Malawi is paying a heavy price for failure to adhere to procurement and financial management procedures in donor-funded projects prompting some donors to either revise downwards, demand refunds or withhold their funding.
In the latest case the African Development Bank (AfDB) withdrew about K52.705 billion funding after revising the African Development Fund (ADF) 16 cycle for the period 2023 to 2025) that initially had a Performance-Based Allocation (PBA) of about K174.6 billion to about K121.895 billion.
The funding was meant to finance the rehabilitation and upgrading of Kapichira, Nkula and Wovwe hydro power stations and Eastern Backbone 132 kilovolts (kV) Power Transmission Line as well as the Southern Africa Development Community (Sadc) Sub-Regional Transport and Trade Facilitation Project Phase Two.
Information in the AfDB’s 2025 Country Portfolio Performance Review undertaken every two years shows that the revision followed weaker Country Policy and Institutional Assessment (CPIA) and Debt Sustainability Assessment (DSA) scores.
The report stressed that the reduction in funding directly influenced the scope of implementation of projects.
Reads the report in part: “The bank consequently revised the IOP [Indicative Operations Pipeline-IOP], concentrating resources on only two of the four initially prioritised sectors: agriculture [Shire Valley Transformation Programme II, 20.0 million unit of account [UA];
“Agricultural Productivity and CommercialiSation Programme, UA 10.01 million and Wash [Rumphi Water and Sanitation Services Improvement Project, UA 23 million”.
In the report, AfDB further raised red flags on some projects and demanded a refund on some of the closed operations which had outstanding special account balances that were unjustified totalling about K94 million.
The portfolio also recorded an aggregate disbursement rate of 32.31 percent and four operations were flagged for slow disbursement performance, according to the report.
The four were Nacala Road Corridor Development Phase V at 15.62 percent effective November 2019, Support for Digitisation, Financial Inclusion and Competitiveness at 14.83 percent effective February 2022.
Others are the Sadc Trade and Transport Facilitation Project at 0.29 percent effective December 2022 and Rumphi Water and Sanitation Services Improvement Project at 2.43 percent rolled out in December 2023.
Further reads the report: “Additionally, several closed operations had outstanding special account balances that were unjustified and were due for refund to the Bank. These included Jobs for Youth Malawi Project (UA 26,032.60), Sustainable Rural Water & Sanitation Infrastructure Project (UA 8,575.92).
“Following consistent Bank follow-up with the Government, some balances have been refunded, notably Catchment-Based Climate Resilient Water Security Project (UA 6,432.38),” it said, with all money to be refunded totalling K 94.37 million.”
In a general assessment, the bank said that despite Malawi being a grant-only under ADF-16, poor disbursement and high share of red-flagged projects highlights the need for urgent improvement plan implementation and stronger government ownership to improve results.
It also noted limited technical capacity in Project Implementation Units (PIUs) to navigate complex processes which has led to non-compliance with Bank procedures, resulting in poor contract management and delays in obtaining ‘No Objections’ from the Bank, which in turn contribute to implementation delays.
Yesterday, Economics Association of Malawi (Ecama) president Bertha Bangara-Chikadza said withholding funds or suspending disbursements indicates that Malawi is viewed as a risky partner on development financing and project implementation, forcing them to develop a cautious approach.
Said the University of Malawi senior economics lecturer: “These developments are likely to lead to reduced access to concessional financing, pushing the country towards more expensive options, such as domestic borrowing, and further constraining the fiscal space.
“Overtime, donors may begin to impose stricter conditions on Malawi, further constraining its access to development financing.”
In a separate interview, economist Milward Tobias said with about 80 percent of the development budget financed by donor resources, failure to utilise donor money denied the economy needed foreign exchange and needed development projects.
Mzuzu University economist Christopher Mbukwa said the situation compromises the future flow of development assistance to Malawi.
Centre for Social Transparency and Accountability executive director Willy Kambwandira said recurring failure to properly manage and absorb donor funds reflects a systemic breakdown in the country’s public financial management.
He said implications include reduced future allocations, reputational damage, stricter conditionalities and ultimate stalled infrastructure and social investments, and all this ends up punishing poor Malawians.
Ministry of Finance, Economic Planning and Decentralisation spokesperson Williams Banda yesterday admitted that there are inefficiencies in the management of donor funding and that some PIUs were summoned on the same.
However, he requested for more time to provide a comprehensive response.
Malawi has had challenges in absorbing World Bank money for Governance to Enable Service Delivery and K148.8 billion for the Transforming Agriculture through Diversification and Entrepreneurship funded by the International Fund for Agricultural Development and partners.
