LILONGWE, June 16, 2010 —The World Bank and the Malawi Government signed a US$54 million grant agreement for budget support to help Government deliver its development programs and respond to global financial and economic shocks.
Of the $54 million, fourteen million is from the crisis response window which the World Bank established to help countries manage the impact of the global financial and economic crisis, while $40 million is the regular International Development Association’s allocation for budget support to Malawi for 2009/10 fiscal year.
In 2008/09, Malawi faced multiple exogenous shocks, such as increasing fuel and fertilizer costs, against loosening fiscal and monetary policies. This resulted in higher fiscal deficit and critically low foreign exchange reserves, among other challenges. Government has since renewed its commitment to prudent macroeconomic management as evidenced by the February 2010 Extended Credit Facility agreed with the International Monetary Fund.
“We feel that good progress has been made over the past few years, and we welcome the Government’s actions to correct the macroeconomic imbalances that occurred in the past two years. The grant will therefore support Malawi's renewed reform program and her response to the impact of the financial crisis,” said Sandra Bloemenkamp, World Bank Country Manager for Malawi.
Despite the good progress, Ms. Bloemenkamp added that more is needed to build on the achievements, especially in energy, agriculture markets, business environment, public finance management, and investing in people. She therefore expressed the hope that Government and the Bank would continue constructive policy dialogue in some of these critical areas to help Malawi achieve her full development potential.
Budget support is one of the instruments that the World Bank uses to support countries, in addition to investment lending. The World Bank is providing the budget support in the framework of the donor Common Approach to Budget Support (CABS) group, where the Government and its development partners discuss budget priorities, implementation systems and results. The CABS follows global principles that support use of country fiduciary systems and ownership of its development programs.
“The disbursement of US$54 million is the single largest disbursement by the World Bank since it joined the CABS group of donors. It confirms the confidence that the Bank has in the policies and economic management of the country,” said the Minister of Finance, Honourable Ken Kandodo during the signing ceremony. He added, “The Bank remains a strong and reliable partner of Malawi in its fight against poverty.”
The grant is the last in a series of three Poverty Reduction Support Grants (PRSG) in support of the Malawi Growth and Development Strategy. This series of grants supports policy and institutional reforms necessary for improved agricultural productivity, private sector growth, public sector management, and protection of Malawi’s most vulnerable people.
At US$54 million, this third PRSG is the highest in the series, with the other two having a combined total of US$50 million. It is the last budget support grant in the Bank’s fourth Country Assistance Strategy (CAS) which is also ending this year. The Bank has started the process of developing its fifth CAS.
Malawi’s Minister of Finance signed on behalf of Government, while Ms. Bloemenkamp signed on behalf of the Bank at a ceremony held in Lilongwe.