Malawi: Budget support temporal—IMF

In an interview, IMF Resident Representative, Farayi Gwenhamo, confirmed that part of the $102 million RCF package given to Malawi recently will go directly into the 2020/21 National Budget.

“The IMF normally provides Balance of Payment (BoP) support only but during this exceptional pandemic-driven crisis, the IMF is providing budget support for budget expenditures that are directly related to Covid-19 such as medical equipment to finance the import component of this spending and thus reduce BoP pressures.

“In this regard, part of Malawi’s recently approved RCF proceeds will indeed go towards budget support. Please confirm with the Ministry of Finance what the breakdown between Budget support and BoP will be,” Gwenhamo said.

Treasury spokesperson, Williams Banda, asked for more time before he could respond on how much of the funds will be channeled towards the national budget.

Speaking in Parliament earlier, Minister of Finance, Felix Mlusu, said an important aspect of the just approved RCF II is that it combines both budget support and BoP support to the Reserve Bank of Malawi.

He said this is probably the first time in the history of Malawi that the IMF has provided budget support, directly to the Treasury.

“This, Madam Speaker, is an undoubted restoration of trust by the IMF and other donors in the new administration on the back of the many governance reforms that the Tonse Alliance Government is embarking on.

“Very shortly, Madam Speaker, the government will commence negotiations for a new ECF programme with the IMF which is expected to commence during the 2021/2022 fiscal year,” Mlusu said.

Parliament is deliberating on a K2.1 trillion budget that Mlusu presented in about four weeks ago.

He indicated that total revenue and grants are projected at K1.435 trillion of which K1.116 trillion is tax revenue, K63.1 billion is other revenues and K255.7 billion are grants.

Mlusu further said the 2020/21 budget faces a K754.8 billion deficit, which will be financed by foreign borrowing amounting to K224.8 billion and K530.1 billion from domestic borrowing.