Donors embrace Malawi’s reforms

Donors on Tuesday embraced the Joyce Banda administration’s new economic agenda, declaring their intent to release budgetary support within weeks while a new IMF programme is being packaged.

The donors, meeting under the Common Approach to Budget Support (Cabs) group, started their bi-annual review meeting in Lilongwe with the new government that has shown commitment to meet the partners’ demands of good economic and political governance unlike the previous late Bingu wa Mutharika administration.

Clean up bad laws

But even as the donors dangled the aid carrots with one hand, they also brandished sticks, telling government to move swiftly to clean up the country’s bad laws.

The offending laws include those that erode individual freedoms such as the Injunctions Bill, those that trample on media freedom such as Section 46 of the Penal Code and laws bordering on minority rights.

Investigate MRA scam

The donors have also demanded that government investigate the K4 billion (about $16 million) scam and allegations that the Malawi Revenue Authority (MRA) borrowed from commercial banks to embellish their revenue collection prowess in an effort to show that the zero-deficit budget is working.

Andrew Mwaba, co-chair of the grouping and African Development Bank (AfDB) resident representative for Malawi, commended Lilongwe for actions already taken which he said demonstrate strong intentions and commitment to address democratic governance concerns.

Said Mwaba: “However, we would like [to emphasise] the need to review as soon as possible those laws relating to media freedoms, minority rights and injunctions.”

On the K4 billion scam, the local AfDB chief said since connivance might have taken place in defrauding government, Cabs hoped the Anti-Corruption Bureau (ACB), the Malawi Police Service and the Financial Intelligence Unit will professionally and expeditiously do their work and bring to book those alleged to have been involved.

In response, a now confident Finance Minister Dr Ken Lipenga, who charmed the donors when he said he is now working in a new administration which is allowing him to do his job properly, said work is in progress to address the concerns about the bad laws and the other issues.

On the K4 billion MRA scam, Lipenga said: “We are still investigating what really happened, but there is some truth that some money could have been borrowed. But we don’t want to conclude that yet until we have all the facts.”

Donors ready to help

The donors, led by the IMF, appear determined to help Malawi to pull from the brink.

Thus, to facilitate the release of aid before a formal programme is in place—which is an unusual step given the institution’s bureaucratic culture—the IMF will issue a letter of comfort to donors that will enable balance of payment (BoP) support to flow before a formal approval from the fund’s board.

The IMF is also fast-tracking a new programme to replace the three-year Extended Credit Facility (ECF), frozen last year over exchange rate reforms. The ECF expired in February this year.

He said Capital Hill needs the money within weeks, but could not give the exact figure.

“Our initial estimates were that we needed between $300 million and $500 million to allow us to devalue and have a certain critical mass of reserves, but those figures have been reviewed and may go up or down,” he said.

Malawi’s current reserve position is at one-month import cover—far less than the World Bank recommended minimum of three months—raising concerns that the 49 percent devaluation of the kwacha may hurt companies and the poor masses.

Mwaba confirmed the IMF positive signal.

He said: “The IMF letter of comfort will allow us to intervene immediately and so far the [AfDB] and the World Bank have indicated that we will expedite the release of funds.”

The World Bank last month announced that it would collaborate with the IMF mission on a rapid response operation, provide technical assistance to the critical 2012/13 budget process and start preparing additional financing through its community-focused projects, including Masaf under the Local Development Fund (LDF) as well as the  Irrigation, Rural Livelihoods and Development (IRLAD).

These are two of the largest programmes that can deliver social protection assistance to both rural and urban poor in the country.

The AfDB also announced an injection of $45 million.