The International Monetary Fund (IMF) has a new financing tool called the ‘Food Shock Window’ to address balance of payments needs linked to the global food crisis. Malawi, where hunger among the poor is common, is the first low-income country to open that window.
Under the “staff-level agreement”, in IMF-speak, Malawi will receive up to $88.3-million in emergency financing. Hunger periodically stalks the warm heart of Africa, especially at the start of the grain-planting season when most of the previous season’s crop has been consumed.
“This emergency financing under the new Food Shock Window will help Malawi address urgent balance of payments needs related to the global food crisis.
“Program Monitoring with Board involvement will support the government’s economic reforms to restore macroeconomic stability and provide the foundation for an inclusive recovery,” the Washington-based lender said in a statement.
Cutting through the buzz terms such as “inclusive recovery”, the bottom line is that impoverished Malawi is once again hungry, and soaring food and fertiliser prices, linked in part to Russia’s invasion of Ukraine, have exacerbated a situation that was probably grim in the first place.
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According to the World Bank, food inflation in Malawi hit 32.5% in July, largely because of surging prices for the staple maize. More than 80% of the population remains engaged in agriculture, mostly on a subsistence scale, depending on rainfall.
According to the Famine Early Warning Systems Network, much of central and southern Malawi is in the crisis phase of “acute food insecurity”. (See map here.) That is the third phase, which precedes an emergency scenario – and then famine.
“Official reserves continue to be very low, declining further from their gross position of 1.6 months of import cover at the start of the year.
“An acute lack of foreign currency is impeding businesses and is increasingly reflected in the shortage of imported goods, including essential medicines and petroleum products,” the World Bank said in a country update in early October.
That is the state of affairs that heralds a balance of payments crisis.
In the past, the IMF has often been associated with “shock therapy”, which entailed drastic budget cuts and austerity measures to see off balance of payments crises and also transition economies from the state to the private sector.
But in recent years, and especially in the wake of the pandemic, a kinder, gentler IMF has been emerging – although it remains to be seen what “economic reforms” will be implemented to “restore economic stability”.
“About 50 countries are particularly vulnerable to the food and fertiliser price shock, most of which also suffer from acute food insecurity, according to IMF staff estimates,” the IMF says.
So, Malawi looks set to be the first of many countries to open the Food Shock Window.