On November 21, 2022, the IMF Executive Board approved $88.3 million in emergency financing for Malawi under the Rapid Credit Facility’s Food Shock Window — a newly created instrument designed to help low-income countries respond to food security crises triggered by external shocks.

The approval came six months after Malawi’s 25% Kwacha devaluation and marked the beginning of a formal IMF engagement that would eventually lead to the Extended Credit Facility program approved in November 2023.

Why the emergency financing was needed

By mid-2022, Malawi’s economic situation had reached a critical point:

Foreign exchange reserves had fallen to critical levels. The Reserve Bank was running below two weeks of import cover — far below the three-month minimum typically required for macroeconomic stability. ESCOM was unable to import fuel for its diesel generators. Importers were waiting months for foreign exchange from commercial banks.

Fiscal deficit was unsustainable. The fiscal deficit for FY2021/22 had reached nearly 10% of GDP — largely financed through domestic bank borrowing. This had driven rapid money supply growth and pushed inflation to 25.9% by September 2022.

Food insecurity was severe. Multiple tropical storms in early 2022, combined with input cost inflation driven by the Ukraine war, had reduced crop production significantly. About 20% of the population was projected to be acutely food insecure during the 2022/23 lean season.

The Reserve Bank had also been using foreign exchange swap arrangements and trade credit to manage the official exchange rate — practices the IMF identified as creating distortions in the forex market that needed to be unwound.

What the program committed Malawi to

The $88.3 million disbursement was conditional on Malawi entering a Staff-Monitored Program with Executive Board Involvement (SMF-EBI) — a pre-program arrangement that requires quarterly IMF reviews. Commitments included:

  • Rebuilding official foreign exchange reserves
  • Winding down swap arrangements and trade credit use
  • Fiscal adjustment to reduce the deficit
  • A strategy for moving toward a market-determined exchange rate
  • Structural reforms in public financial management

There was also a significant complication: the IMF board simultaneously reviewed a misreporting issue — Malawi had incorrectly disclosed data on its gross international reserves in earlier IMF reviews. The board found that Malawi had taken remedial steps and approved the financing despite this, but it was a reputational issue that shaped the conditions of the subsequent ECF negotiations.

What it meant for investors at the time

The IMF engagement was, in net terms, positive for investor confidence. It signalled:

  • External validation that the policy direction was correctable
  • Access to concessional financing that would reduce pressure on foreign exchange markets
  • A structured reform program that donors and development partners would support

Companies that had been waiting for forex to arrive at commercial banks saw some improvement in the months following the RCF approval, though the fundamental supply-demand imbalance in the forex market persisted until the November 2023 devaluation.

For new investors evaluating Malawi at the time, the IMF program was an important signal: it meant the government had external accountability partners and was operating within a reform framework, reducing — though not eliminating — the risk of abrupt policy reversal.

The road to the ECF

The November 2022 RCF was the first step in a three-stage process. The SMF-EBI ran through 2023, with two review missions. The November 2023 devaluation was the key structural adjustment that unlocked the full ECF arrangement — a $174 million, four-year program that provided Malawi with a more stable macroeconomic anchor from late 2023 onward.

Sources: IMF Executive Board Press Release PR22/404, IMF Staff Report November 2022, IMF Press Release PR22/361.