DFID lauds country's improved economic performance

The British Department for International Development (DFID) has lauded Malawi's efforts to stabilise its economy, but warned against further reversals that could damage the country's reputation. DFID economic advisor Alan Whitworth said by maintaining fiscal discipline and adhering to the conditions laid down by the International Monetary Fund (IMF) Staff Monitoring Programme, President Bingu wa Mutharika's administration had "stabilised domestic debt, started to bring interest costs down and started to restore Malawi's international reputation". Whitworth made the remarks at a meeting organised by the Malawi Confederation of Chambers of Commerce and Industry in the capital, Lilongwe, last week. "The previous government's failure to control expenditure had led to the accumulation, since 2001, of a dangerously large domestic debt and the loss of government control over its budget. As a result, Malawi faced a fiscal crisis with disturbing implications for macroeconomic stability, investment, financing of public services and poverty reduction," he commented. Whitworth noted that the government had managed to stay within its budget for the first time since 1994, and said, "This demonstrates that the persistent over-expenditure of the previous years was a product of political choice rather than technical weakness." The IMF, the World Bank and other major donors suspended aid to Malawi in 2001, citing corruption, government over-expenditure and poor governance as some of the reasons. After aid was suspended, the former Bakili Muluzi administration borrowed heavily from the domestic banking system in the form of treasury bills, sparking high interest and inflation rates that affected private investment. "Direct investment in Malawi dropped from US $59 million in 1999 to $6 million in 2002. This has obvious implications for growth, employment and poverty reduction," Whitworth observed. Up to 80 percent of Malawi's development budget is provided by donors, and the country faces enormous challenges related to poverty, food insecurity, HIV/AIDS and the capacity to deliver services. Whitworth added that the IMF's Poverty Reduction and Growth Facility (PRGF) demonstrated that "if this improvement is sustained over the medium term, there are good prospects for overcoming the fiscal crisis". The PRGF is the IMF's concessional loan facility for low-income countries. Malawi's improved economic performance also led the IMF to approve a three-year flow of funds under the PRGF earlier this year to support the government's economic reform and poverty alleviation programmes. However, donors have expressed concern over the ongoing political bickering between Mutharika and his political rival, Muluzi, formerly president of the country and now chairman of the opposition United Democratic Front (UDF) party, which stalled approval of the country's budget earlier in the year. The country has been in the midst of a tense political standoff between the current government and the opposition since June, when the UDF proposed a motion to impeach Mutharika because he had left the party after it sponsored him in the national elections. "Should recent improvements be reversed, the gains would be lost very quickly and, with its reputation damaged yet further, Malawi's economic prospects would be bleak indeed," warned Whitworth. The Malawian government said it appreciated the concerns raised by donors. Patrick Kabambe, principal secretary in the Ministry of Finance told IRIN, "As government, we will maintain our policy of spending within our means. We need to build on these successes and improve on them even further. We know that we cannot afford to relax, because doing so will mean going back to where we were".