Donors: Clean up mess or forget aid

The message from donors is clear. This new DPP government must clean up the mess as a result of the Cashgate scandal in which billions were stolen from Treasury or it should forget about direct aid.

In an exclusive interview, the Common Approach to Budgetary Support (Cabs) chairperson Alexander Baum, said the follow-up to the weaknesses in the public finance management was work in progress and that its objectives remained valid.

Baum said even the International Monetary Fund (IMF) has not concluded its fifth Extended Credit Facility Review and that at this stage, it was unlikely that budget support could be resumed before the end of the current fiscal year.

Said Baum: “For the future, the use of government systems for channelling aid to Malawi will depend a lot on how determined and effectively the reforms that started will be continued.”

He said Cashgate was a scandal that revealed not only major cases of fraud and theft of public funds but also major system failures that existed and have been partially addressed so far.

“However, more needs to be done to establish sound financial systems and behaviour and to make sure that the National Budget is used for its intended purpose and benefits all Malawians,” said Baum who is also head of delegation of the European Union (EU) to Malawi.

“Cases of criminal acts that have led to charges should be pursued irrespective of which government is in place; acts of crime should not be subject to the political environment if the criminal justice system is to enforce a sense of accountability within the Malawian society,” he said.

Baum rejected accusations that donors have always looked for an excuse to keep their aid.

“Budget support is an aid modality that has been praised for its consistency with the principles of aid effectiveness but has also proven to be somewhat unpredictable given that it is based on principles of good governance, which are often not adhered with. It is the environment in which we operate that is at times unpredictable,” he said.

“Major scandals in areas such as human rights abuses or corruption etc can be very disruptive to flows of budget support. In light of fiscal pressure in donor countries and consequently higher demands for proper financial management, donor institutions have become increasingly reluctant to take the risks of operating in an unpredictable environment,” said Baum.

On where the money which was earmarked for budgetary support had gone after the withdrawal, Baum said every partner dealt with the situation in different ways depending on the commitments. He said the World Bank and the African Development Bank had not yet entered into legal commitments, Norway and DfID redirected to other channels while the EU has committed funds but has not disbursed.

He emphasised that although the Cashgate was quite blatant, the phenomenon of theft of public assets and corruption was not new and could not be attributed to one government, but rather to systemic failures in the governance of the country.

“It is important to accept the principle that public funds irrespective of their source—domestic or foreign—must not be abused and that there should be accountability irrespective of who is in government. Of course, we look forward to engage with the new government of President Mutharika on these and other issues, which are so important for Malawi to move forward,” he said.

A source from the diplomatic community said despite the change in leadership, it was not automatic that the Democratic Progressive Party (DPP) administration will start enjoying donor support which was suspended immediately after the Cashgate scandal was revealed in September last year.

The source said a position was taken before the elections that irrespective of which party wins the polls, the new government would have a duty to clean up the mess before aid resumption especially direct budgetary support.

Newly appointed Minister of Finance, Economic Planning and Development Goodall Gondwe is on record saying as much as Malawi needs donor support, the priority should be on self-reliance.

Gondwe said Malawians should think of how to develop a culture of supporting themselves other than relying on other people’s kindness.

“If the donors, because of that wish to support us, they will support us, but if they want to continue to abstain then we have to work even harder. Let’s look at ourselves first: What can we do for ourselves? How can the economy work by our own efforts?” Gondwe said soon after being sworn in as a minister last week.

Ministry of Finance spokesperson Nations Msowoya told The Nation Business Review that government was still engaging the Cabs donors and expressed optimism that they would resume budget support for 2014/15 fiscal plan.

In 2013 fiscal year, donors withheld $150 million budgetary support following revelations that millions of kwachas were stolen at Capital Hill through corruption and fraud.

British High Commissioner Michael Nevin said during Queen Elizabeth II’s 88th birthday celebration in Lilongwe that his government would be watching the commitments to good governance and how President Peter Mutharika’s government would fight corruption.

Nevin, whose government supported the forensic audit after the Cashgate scandal was uncovered but whose report is not yet made public, said Britain would support continuing investigations into the plunder of public resources.

Soon after aid was suspended due to the Cashgate, government revised the budget and was later unable to fund ministries and departments resulting in failure to provide essential services.