The European Union (EU) on Wednesday told Malawi Government to stop wasteful spending even as it committed 98 million euros (over K40 billion) in budget support in the next three years.
Of the 98 million euros financing agreement, signed on Wednesday within the framework of a three-year Good Governance and Development Contract (GGDC)â€”the EU will front-load 40 million euros (about K18 billion) within the next two weeks, according to EU Ambassador Alexander Baum.
The 40 million euros is what the EU already planned to disburse in the second quarter (October-December) of the 2012/13 fiscal year, according to the Common Approach to Budget Support (Cabs) disbursement plans contained in a July 2012 aide-memoire the grouping signed with government.
Norway was the only other Cabs member that planned to release budget supportâ€”estimated at 50 million kroners (about K3 billion) in this quarter.
The forex injection, coming during a lean period in which official reserves are just under one month, could help support the ever-softening kwacha and pay for critical imports such as fuel, fertiliser and drugs.
But Baum issued a blunt assessment of Malawiâ€™s public finance and economic management.
Said the envoy: â€œI regret to say that development partners have been supporting successive Malawian governments in public finance management for many years with insufficient progress. This cannot be entirely accidental.
â€œWe would like to see that the political will for reform that your government demonstrates translates into real action and change,â€ said Baum. He was telling Finance Minister Ken Lipenga when they were signing the aid agreement.
EU, one of Malawiâ€™s key donors, also said it expects the Joyce Banda administration to deliver not only in terms of consistency of macroeconomic policies but also in public finance management in broad terms.
Baum cited recent media reports that government has been paying out huge sums of money in compensations and damages for costly decisions as an example of wasteful spending.
He also asked government to review constantly its expenditures to ensure that they concentrate on pro-poor programmes and to maintain â€œutmost discipline in non-pro-poor expenditureâ€.
Added Baum: â€œI would not do my job if I was not adding some words of caution.
â€œThe fact that this programme is labelled good governance and development contract is not without meaning.â€
He applauded government for appointing an Auditor General and an Anti-Corruption Bureau (ACB) director.
But he asked government to allow the two offices to carry out their work in a professional manner and without political interference.
Lipenga, who signed the agreement on behalf of Malawi, acknowledged the challenges raised by Baum.
Lipenga said the EU facility will help consolidate the macroeconomic policies that government is implementing to reverse the backward trend the country experienced due to poor macroeconomic policies.
He also banked hopes on the implementation of the Public Financial and Economic Management (PFEM) reform programme which, he said, is aimed at strengthening the planning, budgeting, accounting, auditing and procurement institution to make them more efficient.
He also said the budget support will further help government to scale up its social protection programmes that are aimed at mitigating the impact of economic adjustments that affect the poor.