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EU moves on budget aid

The European Union (EU) has deployed a team of experts to assess progress in Malawi’s implementation of public finance management reforms, a move that could unlock direct budgetary support suspended in 2013.

During an interaction with journalists belonging to Blantyre Press Club on Monday, EU Ambassador Rune Skinnebach expressed hope the union would resume direct budgetary support to Malawi due to progress made in financial management and the fight against corruption.

Skinnebach: They will analyse

He said: “I have good news because since this weekend we have a mission in Malawi to assess the eligibility for budget support modalities to be applied in Malawi by the EU.

“We had budget support in the past, but after Cashgatewe abandoned it like many other countries. However, there has been some progress on the part of Malawi since 2012/2013. This is why we have this expert mission from Brussels.

“But, unlike the IMF [International Monetary Fund] mission, this team will not come up with its huge declaration when it is leaving. They will take notes of everything they learned here and then they will go back and analyse and present to the hierarchy and then write a review in the form of an opinion.”

EU and other donors under what was called the Common Approach to Budget Support such as the World Bank and the United Kingdom stopped providing direct budgetary support to Malawi in September 2013 following revelations of Cashgate, the plunder of public resources at Capital Hill through inflated invoices, payment for goods and services not rendered or delivered and fraud.

Gwengwe: Budget aid frees up fiscal space

The development left Malawi with a 40 percent hole in the recurrent budget and about 80 percent in the development budget as the donors opted to channel resources in form of off-budget support through international non-governmental organisations.

The EU’s sentiments come barely two weeks after IMF approved the $88.372 million (about K91 billion) Rapid Credit Facility (RCF) for Malawi under the Food Shock Window to help the government address urgent balance of payment needs related to the global food crisis.

Reacting to the news, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said the EU’s move to resume direct budgetary support would help to stabilise the country’s balance of payment (BoP) and the budget in general.

“The development budget needs more support from elsewhere. In the case of the EU, it is a budgetary injection which is in foreign currency, this can help to stabilise our BoP and the budget. It is therefore a very good thing,” he said.

Tchereni expressed hope that Malawi would qualify, adding that the move by the EU is a symbol of confidence in the steps undertaken by the government.

Minister of Finance and Economic Affairs Sosten Gwengwe said in a separate interview, he was hopeful the assessment will come out positive.

“Budget support frees up fiscal space, which allows use of scarce resources to other developmental projects. We are concentrating on the Education and Public Finance Management sectors,” he said.

During the interaction, Skinnebach also expressed worry over the misalignment of about 40 percent between the value of the kwacha in authorised dealer banks and the parallel market and urged authorities to address the problem.

But on devaluation of the kwacha, the EU Ambassador explained that the measure does not work in countries such as Malawi because they have few commodities to export. He said devaluation aims at encouraging exports.

Skinnebach said: “The last devaluation in May this year did not solve the problem, but increased inflationary pressure thereby increasing the hardships of many Malawians.

“Malawians should brace themselves. We are here to help, but the structural deficit of the budget of the past 10 years is a sign that Malawi has been living beyond its means and to correct this, it means less of everything to everybody.”

The EU has also a financial envelope for the period 2021 to 2024, amounting to 352 million euros targeting three focal sectors of green resilient growth, human development and economic and democratic governance.

Skinnebach further hailed Malawi for voting in favour of the United Nations General Assembly’s resolution against Russia’s invasion of Ukraine, saying that shows a cordial relationship between Malawi and the EU.

Since the donor flight, Malawi has relied on high and unsustainable borrowing to finance its ballooning fiscal deficit amid dwindling domestic revenues that are too low to meet its planned expendire.

Domest ic revenue collection has also suffered largely due to the economic impact of the Covid-19 pandemic that slowed down economic activity as industries scaled down production on the back of travel restrictions and supply chain disruptions.

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