Malawi donor reliance to put budget in jeopardy

The Economics Association of Malawi (Ecama) has said the current huge reliance on donor aid puts this year’s implementation of the financial plan in serious jeopardy.

The 2013/14 proposed budget puts donor grants at 40 percent of the total domestic revenue plus grants, up from 31.5 percent in the initial 2012/13 budget which was, however, revised to 39.6 percent in midterm budget review.

Speaking in a telephone interview on Tuesday, Ecama executive director Nelson Mkandawire said Malawi needed to wake up and inculcate self- reliance especially that some of the donors have cautioned the country against donor aid.

“The reliance puts the budget in jeopardy especially that about 80 percent of the development budget is being provided by donors. The donors can withhold their support depending on their opinion on the country’s fulfilment of governance, human rights and transparency among others. We had our lessons in the Bingu wa Mutharika regime when donors withheld aid. We should find ways of increasing local revenue through industrial and export growth. We should be seriously looking at the implementation of the National Export Strategy (NES).

“We can manoeuvre in the budget by among other things, reducing on the Farm Input Subsidy Programme (Fisp) which this year is pegged at about K60 billion (about $150m) by, among other things, raising the price of fertilisers,” said Mkandawire.

However, Malawi Ministry of Finance spokesperson Nations Msowoya in a telephone interview on Tuesdayagreed with Ecama on the risk of donor reliance but was quick to point out that the risk is minimal.

“There is a risk but it is minimal because most of the donor aid is for projects and not direct budget support. Of course we have had instances where we have had disruptions in donor flows due to human rights,” said Msowoya.

Last year in September, British High Commissioner Michael Nevin cautioned Malawi against donor dependence and encouraged the country to wean itself from the same because budget support alone is not a solution to the country’s economic problems.

However, in this year’s Budget Statement the country projects total revenues and grants at K603.4 billion (about $1.5bn). The domestic revenues are at K363.1 billion, representing 60 percent of total revenue and grants, while K240.3 billion are donor grants, representing 40 percent.

The Budget Statement notes that grants are expected to increase by 36 percent from K177. 4 billion estimated for 2012/13 financial year to K240.3 billion.

Overall, grants underperformed by K2.2 billion at the end of the financial year. And, in 2012/13 fiscal year grants underperformed by an overall K5.1 billion.