The World Bank has announced resumption of direct budgetary support to Malawi, a development that is likely going to boost economic growth for the country.
The bank stopped providing direct budgetary aid six years ago over concerns of financial mismanagement by the Democratic Progressive Party (DPP) administration under Professor Arthur Peter Mutharika.
In a statement released on Tuesday evening, the World Bank said it is impressed with the commitment the incumbent government has demonstrated to address macroeconomic imbalances.
“For the first time since 2017, the World Bank is providing Malawi with budget support that will help the country enhance fiscal sustainability and transparency, stimulate private sector-led growth, and increase resilience to shocks. The Government of Malawi has demonstrated commitment to address macroeconomic imbalances, unsustainable debt, and longstanding structural and business environment constraints inhibiting private sector-led growth. It is also taking robust steps to restore macroeconomic stability through addressing long-standing fiscal, monetary and external sector imbalances, as reflected in the new Extended Credit Facility with the International Monetary Fund (IMF),” reads the statement in part.
The statement quotes the World Bank Country Director Malawi, Zambia, Zimbabwe, and Tanzania, Nathan Belete, as applaunding Malawi’s authorities for taking tough, but necessary decisions to stabilize an acute macro-economic crisis.
“I am pleased the Bank is now able to respond with a substantial budget support operation that supports an ongoing program of reforms. The Bank will also continue to work closely with the authorities and all international partners to protect the poorest while pursuing a muchneeded economic turnaround. Together, we must ensure this operation marks a turning point in the country’s economic fortunes,” says Belete.
According to the statement, the World Bank Board of Executive Directors approved the “Malawi First Growth and Resilience Development Policy Operation with Catastrophe Deferred Drawdown Option (Cat-DDO)”, a $137 million package which consists of an immediate release of $80 million to support reforms and recovery and a $57 million CAT-DDO that can be triggered in the event of a crisis.
It adds that the DPO, the first in a series of two operations, is anchored in a robust government-led structural reform agenda to i) strengthen fiscal sustainability and transparency, ii) stimulate private sector-led growth, and iii) increase resilience to shocks. Key measures that have unlocked the DPO include measures to strengthen the legal framework for public finance management and public private partnerships, mobilize private finance and investment including in digital and energy sectors, increased public procurement transparency, the reforms to modernize the Affordable Inputs Program (AIP) while fostering financial inclusion and strengthening shock-sensitive social safety nets.
The Bank states that Malawi’s current difficulties stem from longstanding macroeconomic imbalances that were exacerbated by a series of external crises including the COVID-19 pandemic shocks, price, and inflation shocks, and three cyclones in 2022 and 2023 which have had devastating impacts on both households and businesses.
In his remarks, Minister of Finance and Economic Affairs, Simplex Chithyola Banda, said the operation is a significant milestone in our ongoing reform journey.
Banda said this shows the increased confidence that the World Bank has in the ongoing efforts to reform the economy and become a self-reliant, industrialized upper middle-income country by 2063.
The three-year term of the operation will be supported by continued engagement with the government in preparation of a second DPO in the series, monitoring and policy dialogue across the three pillars that include fiscal, transparency and public finance management (PFM) reforms; putting in place the conditions required to stimulate private sector-led growth; strengthening the resilience of the poor against shocks; and providing technical assistance.
During this period, the CAT-DDO will only be made available in a declared “State of Disaster” in accordance with Section 37 of the Disaster Risk Management Act of 2023 to support the country in strengthening crisis preparedness and response.
