Malawi risks losing economic gains—AfDB

The African Development Bank (AfDB) has warned that Malawi risks losing recent economic gains it recently accrued on account of weak public financial management, a likely slippage in fiscal discipline.

The Tunis-based bank has since recommended Malawi to maintain fiscal restraint and minimise waste in public spending by reinforcing the public financial management system.

“While confidence in the economy is growing, there are significant risks ahead. These include the risk of a slippage in fiscal discipline ahead of the elections, reversal in some of the gains that the current administration has achieved in governance,” says AfDB in its latest Southern Africa quarterly overview and analysis which Business News has seen.

The caution comes amid revelations of massive theft of billions of public funds at Capital Hill, which has seen about $150 million of donor money, through budget support, being withheld by the country’s donors sitting under Common Approach to Budgetary Support (Cabs).

The International Monetary Fund (IMF) has also withheld $20 million under its Extended Credit Facility (ECF) citing the same concerns.

According to AfDB, the current weak public financial management and the perception of an increase in corruption may heighten investor risk and increase pressure on the exchange rate.

It says AfDB, together with and other development partners have intensified dialogue with the government on governance issues in the light of recent lapses in public financial management.

“Going forward, it is recommended that the government maintains fiscal restraint and minimises waste in public spending by reinforcing the public financial management system and strengthening accountability and oversight,” says the bank.

AfDB also explains that due to the heightened risk of inflation and pressure on the exchange rate during the lean season, continued monetary policy tightening is recommended.

According to the AfDB report, although the economy is on the road to recovery and inflation is on a downward trajectory, the macro framework remains highly vulnerable to shocks.

On this, the bank has urged government to redouble efforts to diversify the economy, attract more Foreign Direct Investment (FDI) inflow and transform the agricultural sector in order to enhance food security and build resilience against weather-related shocks.

“Malawi needs to intensify its domestic resource mobilisation efforts in order to reduce its dependency on aid,” it says.

Ministry of Finance Spokesperson Nations Msowoya could not be drawn into commenting as he did not pick-up his mobile phone.

But Reserve Bank Governor Charles Chuka said in Lilongwe when he appeared before the Public Accounts Committee (PAC) of Parliament that the prevailing cashgate revelations have in a way dented the image of Malawi on the international seen and warned that the cost of the scandal could be too heavy and not be fully accounted.

Said Chuka: “The cost to the nation is bigger, much, much bigger. Therefore, as I look forward to the next few months, the cost that we are going to incur, will never be fully accounted for.

“Had it not been for the donors pulling out, I could have been standing here to assure this committee that this country is on track, and that by next year, we should have low interest rates, low inflation rate and stable exchange rate,” he said.