Wednesday, April 24, 2024

Malawi: World Bank Grants Malawi $60m to Avert Acute Shortages of Critical, Lifesaving Commodities

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

The grant will also enable commercial banks in Malawi to have access to an import backstopping facility through the International Development Association (IDA) approved by the World Bank’s Board of Executive Directors on Monday.

A statement from the Bretton Woods institution says the 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, De-risking Importation of Strategic Commodities (DISC), will establish a foreign currency trade facility for Malawi’s commercial banks. Specifically, the project provides backstopping support on the payment obligations of local issuing banks to their correspondent banks, targeting the import of fertilizers and pharmaceuticals.

“Currently, correspondent banks lack confidence to extend letters of credit to banks in Malawi due to the high-risk profile of local banks. The proposed facility will therefore provide correspondent banks with the assurance that the World Bank, standing behind the Reserve Bank of Malawi (RBM), will assume the payment obligations of the local issuing banks in the unlikely event that local banks default on their payment obligations for essential commodities,” reads part of the statement.

In his remarks, World Bank Country Manager for Malawi, Hugh Riddell, said 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.

Riddell added that the three-year project builds upon existing World Bank, International Finance Corporation (IFC), and Government of Malawi programs 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).