Malawi: US$20 Million Budget Support Grant Approved

October 30, 2007

WASHINGTON, October 30, 2007 —The World Bank’s Board of Executive Directors today approved the First Poverty Reduction Support Credit (PRSC-1) to the Republic of Malawi for US$20 million. This is the first in a series of three annual PRSCs to be provided to Malawi through the International Development Association (IDA). Although the PRSC is a family of credits, Malawi ’s PRSC-1 will be a grant.

The PRSC program will be IDA’s instrument for the provision of budget support to the Government of Malawi within the Common Approach to Budget Support (CABS) framework. It will support the Government of Malawi’s efforts to undertake the policy and institutional reforms necessary for the successful implementation of the Malawi Growth and Development Strategy (MGDS). In particular, the grant has been provided in support of policy changes undertaken to improve the functioning of agricultural markets, create a conducive environment for the private sector, and improve payroll management and external financial accountability of the Government.
“The PRSC series is a central pillar of the Bank’s efforts to support implementation of the MGDS,” said Malawi Country Manager Timothy Gilbo. “And we are very pleased to have approved our first grant within the framework of the CABS, which is a step towards the goals outlined in the Paris Declaration on Aid Effectiveness.” Historically, this is the first time the World Bank is giving a PRSC to Malawi.

The PRSC program is expected to have the following benefits:

  1. Contribute to the bridging of a financing gap in the implementation of the MGDS.
  2. The policy and institutional reforms will help consolidate the macroeconomic gains that Malawi has registered over the last three years;
  3. Contribute to improving aid effectiveness by being part of a harmonized approach to budget support;
  4. The expected impact on agricultural incomes, employment generation in the private sector and public service delivery will contribute towards the achievement of the Millennium Development Goals.

“This support is coming at the right time for us. Now that we have managed to create stable macroeconomic conditions, our focus is shifting to creating conditions for improved profitability in agriculture, removing bureaucratic constraints to doing business, and reducing our vulnerability to weather shocks,” said Finance Minister Goodall Gondwe. “We believe that improvements in these areas will ensure that improved macroeconomic conditions translate into sustained high growth rates and improved welfare of our people.”
In recent years Malawi has made significant progress in restoring macroeconomic stability. It has successfully concluded three reviews of the IMF supported Poverty Reduction Growth Facility (PRGF) and is about to conclude the 4th and 5th reviews. Malawi also reached the Highly Indebted Poor Countries (HIPC) Completion Point in August 2006 and qualified for the Multilateral Debt Relief Initiative (MDRI). Due to continuing strong fiscal management, domestic borrowing by the government has declined from 25 percent of GDP in 2004 to 12.4 percent of GDP as at end-June 2007. Inflation declined to 9.2 percent in January 2007, the first time single digit inflation has been registered in four years, and has further decreased to 7.1 percent in September 2007. Real GDP growth was 7.9 percent in 2006, and is projected at 7.5 percent in 2007. However, reforms to reduce the cost of doing business have been slow. As a result, Malawi dropped from 110th in 2006 to 127th in 2007 on the ease of doing business rankings.

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