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IMF Country Report No. 20/288
MALAWI
REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR MALAWI
October 2020
In the context of the Request for Disbursement Under the Rapid Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on October 2, following discussions that ended on September 2, with the officials of Malawi on economic developments and policies underpinning the IMF arrangement under the Rapid Credit Facility. Based on information available at the time of these discussions, the staff report was completed on September 24, 2020.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association (IDA).
A Statement by the Executive Director for Malawi.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2020 International Monetary Fund
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MALAWI
REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY
September 24, 2020
Executive Summary
Context and request. 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.
Macroeconomic policies. The authorities are committed to the policies discussed in IMF Country Report 20/168. The new administration has prioritized transparency and efficiency in all aspects of government, including government spending to manage and contain the impact of the pandemic. The fiscal stance has been temporarily loosened to mitigate the impact of the crisis and support recovery. Monetary policy continues to focus on containing inflation but the RBM stands ready to provide liquidity as needed. Banking supervision has been stepped up to ensure financial sector stability. As they develop a new long-term growth strategy, the authorities plan to prioritize policies to achieve higher, more resilient, and broad-based medium-term growth and governance reforms while preserving macroeconomic stability and debt sustainability.
Staff supports the authorities request. The accelerating spread of the pandemic and continued adverse spillovers have created an urgent balance of payments need. Staff considers a second RCF drawing appropriate given the authorities’ strong interest, as contained in the attached Letter of Intent, to transition to a new ECF once they have finalized their medium-term development strategy and pandemic-related uncertainty subsides. The authorities have requested debt servicing relief from bilateral creditors under the G20 Debt Service Suspension Initiative (DSSI) and discussions are ongoing. The catalytic role of the Fund, which has already contributed to closing the 2020 external needs, will remain essential given a projected financing gap for next year.
Approved By
David Robinson (AFR) and Björn Rother (SPR)
A staff team comprised of Ms. Mitra (head), Ms. Gwenhamo, Ms. Yoon, Ms. Fabo (all AFR), Mr. Lee (SPR), Mr. Swistak (FAD), Mr. Banda (local economist), and Mr. Anderson (FAD long-term expert) exchanged information and held discussions with the Hon. Felix Mlusu (Minister of Finance), Dr. Wilson T. Banda (Governor of the Reserve Bank of Malawi), and other senior officials by videoconference on August 26-September 2, 2020. Mr. Sitima-wina (OED) joined in the discussions. Ms. Kumar assisted in the preparation of the staff report.
Contents
CONTEXT
RECENT ECONOMIC DEVELOPMENTS AND OUTLOOK
POLICY ISSUES
ACCESS, MODALITIES, AND CAPACITY TO REPAY
STAFF APPRAISAL
TABLES
1. Selected Economic Indicators, 2018–25
2a. Central Government Operations, 2018/19–24/25 (Billions of Kwacha)
2b. Central Government Operations, 2018/19–24/25 (Percent of GDP)
3a. Monetary Authorities’ Balance Sheet, 2018–20 (Billions of Kwacha)
3b. Monetary Survey, 2018–20 (Billions of Kwacha)
4a. Balance of Payments, 2018–25 (Millions of USD)
4b. Balance of Payments, 2018–25 (Percent of GDP)
5. Selected Banking Soundness Indicators, 2015–20
6. External Financing Requirement and Source 2018–25
7. Indicators of Capacity to Repay the Fund, 2020–33
APPENDIX
1. Letter of Intent
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MALAWI
REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY—SUMMARY OF DEBT SUSTAINABILITY ANALYSIS1
September 24, 2020
Approved By
David Robinson and Björn Rother (IMF) and Marcello Estevão (IDA)
Prepared by the staffs of International Monetary Fund and the International Development Association (IDA)
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