Malawi to save K7.2 billion from IMF debt relief

IMF, Government discuss next Malawi facility

Post was last updated: August 5, 2020

Williams Banda

The International Monetary Fund (IMF) has said it is in talks with the government on structure of the country’s next programme after the Rapid Credit Facility comes to an end.

In May this year the IMF approved a $91 million (about K67.3 billion) loan to Malawi for Covid-19 trade balance woes under the Rapid Credit Facility (RCF).

In an interview IMF Resident Representative, Farayi Gwenhamo, said the Fund is in touch with local authorities on when to meet next and draw scope of the mission.

“We are still discussing what exactly the scope will be, I cannot preempt at this stage whether it will be an ECF discussion or something else, I will come back to you with the specifics once things are firmed up,” Gwenhamo said.

Commenting on Malawi’s debt situation Gwenhamo said debt sustainability will form part of the next mission discussion however the analysis provided in the current RCF are standing.

A statement released by the IMF on the RCF in May indicates that the present value of external debt to exports is projected to breach the benchmark under the most extreme shock scenario all other indicators remain below the benchmark under the baseline scenario.

The scenario assumes a 6 percent decline in exports that could occur in 2021 should recovery from the Covid-19 shock be slower than expected.

“The present value of total public debt to GDP is projected to remain above the benchmark in the near and medium terms and then gradually decline under the baseline scenario. This mainly reflects larger primary deficits during FY 2019/20-20/21 resulting in increasing amounts of domestic debt,” reads the statement in part.

Treasury Spokesperson, Williams Banda, confirmed that Capital Hill is in talks with officials from the Bretton Woods institution on scope of a new mission.

Malawi economy has been greatly devastated by the Covid-19 pandemic with the IMF noting that the overall balance of payments may deteriorate from a projected pre-pandemic surplus of 1.7 percent of GDP to a deficit of 2.0 percent of GDP.

This reflects a projected current account deficit of 18.1 percent of GDP and a capital and financial account surplus of 16.1 percent of GDP.

It further notes that large balance of payments needs, related to the pandemic are expected to persist in 2021, with the external financing gap for 2020-21 totaling almost 3 percent of GDP or about $240 million (about K177.6 billion).

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