Bank plans to provide urgent drought recovery credit

The World Bank was planning to provide US $50 million for Malawi in emergency drought recovery credit primarily, to enable the government to maintain commitments to key economic priorities while averting a famine, IRIN has learnt Over three million people in Malawi face serious food shortages through a combination of floods, a drought and the controversial sale of the government's strategic grain reserves. "The Malawi government declared a disaster in February [following a poor harvest] and asked the World Bank if we could assist," World Bank country director Dunstan Wai told IRIN on Tuesday. The World Bank said the cost of the crop failure to the economy was between US $150 million and US $180 million. Wai said that following input from the government and NGOs on the appropriate response, the bank decided on a US $50 million credit for the country. Stanley Hiwa, senior agricultural economist at the bank, said that US $40 million would be used to support the financing of vital imports like pharmaceuticals, fuel and spare parts. A second component of US $8 million would be for "safety net" public works programmes which would provide employment in rural areas and give people additional purchasing power to buy food. The remaining US $2 million would be for technical assistance and drought mitigation. "When the World Bank was designing the operation we found that the government was using foreign exchange to finance food purchases and other important priorities were going unfunded," Hiwa said. "The government might have had to borrow [currency] on the local market and this would have caused further distress for the fragile economy. It would have raised interest rates and inflation and we wanted to avoid it developing into such an extreme case." Wai said: "The government of Malawi responded promptly to the crisis ... and the bank's intervention is part of the response by the development community." Of the US $50 million, US $29 million would be emergency credit that Malawi would have to repay, the remaining US $21 million would be an International Development Assistance grant which Malawi would not have to repay. A monitoring mechanism would be in place throughout the project. The money would not be spent on relief food as this was already adequately covered by relief agencies and the government, a World Bank statement said. The announcement comes shortly after a pledge from the International Monetary Fund (IMF) in September to approve a US $23 million emergency credit to the country to finance food imports to help ease the severe food shortages. The IMF will be holding discussions with government and NGOs in Malawi over the next two weeks as part of its periodic reviews. IMF Malawi head Girma Begashaw said: "We have just started the meetings today [Tuesday] - we met civil society groups, the minister of finance and the central bank - the purpose of which is to review the economy. I will be able to tell you more in about 10 days." In May the IMF said it would withhold US $47 million earmarked for Malawi under its Poverty Reduction Growth Facility, due to government overspending. If the government stuck to its economic targets, a decision would be made to release the funds in December. Britain said it would also consider releasing funds it was holding after studying the IMF report. The World Bank was expected to formally announce the project late on Tuesday. More details