The International Monetary Fund (IMF) has approved more than US$101.96 Million for Malawi to address the COVID-19 Pandemic. This is the second disbursement under the Rapid Credit Facility (RCF), which brings total IMF COVID-19 emergency support to Malawi to US$193 million.
The Southern African nation’s economic outlook has worsened since the first RCF as COVID infections have risen, as the global and regional economic situation has deteriorated.
This additional IMF financing will help fill part of the resulting increased external financing gap and provide the fiscal space needed to address critical spending needs. The authorities are committed to transparency and accountability to ensure that the RCF resources are used appropriately.
As a result, external financing needs have substantially increased. The fiscal situation has also deteriorated with revenue losses and channeling of budget resources toward critical spending, including to support incomes and food security of the most vulnerable and increased health sector outlays—in line with Malawi’s national response plan supported by the World Health Organization and other development partners.
IMF financing under the second RCF will help fill part of the external financing gap and catalyze other concessional financing. The authorities have committed to transparency and accountability to ensure that the RCF resources are used appropriately and for their intended purpose.
The authorities of the outfit are actively implementing measures to mitigate the impact of the pandemic and preserve macroeconomic stability. Key steps include strengthening the health care system, stepping up social spending, ensuring food security, and easing liquidity constraints in the banking system.
The IMF’s emergency financing under the second RCF will help close the immediate additional external and fiscal financing gaps. Further concessional assistance from the international community will be critical to close the remaining external financing gaps during 2020 and 2021 and help ease the adverse 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 pandemic-related spending, which should be executed transparently and targeted at the most affected segments of society.
To safeguard medium-term debt sustainability and fiscal space for development initiatives, it will be important to formulate medium-term measures now—such as policies that strengthen debt management and boost domestic revenue mobilization—and implement them once the pandemic abates.
