If social media updates by some bigwigs and their cronies in the ruling clique are anything to go by, Malawi Government is in party mood over the International Monetary Fund (IMF) decision to approve an $88.372 million (about K91 billion) Rapid Credit Facility (RCF).
For a country that has, since September 2020 when the Tonse Alliance administration cancelled an Extended Credit Facility (ECF) with the IMF, struggled to unlock foreign aid inflows to help stabilise an economy on its knees and struggling to fulfill balance of payment obligations, the RCF should be a big relief.
But, as IMF resident representative Farai Gwenhamo put it on Tuesday this week, RCF is not a panacea to Malawi’s economic recovery. It is just one of the pills the country needs to ease the pain as it seeks to address economic challenges such as rising inflation rate and foreign exchange shortage which has triggered fuel importation challenges.
Put simply, the RCF is an emergency funding disbursed at staff level unlike the ECF managed at the board level. If it were in a local commercial bank, one would liken it to a “pay-day loan” kind of, a pain-killer, as it were.
Many economists tout ECF as a more reliable programme that provides financial assistance to countries with balance of payments problems.
Instead of taking valuable time celebrating RCF, what authorities need to do now is to work towards addressing the outstanding issues standing on the way of securing an ECF needed to get some “credibility” to unlock foreign aid inflows to stabilise an economy.
From the start, the IMF made it clear that the issue of debt sustainability and restructuring plan is critical to get the nod of its executive board. For the record, two high-level interactions where President Lazarus Chakwera met IMF managing director Kristalina Georgieva coupled with several rounds of talks have proven not enough for Malawi to strike the right chord and get the ECF.
In an ideal situation or if we were able to get things right on our own, we would not, as a country, be so desperate for IMF programmes which are loans whose impact on beneficiary economies has drawn mixed reactions as in most cases the prescription has worsened the conditions while in few other cases it has worked.
I maintain my position expressed in an earlier write-up titled ‘Impediments I see in pursuit of an IMF deal’ published on June 16 2022 that when all is said and done, Malawi put itself in an awkward situation that is complicating its attainment of the new IMF programme.
My take is that if the cancelled ECF was left to run a full circle, we could have been in a mess due to global factors, but not the kind of mess we are sailing through. The cancellation was one ill-advised decision as the better evil was seeking a modification to address the problems, if any.
Poor countries such as Malawi strive to be “associated” with the IMF for the sake of perceptions as the programme is widely known for its “signalling effect” of triggering direct budget support. But in recent years, the IMF programme’s “signaling” effect has been fading due to Malawi’s ‘confidence deficit’ in the eyes of development partners as well as legacy issues in the aftermath of Cashgate, the plunder of public resources at Capital Hill exposed in September 2013.
IMF is a lender of last resort and when countries such as Malawi get desperate to borrow from it, usually it means that they have nowhere else to get the next financing in the same way individuals turn to loan sharks (akatapila). If it were a medical case, it would be classified as critical and on life support.
Food for thought to the ruling elite: When celebrating the RCF, please undertake an honest soul-searching on whether, moving forward, loans from the IMF and its cousin the World Bank, which come with punitive
and disruptive reforms such as devaluation, are a solution.