OFFICIAL GRANT NUMBER H849-MW Financing Agreement (Economic Recovery Development Policy Financing) between REPUBLIC OF MALAWI and INTERNATIONAL DEVELOPMENT ASSOCIATION Dated JLtO ,2013 GRANT NUMBER H849-MW FINANCING AGREEMENT AGREEMENT dated 3LAGE , 2013, entered into between REPUBLIC OF MALAWI ("Recipient") and INTERNATIONAL DEVELOPMENT ASSOCIATION ("Association") for the purpose of providing financing in support of the Program (as defined in the Appendix to this Agreement). The Association has decided to provide this financing on the basis, inter alia, of (a) the actions which the Recipient has already taken under the Program and which are described in Section I of the Schedule to this Agreement, and (b) the Recipient's maintenance of an adequate macroeconomic policy framework. The Recipient and the Association therefore hereby agree as follows: ARTICLE I - GENERAL CONDITIONS; DEFINITIONS 1.01. The General Conditions (as defined in the Appendix to this Agreement) constitute an integral part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE H - FINANCING 2.01. The Association agrees to extend to the Recipient, on the terms and conditions set forth or referred to in this Agreement, a grant in an amount equivalent to thirty-three million four hundred thousand Special Drawing Rights (SDR 33,400,000) ("Financing"). 2.02. The Recipient may withdraw the proceeds of the Financing in support of the Program in accordance with Section II of the Schedule to this Agreement. 2.03. The Maximum Commitment Charge Rate payable by the Recipient on the Unwithdrawn Financing Balance shall be one-half of one percent (1/2 of 1%) per annum. 2.04. The Payment Dates are May I and November I in each year. 2.05. The Payment Currency is Dollar. -3- ARTICLE VI - REPRESENTATIVE; ADDRESSES 6.01. The Recipient's Representative is its minister at the time responsible for finance. 6.02. The Recipient's Address is: Ministry of Finance P. O. Box 30049 Capital City Lilongwe 3 Malawi Facsimile: 265-1-78-91-73 6.03. The Association's Address is: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: Facsimile: INDEVAS 248423(MCI) 1-202-477-6391 Washington, D.C. -2- ARTICLE M - PROGRAM 3.01. The Recipient declares its commitment to the Program and its implementation. To this end: (a) the Recipient and the Association shall from time to time, at the request of either party, exchange views on the Recipient's macroeconomic policy framework and the progress achieved in carrying out the Program; (b) prior to each such exchange of views, the Recipient shall furnish to the Association for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request; and (c) without limitation upon the provisions of paragraphs (a) and (b) of this Section, the Recipient shall promptly inform the Association of any situation that would have the effect of materially reversing the objectives of the Program or any action taken under the Program including any action specified in Section I of Schedule I to this Agreement. ARTICLE IV - REMEDIES OF THE ASSOCIATION 4.01. The Additional Event of Suspension consists of the following, namely, that a situation has arisen which shall make it improbable that the Program, or a significant part of it, will be carried out. ARTICLE V - EFFECTIVENESS; TERMINATION 5.01. The Additional Condition of Effectiveness consists of the following, namely, that the Association is satisfied with the progress achieved by the Recipient in carrying out the Program and with the adequacy of the Recipient's macroeconomic policy framework. 5.02. The Effectiveness Deadline is the date ninety (90) days after the date of this Agreement. -4- AGREED at DOC__pe_, _ _ _ _ _, as of the day, month and year first above written. REPUBLIC OF MALAWI By Authorized Representative Name: Auv' - % C* Title:_________ INTERNATIONAL DEVELOPMENT ASSOCIATION By Authorized Representative Name: vY 0 QO vkw on Title: C u0 VAC -5- SCHEDULE Program Actions; Availability of Financing Proceeds Section I. Actions under the Program The actions taken by the Recipient under the Program include the following: A. Strengthening Macroeconomic and Finance Management (1) The Recipient, through its ministry responsible for finance, has validated its outstanding payment arrears and has developed a plan for the full clearance of said arrears. (2) The Recipient, through its ministry responsible for finance, has approved a detailed budget formulation calendar. (3) The Recipient, through its ministry responsible for finance, has submitted Treasury Minutes, for the 2006/2007 fiscal year to the Recipient's Parliament. (4) The Recipient, through its ministry responsible for agriculture and food security, has revised the bidding documents for the annual procurement of fertilizer under the Farm Input Subsidy Program to align the