IMF aid threatened by government overspending

Already struggling to cope with food shortages, Malawi was dealt another blow on Wednesday when the International Monetary Fund (IMF) said it would delay the disbursement of US $47 million in aid.

An IMF statement read: "Lack of good governance has resulted in a misallocation of resources, increased the cost of doing business, created a general distrust in public sector activities, and weakened civil service morale."

The statement came at the end of a two-week IMF budget review meeting with the government. According to the IMF figures, the government had overspent by US $45 million, 1.9 percent of the gross domestic product.

In response to the deficit, the IMF said it would not release US $47 million of a promised US $55 million package until the government cut over-spending and implemented a new budget by July.

The US $47 million would have been the second installment under the three-year Poverty Reduction and Growth Facility arrangement between the IMF and the government.

Minister of Finance Friday Jumbe told IRIN: "Yes, the IMF has made it very clear that they will withhold aid money until certain condition are met. However, the Malawian government and the IMF have had very productive talks about the way forward. Our plans have already been approved by the IMF and we will ensure they are carried out by July."

He added that the economy, despite the IMF's, assessment had improved since December last year.

"Inflation is down, and so are interest rates. In the context of the region, the kwacha [the local currency] is quite stable," he said.

Britain, the largest development aid donor to Malawi, has also withheld the first tranche of funds from a three-year, US $109 million deal until the IMF approves the nation's budget.

"While the British do assist the country in certain areas, Malawi will not crumble if they decide not to follow through with their pledges," Jumbe added.

He said that the IMF, a major sponsor of the country's tough economic reforms, was "quite happy" with Malawi's level of spending on health and agriculture.

"The government's toughest challenge would be to curb spending on non-priority areas," Jumbe noted.

Malawi's leading newspaper, The Nation, last Thursday said that most of the public money was wasted on foreign travel by government officials.

Jumbe admited that "there has been a problem with over-spending on travel but we have already started to curb that and our plans for the July budget already include measures to curtail it."

Malawi, one of the poorest countries in the world, is the country hardest hit by drought and famine in Southern Africa.

In declaring a national disaster in February, the government said that seven million people out of a population of 10 million had no food. Floods, drought and a government decision to sell off its grain reserves - arguing that they were old - contributed to the food crisis.