IMF trusts Malawi’s debt-settling ability

IMF trusts Malawi’s debt-settling ability

Post was last updated: November 18, 2020

The International Monetary Fund (IMF) says Malawi has a strong capacity to settle its dues under Rapid Credit Facility (RCF) chunk and other facilities with other partners.

This is contained in an IMF country report No. 20/288 published recently.

The report says cancellation of the current Extended Credit Facility (ECF) arrangement and outstanding Poverty Reduction and Growth Trust (PRGT) credit would reach 221 percent of quota and total PRGT disbursements over a 12 month-period would reach 123 percent of quota.

“…these are all below allowable limits based on the IMF Executive Board decisions to temporarily double the annual access on emergency financing under the exogenous shock window of the RCF to 100 percent of quota on April 6, 2020 and to increase the limit for PRGT disbursements over a 12 month period from 100 to 150 percent of quota on July 13, 2020.

“Malawi has a strong track record in meeting its obligations to the Fund and debt servicing risks are mitigated by the country’s low indebtedness and the availability of concessional financing. Support under the Catastrophe Containment and Relief Trust (CCRT) will also ease the near-term burden,” the report reads.

This comes against a background that President Lazarus Chakwera in September asked developed economies and multilateral lending institutions to consider cancelling debts owed by poor countries, including Malawi, in the wake of Covid-19.

Chakwera said Malawi, being a member of both the Least Developed Countries and Landlocked Developing Countries groups, is among the hardest hit, a situation compounded by a skewed development trajectory.

“With regard to the high risk of debt default, we acknowledge the World Bank Group, the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development and many key development partners for the debt moratorium granted to the LDCs.

“Considering the potential length and breadth of this pandemic, we request and are hopeful for debt cancellation ultimately and an extension of the debt moratorium in the meantime. That will enable us as LDCs to recover from this devastating pandemic sustainably,” Chakwera said.

Malawi’s debt levels have astronomically risen to K4.1 trillion in recent years; since 2006 when the country’s foreign debt was cancelled under debt relief.

This year alone, Malawi is expected to cough around K376 billion of the K2.19 trillion or 5.3 percent of GDP on interest repayment only

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