allocation of tonnage demand with unit price ranking for the purpose of increasing the Recipient's value-for-money. B. Laying the Foundations for Stronger Growth and Protection of the Poor (5) The Recipient, through the Malawi Energy Regulatory Authority, has undertaken monthly reviews of the Automatic Tariff Adjustment Formula for electricity covering the period Mayl, 2012 to November 30, 2012. (6) The Recipient has approved the National Social Support Program. Section HI. Availability of Financing Proceeds A. General. The Recipient may withdraw the proceeds of the Financing in accordance with the provisions of this Section and such additional instructions as the Association may specify by notice to the Recipient. -6- B. Allocation of Financing Amounts. The Financing is allocated in a single withdrawal tranche, from which the Recipient may make withdrawals of the Financing. The allocation of the amounts of the Financing to this end is set out in the table below: Allocations Amount of the Financing Allocated (expressed in SDR) Single Withdrawal Tranche 33,400,000 TOTAL AMOUNT 33,400,000 C. Withdrawal Tranche Release Conditions. No withdrawal shall be made of the Single Withdrawal Tranche unless the Association is satisfied (a) with the Program being carried out by the Recipient, and (b) with the adequacy of the Recipient's macroeconomic policy framework. D. Deposits of Financing Amounts. Except as the Association may otherwise agree: 1. all withdrawals from the Financing Account shall be deposited by the Association into an account designated by the Recipient and acceptable to the Association; and 2. the Recipient shall ensure that upon each deposit of an amount of the Financing into this account, an equivalent amount is accounted for in the Recipient's budget management system, in a manner acceptable to the Association. E. Audit. Upon the Association's request, the Recipient shall: 1. have the Deposit Account audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association; 2. furnish to the Association as soon as available, but in any case not later than six (6) months after the date of the Association's request for such audit, a certified copy of the report of such audit, of such scope and in such detail as the Association shall reasonably request; and 3. furnish to the Association such other information concerning the Deposit Account and its audit as the Association shall reasonably request. F. Ecue xedtrs h -7- Excluded Expenditures. The Recipient undertakes that the proceeds of the Financing shall not be used to finance Excluded Expenditures. If the Association determines at any time that an amount of the Financing was used to make a payment for an Excluded Expenditure, the Recipient shall, promptly upon notice from the Association, refund an amount equal to the amount of such payment to the Association. Amounts refunded to the Association upon such request shall be cancelled. G. Closing Date. The Closing Date is December 31, 2013. -8- APPENDIX Section I. Definitions 1 "Automatic Tariff Adjustment Formula" means the Recipient's pricing mechanism that tracks and incorporates movements in key determinant uncontrollable variables to reflect the actual cost of electricity generation, transmission and distribution. 2. "Excluded Expenditure" means any expenditure: (a) for goods or services supplied under a contract which any national or international financing institution or agency other than the Association or the Bank has financed or agreed to finance, or which the Association or the Bank has financed or agreed to finance under another credit, grant or loan; (b) for goods included in the following groups or sub-groups of the Standard International Trade Classification, Revision 3 (SITC, Rev.3), published by the United Nations in Statistical Papers, Series M, No. 34/Rev.3 (1986) (the SITC), or any successor groups or subgroups under future revisions to the SITC, as designated by the Association by notice to the Recipient: Group Sub-group Description of Item 112 Alcoholic beverages 121 Tobacco, un- manufactured, tobacco refuse 122 Tobacco, manufactured (whether or not containing tobacco substitutes) 525 Radioactive and associated materials 667 Pearls, precious and semiprecious stones, unworked or worked 718 718.7 Nuclear reactors, and parts thereof; fuel elements (cartridges), non- irradiated, for nuclear reactors 728 728.43 Tobacco processing machinery -9- 897 897.3 Jewelry of gold, silver or platinum group metals (except watches and watch cases) and goldsmiths' or silversmiths' wares (including set gems) 971 Gold, non-monetary (excluding gold ores and concentrates) (c) for goods intended for a military or paramilitary purpose or for luxury consumption; (d) for environmentally hazardous goods, the manufacture, use or import of which is prohibited under the laws of the Recipient or international agreements to which the Recipient is a party; (e) on account of any payment prohibited by a decision of the United Nations Security Council taken under Chapter VII of the Charter of the United Nations; and (f) with respect to which the Association determines that corrupt, fraudulent, collusive or coercive practices were engaged in by representatives of the Recipient or other recipient of the Financing proceeds, without the Recipient (or other such recipient) having taken timely and appropriate action satisfactory to the Association to address such practices when they occur. 