Two of Malawi's major donors the European Union and USAID have cancelled their commitment to disburse resources amounting to K 1.5 billion ($242 million) in the 2001/2002 fiscal year as programmed in the country's $7.4 billion budget.
And, at the time of going to press, government officials were talking of introducing higher duties on all dutiable imported goods to help address the budget shortfall that suspended donor funding has created in an economy heavily dependent on outside funding.
The EU, which recently carried out an audit of its aid to Malawi, has said it will not disburse $11 million for various reasons given in its audit report.
A September 25 memorandum by Finance Minister Matthews Chikaonda to President Bakili Muluzi paints a grim picture of Malawi's economic outlook.
It says the EU has cited non-compliance with tendering and procurement procedures in relation to the rehabilitation of Chileka road by Group Five, a South African construction company, as one of the reasons for suspending aid.
Chileka road is the main road linking Blantyre City Centre and Chileka Inter- national Airport. Previously a bad potholed road, it was rehabilitated earlier this year in readiness for the arrival of Southern African Development Community heads of state who were attending the SADC summit in Blantyre last August.
"The EU has requested that we refund the sum of over K80 million for the breach of procedures in awarding the contract for this road," says Chikaonda in the memorandum.
It is also concerned about accounting procedures resulting in misreporting on amounts spent in the ministry of health and population on the one hand and expenditure of funds on non-eligible items under agreements between the EU and the government.
"In addition to the cancellation of disbursements, the EU has requested government to refund the total sum of $1.2 million as amounts that were used from their support for ineligible items, including the breach of tendering and procurement procedures on the Chileka road," says Chikaonda.
EU Economic Advisor Theo Kaspers confirmed in an interview that the EU's funding to Malawi had been put on hold.
He said the EU had since sent a memorandum of understanding to the government which, after being signed by both parties, will ensure future assistance to Malawi by the EU.
"We have sent our final version of the memorandum of understanding to the government. 1 think they agree with it and will sign it. We will then send it to Brussels for the attention of the EU Commissioner. So the disbursement of funds to Malawi depends on how quickly government takes action in dealing with the memorandum of understanding," said Kaspers.
Chikaonda further said that the Malawi government had been informed by the US that due to non-fulfilment of a number of conditions, and in particular the suspension of the privatisation programme, the US had diverted $6 million out of the $7 million earmarked for Malawi this fiscal year to another African country, which it declined to name.
The government has now revived the privatisation process, four months after it was suspended, saying it was satisfied after reviewing it that all was in order and the process was delivering according to expectations.
Privatisation Commission Executive Director, Dye Mawindo confirmed that the suspension had been lifted although the damage has already been done.
Malawi will also not receive from the US government about $4.8 million under the food security programme, Chikaonda says in the memorandum.
Public Affairs officer at the US embassy in Lilongwe, Robin Diallo, says future financial aid to Malawi, as with other parts of Africa, has been reprogrammed.
"It has much to do with priorities throughout the continent with emergency programmes and new administration initiatives receiving much attention. But we are happy the privatisation programme is now continuing."
Chikaonda says in the memorandum: "This turn of events implies that the budget can no longer be maintained at the same level as was approved. In addition, some funds that should have been disbursed by this time of the year have not yet been received.
A case in point is an amount of £12 million that was meant to be to be disbursed by the British government by this month. "This has resulted in an increasing pressure on the budget to meet programmed expenditures," the memorandum says.
Public Diplomacy Assistant at the British High Commission, Gracian Tukula, would say only that the next tranche of funding from the British Government was not due until the end of the first quarter of next year.
The non-disbursement of programmed funds by some donors has been even more problematic for the Malawi government because consultations it was due to have with the International Montary Fund are yet to be concluded.
Among other things, the budget approved by Parliament for the 2001/2002 financial year was several billion kwacha more than the budget tentatively agreed with the IMF.
Previous consultations ended without result in the middle of this year and the IMF board on Malawi failed to meet. Another IMF team is due to visit Malawi this month.
IMF resident representative Thomas Gibson has said the suspension of the IMF Board Meeting and the failure to complete the mid-term review resulted in a suspension in Malawi's rights to funds from the IMF.
Chikaonda recommends that adjustments to the budget be made immediately "so that levels of expenditure are kept in line with the available resources and the targets set in the economic programme".
In a recent interview, Chikaonda denied knowledge of any pending memorandum of understanding between the Malawi government and the EU.
One of the fallouts of reduced outside funding is a series of strikes over pay.
Earlier this year, Muluzi promised public servants pay rises at the end of July - a move that was premised on funding expected to flow in to supplement the country's annual budget.
In the past few weeks, the country has been plagued by long and often acrimonious strike action by teachers, nurses, doctors and policemen and other workers in essential and other public services. The government is now unable to pay the promised increases.
Muluzi, however, has blamed the funding problems on a shortage of Malawi's staple food, maize, which has to be imported from South Africa and other countries.
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