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Africa > Malawi

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Cover IMF Staff Country Reports
Malawi: Second Review Under the Staff-Monitored Program with Executive Board Involvement and Request for an Arrangement Under the Extended Credit Facility-Press Release; Staff Report
International Monetary Fund. African Dept.
This paper discusses Malawi’s Second Review under the Staff-Monitored Program with Executive Board Involvement (PMB) and Request for an Arrangement under the Extended Credit Facility (ECF). Malawi continues to face a challenging macroeconomic environment. Years of unsustainable domestic and external borrowing and the adverse impact of multiple external shocks have resulted in the widening of macroeconomic imbalances, including protracted balance of payment needs. The ECF-supported program will support the authorities’ macroeconomic adjustment and reform agenda aimed at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, and addressing weaknesses in governance. Further delays in the restructuring of Malawi’s external debt would put at risk macroeconomic stabilization. The risks of moving forward with the ECF arrangement without an agreement in principle between the Malawian authorities and their commercial creditors are significant. IMF staff assesses that the PMB remains on track to achieve its objectives. It supports the authorities’ request for the ECF arrangement, conditional upon receipt of financing assurances.
Keywords:
authorized dealer banks; ECF arrangement; staff appraisal; executive board involvement; financing gap; Debt service; International reserves; Global; Africa; Sub-Saharan Africa
Cover IMF Staff Country Reports
Malawi: First Review Under the Staff-Monitored Program with Executive Board Involvement-Press Release; Staff Report; and Statement by the Executive Director for Malawi
International Monetary Fund. African Dept.
This paper presents Malawi’s First Review under the Staff-Monitored Program with Executive Board (PMB) Involvement. In light of a series of shocks, program performance was mixed. The authorities are taking corrective actions to establish a record of accomplishment of policy implementation, possibly paving the way to an Extended Credit Facility (ECF) arrangement. Cyclone Freddy has weighed on the outlook for 2023 and led to a lower growth forecast and a higher inflation forecast. Key downside risks include slippages in program implementation, delays in the ongoing external debt restructuring process, and further external shocks. Performance on Quantitative Targets (QTs), Indicative Targets (ITs), and Structural Benchmarks was mixed, with four out of six end-December and continuous QTs and one out of three end-December ITs not met. Four out of seven Structural Benchmarks were not met. The authorities have committed to strong corrective actions. The authorities are taking corrective actions necessary to overcome mixed performance and implementation challenges with the PMB to date, allowing them to demonstrate their commitment and capacity to implement the agreed macroeconomic adjustment and reforms to build the policy record of accomplishment needed to support their request for an ECF arrangement.
Keywords:
restructuring strategy; monitoring of program performance; price discovery; policy track record; government Finance Statistics Manual; FX swap rollover risk; Debt service; International reserves; Global
Cover Policy Papers
Review of Experience with The Food Shock Window Under The Rapid Financing Instrument and The Rapid Credit Facility
International Monetary Fund. Finance Dept.
,
International Monetary Fund. Legal Dept.
, and
International Monetary Fund. Strategy, Policy, & Review Department
The Food Shock Window (FSW) under the Rapid Credit Facility (RCF) and the Rapid Financing Instrument (RFI) was approved in September 2022 for 12 months, as a complement to the tools used by the Fund to support the broader international effort to address the global food shock. The Fund has been working closely with partners to provide a coordinated international response to the global food shock, and has contributed through policy advice, technical assistance and lending. Where needed and possible, financial support to countries affected by the global food shock has been delivered by the IMF through multi-year Fund-supported programs The FSW complemented this support in situations where these programs were not feasible or not necessary. As the global food shock and associated balance of payment pressures are expected to continue throughout 2023, the IMF extended the FSW until end-March 2024 to allow the FSW to continue serving as a contingency tool. This extension will also provide sufficient time to observe if the FSW can lapse without limiting the capacity of the Fund to support its members. To ensure adequate borrowing space under the emergency financing limits for those countries that have received support through the FSW, the IMF also extended the additional 25 percent of quota added to the Cumulative Access Limit until end-2026 for countries that have accessed the Food Shock Window through the RFI and until the completion of the 2024/25 PRGT review for those that accessed the Food Shock Window through the RCF.
Keywords:
Cumulative Access Limits; Rapid Financing Instrument; Rapid Credit Facility; Food Insecurity; FSW request; FSW financing; UCT-quality program; FSW relative; FSW experience; FSW resource; Food security; Food prices; Emergency assistance; Balance of payments need; Global
Cover IMF Staff Country Reports
Malawi: Request for Disbursement Under the Rapid Credit Facility and Request for a Staff Monitored Program with Executive Board Involvement-Press Release; Staff Report; and Statement by the Executive Director For Malawi
International Monetary Fund. African Dept.
