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the Board of Directors of the African Development Fund (ADF), the concessional window of the African Development Bank (AfDB) Group, approved on Wednesday in Tunis a budget support grant of 26 million Units of Account, or approximately USD40 million, to assist the government of Malawi in cushioning vulnerable groups from the short-term negative impacts of recent economic reforms, and to continue the implementation of public finance management reform measures.
The Restoration of Fiscal Stability and Social Protection (RFSSP) budget support programme will contribute to restoring macroeconomic stability and enhancing public finance management in Malawi, as well as support social protection measures to mitigate the short-term impacts of the devaluation of the Malawi kwacha.
The Malawian government has undertaken bold measures to boost the economy, including devaluingthe kwacha by 49 percent and adoptinga floating exchange rate regime in May 2012. The new government has also implemented other reforms to restore fiscal and macroeconomic stability, and promote good governance. These measures include i) increased independence of the Reserve Bank of Malawi in monetary policy operations and decisions; ii) amending laws that impinged on civic, political and media freedoms and human rights; and iii) normalizing relations with other countries and development partners.
The reforms introduced by the new government, particularlydevaluation, were followed by upward price adjustments of 30 percentin the retail prices of petroleum products, a 63 percent increase in electricity tariffs, which have eroded the purchasing power of consumers and magnified social hardships among the population. The RFSSP is the AfDB’s response to the Malawian government’s request for support from development partners to help mitigate some of the impact of these difficult but necessary actions, especially to maintain core public expenditures (particularly in the social sectors) and provide space for additional social safety net spending for the poor and vulnerable groups. The RFSSP will thus contribute significantly towards boosting the government’s momentum for implementing on-going initiatives to sustain its economic and social reform agenda.