The World Bank Board of Executive Directors approved a US$50 million grant to the Malawi Government for general budget support.
This is the first in a programmatic series of three Economic Recovery Development Policy Operations (ERDPO). The focus of the series is to strengthen macroeconomic and finance management and lay foundation for stronger growth and protection of the poor. Each of the ERDPOs will be a single tranche operation.
“Government has committed to stay the course of macroeconomic and structural reforms undertaken since May 2012 to support the recovery process. The Bank is therefore providing the much needed resources to help sustain these reforms and help ease the emerging fiscal pressures.” says Sandra Bloemenkamp, Country Manager for Malawi. This Program also seeks to consolidate reforms supported by the IMF’s Extended Credit Facility.
The budget support is in recognition of reforms to support the implementation of the Second Malawi Growth and Development Strategy and the Economic Recovery Program. Among the reforms to strengthen macro-economic and public finance management are the actions taken to strengthen fiscal discipline to entrench macro-stability through the development of a plan to clear domestic payment arrears and ensure no build-up of new arrears. To enhance efficiency and transparency of the public finance management, reform actions focus on strengthening budget policy framework and improve its medium-term orientation, strengthening external oversight and internal controls on public finances, and enhancing efficiency and value for money in public procurement, especially fertilizer procurement under the Farm Input Subsidy Program.
In the area of laying foundation for stronger growth and protection of the poor, the budget support recognises the measures taken to enhance agriculture productivity and diversification, improve energy efficiency and the regulatory environment, improve efficiency in the provision of social safety nets and strengthen the country’s statistical capacity. For instance, actions taken to review electricity tariffs on a regular basis would help ensure they are cost reflective, and the financial position of the power utility company is strengthened, in addition to creating a conducive environment to attract independent power producers.
Another key area of reform recognised under the DPO is the approval of the National Social Support Program which aims at strengthening linkages between existing social programs. This is expected to create an enabling policy environment for the implementation of social protection interventions to maximize their impact.
Earlier in July 2012, the Bank provided Malawi with a $150million package to support government with its reform program to stabilize the economy. Of this amount, $50million was budget support in the form of a Rapid Response Development Policy Grant which focused on efforts to restore macroeconomic stability, improve functioning of the petroleum market and create incentives to exporters, including smallholder
