The International Monetary Fund has resolved to immediately disburse about $18.1 million (K7.6 billion) to Malawi.
The decision to release the funds was made by the IMF board at a meeting in Washington on Monday after an extended review of Malawi’s economic performance under the IMF supported programme, the Extended Credit Facility (ECF) which has been off-rail since 2013.
The IMF imposed the suspension last quarter of 2013 following revelations that top government officials looted billions from government coffers in a scandal known as Cashgate.
The announcement to lift aid freeze follows several staff level agreements Malawi and the bank reached in December 2014 that pointed to possible resumption of aid.
The IMF has also approved Malawi’s request for an extension of the current ECF arrangement by six months to May 22, 2016 and the re-phasing of disbursements associated with the seventh and eighth reviews.
In a statement after approving the resumption of aid to Malawi Mitsuhiro Furusawa, IMF Acting Chair and Deputy Managing Director said the new government [of President Peter Mutharika] has committed to rebuild trust in public institutions.
He said Malawi’s macroeconomic outlook and performance under the IMF-supported program was significantly damaged by a large-scale theft of public funds and by policy lapses in the run- up to elections.
“The breach of governance resulted in the suspension of budget support from donors, which has led to increased recourse to central bank financing, accumulation of domestic arrears, exchange rate depreciation, and high inflation,” said Furusawa.
“Addressing weaknesses in public financial management is necessary to restore confidence in the budget process and foster donor re-engagement,” he added.
The IMF chief also said Malawi’s steadfast implementation of a comprehensive strategy in this area remains an urgent policy priority.
“The central bank is committed to tightening monetary policy as needed to keep inflation on a downward path. Measures taken in late 2014 have already helped reduce liquidity and stabilize the currency. Steps underway to curb deficit financing by the central bank should enhance the credibility of monetary policy,” he emphasised.
The bank said improved prudential and regulatory frameworks are key to safeguarding financial sector stability and supporting growth.
The ECF is the IMF’s main tool for medium-term financial support to low-income countries.
It provides for a higher level of access to financing, more concessional terms, enhanced flexibility in program design, and more focused, streamlined conditionality.
Financing under the ECF currently carries a zero interest rate, with a grace period of five and half-years, and a final maturity of 10 years.
Before the aid freeze IMF had disbursed about $90.3 million to Malawi.
The three-year ECF arrangement for Malawi of about US$ 144.4 million was approved on July 23, 2012.
Full IMF Statement is here