(Bloomberg) -- The International Monetary Fund signed off on a $178 million loan for Malawi to boost its foreign-exchange reserves, support the debt-ridden nation’s economic revival and catalyze grant financing, a week after the southern African nation devalued its currency.
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The 48-month extended credit facility “will support the authorities’ macroeconomic adjustment and reform agenda aimed at restoring macroeconomic stability,” the IMF said in a statement on Wednesday.
Landlocked Malawi is recovering from a series of shocks including its worst-ever outbreak of cholera, a deadly cyclone, high inflation and a shortage of foreign currency caused by the rising cost of imports.
Read More: Dollar Shortage Spurs 44% Devaluation in Malawi’s Currency
Malawi is one of the world’s least-developed countries. It previously relied on donors to fund about 40% of its budget before they halted payments after a state corruption scandal dubbed “Cashgate” was exposed in 2013.
The country has also been seeking to restructure as much as $1 billion of external debt to qualify for funding from the IMF.
“Successful external debt restructuring is vital as there is no reasonable mix of adjustment and financing alone that can deliver macroeconomic stability,” IMF First Deputy Managing Director Gita Gopinath said in the statement.
The facility will unlock direct budgetary support from other international partners after a 10-year hiatus due to graft, President Lazarus Chakwera said Wednesday night in a televised address. Malawi will have to make “painful adjustments” in spending to prioritize productive areas, he said.
“This has come at a painful cost of enacting reforms in the management of our economy, our financial institutions, and our historic debt,” Chakwera said. “I know that all of you are feeling the agony of the painful corrections we have had to make in order to give our economy a fresh start.”
Chakwera canceled his foreign travel plans to the end of the fiscal year and ordered members of his cabinet currently abroad on public-funded trips to return. The president also directed the finance minister in a mid-year budget review due tomorrow to make provisions to cushion small businesses and make “reasonable” wage increases for government workers.
“I have also directed him to review the Pay As You Earn income tax and incorporate a reduced percentage in the new budget he presents to parliament in a few months so that workers whose incomes have lost value in the devaluation are helped with a lower tax burden,” the president said.
(Updates with president’s comments from seventh paragraph)
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