VenturesNow

IMF says Malawi needs almost $1 billion debt relief by 2027

Published

6 months ago

November 23, 2023

Multilateral body, the International Monetary Fund (IMF) has said that Malawi needs almost $1 billion in debt relief from its creditors by 2027.

The announcement comes as the country battles severe medicine, fuel, and fertiliser shortages due to chronic foreign currency shortages. According to an IMF report, the landlocked nation requires $887 million in debt relief from its commercial creditors between 2023 and 2027 and $99 million from its bilateral creditors.

Malawi has a $1.6 billion financing gap between 2023 and 2027—that is, the difference between export revenues and the cost of imports and servicing external debt. The majority of that gap is expected to be covered by debt restructuring, with the remaining portion coming from grants, concessional loans, and the IMF loan.

Last week, the IMF Executive Board gave Malawi a $178 million, four-year loan. One of the main conditions for the IMF board to approve the loan was to obtain a commitment from bilateral creditors, China and India to restructure their share of the country’s external debt, which stood at $4 billion at the end of 2022.

$222 million of Malawi’s debt is owed to the Chinese Export-Import Bank, and $114 to Exim India. As at the end of 2022, Malawi owed $495 million to the African Export-Import Bank (Afreximbank) and $395 million to the Trade & Development Bank, its two principal commercial creditors.

Malawi is currently experiencing severe shortages of vital imports like fuel, medicines, and fertilisers due to forex shortages. 58.8% of the country’s population currently lives in extreme poverty.

Malawian President, Lazarus Chakwera announced a reduction in governance costs, overall prudence in public expenditure, and the suspension of foreign trips for himself and cabinet members. He has also reduced the fuel allowances of senior government officials by 50% due to inflation. He plans to increase the salaries of civil servants to ease the cost of living.

VenturesNow

IMF, DR Congo agree on final review of loan deal

Published

13 hours ago

May 9, 2024

Ifeoluwa Dada

The International Monetary Fund (IMF) says it has achieved a staff-level agreement with the Democratic Republic of Congo (DRC) over the final assessment of a $1.5 billion loan program.

The fund however emphasized the importance of the DRC effectively handling the funds obtained from a modified mining agreement. This brings Congo closer to successfully fulfilling an IMF program for the first time. Prior agreements have been disrupted due to concerns regarding the absence of openness and clarity in its extensive mining industry.

“Performance under the (three-year) program has been generally positive, with most quantitative objectives met and key reforms implemented, albeit at a slow pace,” the Fund said in a statement.

Upon receiving approval from the IMF board, the accord will enable the release of a final instalment of approximately $200 million. The IMF has highlighted the need for the world’s leading cobalt provider, which is also the third-largest copper producer, to include the beneficial effects of the recently modified Sicomines joint venture with Chinese businesses in its updated budget law for 2024.

“In addition, mechanisms will need to be put in place or reinforced to ensure the proper use and governance of these funds,” the Fund said.
President Felix Tshisekedi advocated for revising the 2008 infrastructure agreement with Sinohydro Corp and China Railway Group, aiming to enhance the advantages for Congo. A contract was executed in March.

“The IMF is concerned about the mechanisms for using this money and has asked for it to be paid into the public treasury accounts rather than being managed by an agency as has been done in the past,” a finance ministry official, who requested anonymity, told Reuters.

As part of the IMF program, Congo was required to disclose mining contracts. Last week, Congo finally revealed the updated terms of the Sicomines agreement, which state that the Chinese side will invest approximately $7 billion in infrastructure, contingent upon high copper prices.

According to a 2023 report by Congo’s national auditor, just $822 million out of the projected $3 billion for infrastructure investments was distributed under the earlier version of the agreement.

The amended agreement still contains provisions that Congolese and international civil society organizations perceive as unfavourable to Congo. One of the benefits that Sicomines enjoys is the exemption from tax payments until the year 2040.

VenturesNow

Nigerian govt proposes VAT increase, new sharing formula

Published

20 hours ago

May 9, 2024

Ifeoluwa Dada

Nigeria’s presidential committee on fiscal policy and tax has argued for the necessity of raising the value-added tax (VAT) rate.

Taiwo Oyedele, the chairman of the committee, revealed during the policy exposure and impact assessment session that the VAT revenue-sharing formula will be reassessed.

Oyedele stated that the committee has suggested increasing the allocation of VAT money to state and local governments from the existing 85% to 90%. As to section 40 of the VAT Act, the federal government receives 15% of the tax revenue, while states receive 50% and local governments receive the remaining 35%.

According to him, the suggested new sharing arrangement implies that the committee is suggesting a decrease in the federal government’s portion from 15% to 10%.

“We are proposing that the federal government’s portion should be reduced from 15% to 10%. States’ portion will be increased but they would share 90% with local governments,” he said.

He explained that the new sharing formula for VAT is in favour of the lower tier of government because it is a tax generated at the state level.

“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.

The tax expert added that the burden of VAT should be on the ultimate consumer.

“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing,” Oyedele said.

He stated: “Nigeria’s economy is more than 50% in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50% and it won’t even fly.

“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services and accommodation will carry zero percent VAT. So for the poor and small businesses, no VAT.”

Oyedele said other consumers will pay a bit more.

“We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector,” he explained.

Oyedele also said each state should not be granted exclusive custodianship of their collections– because it would likely result in chaos.

The Nigerian government has been undertaking comprehensive reforms of the nation’s monetary and fiscal policies since the inception of the Bola Tinubu administration. As a consequence, the central bank and the tax advisory council led by Oyedele have implemented audacious new policies.