Foreign exchange shortages together with exchange rate misalignment led to a sharp decline in imports including fuel, fertilizer, medicine, and food. Large fiscal deficits, nearly 10 percent of GDP in FY2021/22, have been largely financed by domestic bank borrowing, resulting in rapid money growth and inflation of 25.9 percent in September 2022. Exchange rate pass-through and hikes in food prices added to inflationary pressure. In addition, food insecurity in Malawi has increased dramatically under the impact of multiple tropical storms, below-average crop production, and increasing prices for food and agricultural inputs such as fertilizer and seeds. The latter are expected to affect the current planting season. As a result of these factors, about 20 percent of the population is projected to be acutely food insecure during the upcoming 2022/23 lean season (October 2022-March 2023), more than twice as many as in 2021.
Keywords:
debt restructuring strategy; financing gap; government subsidy program; debt advisor; track-record building SMP; Debt sustainability; International reserves; Debt service; Africa; Global; Southern Africa
Cover IMF Staff Country Reports
Malawi: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malawi
International Monetary Fund. African Dept.
Malawi, a fragile state with one of the highest incidences of poverty, food insecurity and frequent weather-related shocks, has been severely affected by the pandemic. There are signs of gradual recovery and daily COVID-19 positive cases remain relatively low: real GDP growth in 2021 is projected to pick up to 2.2 percent from 0.9 percent in 2020 helped by a good harvest. However, inflation is expected to increase to 9 percent in 2021 from 8.6 percent in 2020, driven by increases in prices of fuel, fertilizer and food, leaving real per capita growth in the negative region.
Keywords:
financing gap; fund advice; private sector investment; governance issue; fiscal policy stance; soft commodity; Debt sustainability; International reserves; Africa; Global; Sub-Saharan Africa
Cover IMF Working Papers
How do Climate Shocks Affect the Impact of FDI, ODA and Remittances on Economic Growth?
Alassane Drabo
The three main financial inflows to developing countries have largely increased during the last two decades, despite the large debate in the literature regarding their effects on economic growth which is not yet clear-cut. An emerging literature investigates the dependence of their effects on some country characteristics such as human and physical capital constraint, macroeconomic policy and institutional capacity. This paper extends the literature by arguing that climate shocks may undermine the effect of Foreign Direct Investment (FDI), official development assistance (ODA) and migrants’ remittances on economic expansion. Based on neoclassical growth framework, the theoretical model indicates that FDI, ODA, and remittances improve economic growth, and the size of the effect increases with good absorptive capacity. However, climate shocks reduce this positive effect of financial flows in developing countries. Using a sample of low and middle-income countries from 1995 to 2018, the empirical investigation confirms the theoretical conclusions. Developing countries should build strong resilience to climate change. Actions are also needed at global level to reduce greenhouse gases emissions, and build strong structural resilience to climate shocks especially in developing countries.
Keywords:
inflows-economic growth nexus; effect of ODA; income group; role of Climate; effect of foreign direct investment; Climate change; Absorptive capacity; Foreign direct investment; Human capital; Middle East; East Asia; Asia and Pacific; North Africa; South Asia; Global
Cover IMF Staff Country Reports
Malawi: Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Malawi
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.
Keywords:
ISCR; CR; emergency financing request; IMF lending tracker; RCF resource; RCF disbursement; IMF's emergency financing; banking supervision effort; disbursement of SDR; RCF II; Debt relief; COVID-19; Budget planning and preparation; Global
Cover Policy Papers
Review of Enhanced Access Limits Under the Rapid Credit Facility and Rapid Financing Instrument
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.
Keywords:
PP; financing; emergency financing instrument; HA procedure; RCF financing request; coronavirus pandemic; misuse of emergency financing; Emergency assistance; Balance of payments need; Credit; Global; COVID-19
Cover IMF Staff Country Reports
Malawi: Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Malawi
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.
Keywords:
ISCR; CR; financing; pandemic; emergency financing request; IMF lending tracker; revenue shortfall; development spending; banking system liquidity constraint; financial support; current account; debt relief; Imports; Debt service; Global; COVID-19
Cover Policy Papers
Guidance Note on IMF Engagement on Social Safeguards in Low-Income Countries
International Monetary Fund. Strategy, Policy, &amp
and
Review Department
This note provides operational guidance to staff on how to engage on social safeguard issues with low-income countries in both program and surveillance contexts. The note is not intended as a comprehensive guide, and should be used in conjunction with other operational guidance notes, such as those relating to conditionality and surveillance.
Keywords:
PP; spending; staff; poverty; spending floor; priority spending; country authorities; expenditure code; address weakness; Social assistance spending; Social protection spending; Education spending; Poverty reduction; Energy subsidies; Africa