World Banks rescues Malawi with $60m grant

The World Bank has approved a $60 million grant to Malawi aiming at averting acute shortages of critical and lifesaving commodities.  

According to a media statement released yesterday, the Bank’s board of executive directors, commercial banks in Malaŵi, will now have access to an import backstopping facility through the approved grant from the International Development Association (IDA).

The World Bank understands that contingent financing to import fertilizers and pharmaceuticals will address critical shortages in the market, which, if left unaddressed, have the potential to hinder Malawi’s economic recovery.

The project, which is dubbed De-risking Importation of Strategic Commodities (DISC), will establish a foreign currency trade facility for Malawi’s commercial banks.

“The DISC project aims to support economic recovery in Malawi with a specific focus on the private sector. The project complements the government-led macro-fiscal reforms under implementation and aims to restore the long-term functioning of markets,” said Hugh Riddell, World Bank Country Manager for Malawi.

In addition, the project will help local financial institutions establish working partnerships with correspondent banks and increasing their credit lines and reducing cash collateral requirements.

Commenting on the development, finance minister Simplex Chithyola-Banda said the stable importation of strategic commodities is a critical element of the country’s economic recovery.

He said: “We are trying to restore stability in the macro-economic situation with a view to revive the wider economy. The stable importation of strategic commodities is a critical element of our recovery.”

“We have requested the World Bank for this project to boost confidence in our local commercial banks and we are therefore very optimistic this operation will create a timely mechanism, alongside the recently agreed Extended Credit Facility with the International Monetary Fund (IMF), to ensure continuous availability of life saving and agricultural commodities.”

Meanwhile, the Ministry of Finance and Economic Affairs will represent the Government of Malawi in signing the financing agreement with a deferred drawdown option, while the Reserve Bank of Malawi (RBM) will be the main implementing agency for the operation.

This three-year project builds upon existing World Bank, International Finance Corporation (IFC), and Government of Malawi  programmes on enhancing access to trade finance, including the Global Trade Finance Program (GTFP), and lessons learned from prior projects, including the Financial Inclusion and Entrepreneurship Scaling Project (FINES).

The project will also assist local financial institutions establish working partnerships with correspondent banks and increase their credit lines and reduce cash collateral requirements, eventually enabling the continued flow of trade credit into the market at a time when imports are critical.

Established in 1960, IDA helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programmes that boost economic growth, reduce poverty, and improve poor people’s lives. The Association is one of the largest sources of assistance for the world’s 74 poorest countries, 39 of which are in Africa.

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