3. "Farm Input Subsidy Program" or "FISP" means the Recipient's program designed to subsidize the cost of agricultural inputs to small holder farmers. 4. "General Conditions" means the "International Development Association General Conditions for Credits and Grants", dated July 31, 2010 with the modifications set forth in Section II of this Appendix. 5. "Malawi Energy Regulatory Authority" means the Recipient's regulatory entity established under the Energy Regulation Act, CAP 73:02 of the Laws of Malawi. 6. "National Social Support Program" means the Recipient's program for coordinating social safety nets interventions. -10- 7. "Program" means the program of actions, objectives and policies designed to promote growth and achieve sustainable reductions in poverty and set forth or referred to in the letter dated April 11, 2013 from the Recipient to the Association declaring the Recipient's commitment to the execution of the Program, and requesting assistance from the Association in support of the Program during its execution. 8. "Single Withdrawal Tranche" means the amount of the Financing allocated to the category entitled "Single Withdrawal Tranche" in the table set forth in Part B of Section II of Schedule 1 to this Agreement. 9. "Treasury Minutes" means the Recipient's report to its Parliament on progress in implementing the Parliament's recommendations arising out of its review of the Recipient's annual consolidated financial accounts audit. Section H. Modifications to the General Conditions The modifications to the General Conditions are as follows: 1. The last sentence of paragraph (a) of Section 2.03 (relating to Applications for Withdrawal) is deleted in its entirety. 2. Sections 2.04 (Designated Accounts) and 2.05 (Eligible Expenditures) are deleted in their entirety, and the remaining Sections in Article II are renumbered accordingly. 3. Sections 4.01 (Project Execution Generally), and 4.09 (Financial Management; Financial Statements; Audits) are deleted in their entirety, and the remaining Sections in Article IV are renumbered accordingly. 4. Paragraph (a) of Section 4.05 (renumbered as such pursuant to paragraph 3 above and relating to Use of Goods, Works and Services) is deleted in its entirety. 5. Paragraph (c) of Section 4.06 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: "Section 4.06. Plans; Documents; Records (c) The Recipient shall retain all records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures under the Financing until two years after the Closing Date. The Recipient shall enable the Association's representatives to examine such records." - 11 - 6. Section 4.07 (renumbered as such pursuant to paragraph 3 above) is modified to read as follows: "Section 4.07. Program Monitoring and Evaluation (c) The Recipient shall prepare, or cause to be prepared, and furnish to the Association not later than six months after the Closing Date, a report of such scope and in such detail as the Association shall reasonably request, on the execution of the Program, the performance by the Recipient and the Association of their respective obligations under the Legal Agreements and the accomplishment of the purposes of the Financing." 7. The following terms and definitions set forth in the Appendix are modified or deleted as follows, and the following new terms and definitions are added in alphabetical order to the Appendix as follows, with the terms being renumbered accordingly: Jt (a) The definition of the term "Eligible Expenditure" is modified to read as follows: "'Eligible Expenditure' means any use to which the Financing is put in support of the Program, other than to finance expenditures excluded pursuant to the Financing Agreement." (b) The term "Financial Statements" and its definition as set forth in the Appendix are deleted in their entirety. (c) The term "Project" is modified to read "Program" and its definition is modified to read as follows: "'Program' means the program referred to in the Financing Agreement in support of which the Financing is made." All references to "Project" throughout these General Conditions are deemed to be references to "Program".