WASHINGTON, December 12, 2023 — 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).
“The World Bank applauds 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 much-needed economic turnaround. Together, we must ensure this operation marks a turning point in the country’s economic fortunes,” says Nathan Belete, World Bank Country Director for Malawi, Zambia, Zimbabwe, and Tanzania.
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.
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.
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.
“This operation is a significant milestone in our ongoing reform journey. It shows the increased confidence that the World Bank has in our ongoing efforts to reform the economy and become a self-reliant, industrialized upper middle-income country by 2063,” said Simplex Chithyola Banda, M.P. Minister of Finance and Economic Affairs.
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.
*The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of assistance for the world’s 74 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change to the 1.3 billion people who live in IDA countries. Since 1960, IDA has provided $458 billion to 114 countries. Annual commitments have averaged about $29 billion over the last three years (FY19-FY21), with about 70 percent going to Africa. Learn more online: IDA.worldbank.org. #IDAworks