustain reform efforts and realize long-lasting, sizable gains.
International Monetary Fund. African Dept.
This paper discusses Malawi’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 pandemic is having a severe impact on Malawi, creating an urgent balance of payments need. The authorities have been proactive in mitigating the impact of the pandemic, including through increased spending on health care and social assistance, supporting small and medium enterprises, bolstering farmers’ incomes and ensuring food security through purchase and storage of agricultural harvests, and easing liquidity constraints in the banking system. The IMF’s emergency financing under the RCF is expected to help the authorities meet the large external financing gap and catalyze further assistance from the international community. Additional concessional donor support will be critical to close the remaining external financing gap and facilitate the needed interventions to ease the economic and social impacts of the pandemic, while preserving Malawi’s hard-earned macroeconomic stability. A widening of the budget deficit is appropriate in the near-term, given the fiscal costs associated with the economic slowdown and critical additional health care and social spending needs, which should be executed transparently and targeted to the most affected parts of society.