Donor taps continue for Malawi as IMF approves $156m package

The International Monetary Fund's executive board on  Monday approved a new three-year arrangement for Malawi under the Extended Credit Facility (ECF) for an amount equivalent to $156.2 million as donor aid  continues to flow  following the brave reform of government under President Joyce Banda.

This means an immediate disbursement equivalent to about $19.5 million.

This comes on the back of new aid packages over the last weeks by the World Bank, African Development Bank and Britain.

Malawi has over the last two years battled with serious macroeconomic challenges including a severe shortage of foreign exchange and critical imports of fuel, inputs for production, and medicines after the government of the then President Bingu wa Mutharika fell out with donors over governance concerns.

The IMF suspended its credit plan with Malawi after President Mutharika refused to among other things devalue the country's currency as a measure to turn around the economy.

But following his death in April new President Joyce Banda has moved to repair relations with lenders, leading to major financial responses by the donors.

"Malawi's new administration moved swiftly to devalue the kwacha, adopt a flexible exchange rate regime and liberalise current account transactions to address the country's chronic balance of payment problems and improve the outlook for poverty reduction and growth," IMF deputy managing director and acting chair Naoyuki Shinohara said in a statement.

Mr Shinohara also said the new ECF arrangement provides support for the authorities' medium-term economic programme based on Malawi's second Growth and Development Strategy (MGDS II), adding that specific objectives include macroeconomic stability with low inflation, increasing international reserves to provide a buffer against external shocks, and reforms to improve the investment climate and promote sustained inclusive growth.

"The authorities have adopted a prudent fiscal stance in the 2012/13 budget. Higher donor support and a sizeable domestic revenue effort allow the government to increase total spending slightly without recourse to domestic borrowing," the statement quoted Mr Shinohara as saying.