Malawi, IMF sign a 3-year $157 million loan

The International Monetary Fund (IMF) and Malawi said on Wednesday they had agreed to a 3-year, $157 million package to support the southern African country’s troubled economy.

“We hope that this will encourage Malawi’s donors, who have already pledged that they will support the 2012/13 budget, to quickly release their funds and make the country’s international reserves sustainable,” IMF mission chief Tsidi Tsikata told a news conference.

Aid-dependent Malawi had been in a tail-spin for more than a year after its former president, Bingu wa Mutharika, picked fights with donors whose assistance traditionally accounted for 40 percent of the budget.

The aid cut coincided with steady decline in sales of Malawi’s biggest cash crop, tobacco.

Mutharika died in April of a heart attack and new President Joyce Banda has moved quickly to restore diplomatic ties and aid flows.

Under the new plan, the IMF will cancel a $79.4 million facility approved in 2010 that was suspended due to problems with Mutharika, who scoffed at the fund’s recommendations to devalue the kwacha currency, reform the finance sector and increase transparency.

Tsikata said the new extended credit facility should improve the balance of payments and restore donor confidence.

Mutharika, a self-proclaimed economist-in-chief, told donors Malawi did not need their cash, spent lavishly on pet projects and failed to address a foreign currency crisis that led to shortages of fuel and other vital commodities.

Banda’s government last month met one IMF requirement for a resumption of support when it scrapped the kwacha’s peg to the dollar, triggering a devaluation of more than a third.

Last week Britain, Malawi’s former colonial master and its largest donor, released $51 million in aid to support Banda. Britain and the United States froze aid packages worth nearly $1 billion over several years due to friction with Mutharika.