They launched reforms; promised to do better, but as it turns out-at least in the eyes of donors and persistent fiscal fraud revelations as recent as last year-it may just have been cheap rhetoric.
Nothing moved. Little changed in the way government handled public finance management (PFM) even after the colourful launch of reforms in this area in 2015.
And now it is over.
Leading donors of direct budget support-the European Union (EU), Britain, Norway and influential long-time off-budget financier Germany-this week dashed any hopes of direct aid return to Lilongwe in the 2016/17 National Budget and, seemingly, beyond.
Based on a secret EU assessment report released last month and interviews with the donors, the Peter Mutharika administration has failed to meet agreed targets, hence the foreign agencies’ decision to clench their aid fists even tighter.
The EU, for example, commissioned an assessment carried out by an independent verification team to determine whether Malawi has met the targets it was given for the multilateral body to resume direct budget support to Malawi in 2016/17.
But the report-compiled last month and titled Malawi’s Economic Malaise-concluded that overall Capital Hill failed the test.
The continued lack of expenditure controls as evidenced, for example, by the fact that “there has not been a single month of bank reconciliation” two years after Cashgate; government’s failure to produce audited accounts; poor financial reporting and oversight, are some of the problems that forced the EU to give up on the Mutharika administration, at least in the current and next fiscal year.
Even implementation of initiatives aimed at helping Capital Hill to improve the situation over the years has faltered with time.
For example, according to the EU report, in 2013 the Malawi Government started implementing the Financial Reporting and Oversight Improvement Project (Froip). At the time, the donor’s rating on Froip was “moderately unsatisfactory”. But by December 2015, government’s performance on this benchmark was outright “unsatisfactory”.
And for not releasing a single audited financial statement, the EU’s rating of the Malawi Government on Froip is “prolonged unsatisfactory”.
Government’s failures to accelerate PFM reforms to restore trust and confidence in the budget process; pass the Access to Information (ATI) Bill and implement Farm Input Subsidy Programme (Fisp) reforms are the other misses on EU targets.
The EU report also says there is lack of coordination with donors. For example, it said, for seven months, there has been no meeting of the Group on Financial and Economic Management (GFEM), which government promised to resume with development partners on a monthly basis.
Noting that the Cashgate revealed in 2013 was not a singular misappropriation of government funds, but the tip of an iceberg of long-existing practices going back to previous governments, the EU report called for more action from the reforms crowd.
‘‘There is need for a quicker, more thorough and bolder action on public sector and public financial management reforms programme,’’ it said in the report.
In an interview on Wednesday, EU Ambassador to Malawi Michael Germann said he could not comment on the matter because the union was still waiting for an assessment by an independent verification exercise on direct budget support to Malawi for the 2016/2017 financial year.
Said Germann in an e-mail response: ‘‘EU is still in the process of assessing the eligibility criteria with regards to the General Budget Support to the Government of Malawi.’’
“This will be done on the basis of the findings of an independent team of experts that has been commissioned to verify progress made. At this stage we would not want to pre-empt the outcome of this exercise,’’ said the ambassador.
The assessment report the ambassador is referring to is the one Weekend Nation has seen, but is yet to be made official.
Outright no to direct budgetary support
Norway, Britain and Germany ambassadors did not bother to hide in diplomatic speak for their positions for not resuming direct aid.
Norwegian Ambassador to Malawi Kikkan Haugen said Norway officially informed the Government of Malawi in 2015 that general budget support will not be resumed.
“Norwegian development support will continue at a high level, but be channelled through other modalities, in close collaboration with the Government of Malawi and other stakeholders,” said Haugen.
For Britain’s High Commissioner to Malawi Michael Nevin—whose government was, until four years ago, Malawi’s largest bilateral donor-said London’s position on resumption of direct budget support has not changed since 2011.
Said Nevin: ‘‘It is a policy, but the funds are still there and benefiting the people of Malawi through offline mechanisms.’’
In a separate interview, German Ambassador to Malawi Peter Woeste said for the foreseeable future, Germany does not consider direct budget assistance being a useful and appropriate instrument to reach the poor in Malawi.
But he said together with the Government of Malawi, they have been developing new ways of assistance.
Woeste said Germany has more than doubled its support to Malawi since 2011, which now totals 219.7 euro million-mostly in form of grants aimed at reducing poverty in the country.
But he said there is little to report on Malawi’s progress on PFM reforms, calling for everyone to get involved in the push for fiscal management changes.
“Reforming the public finance and economic management should not be a question of pleasing donors, but in the interest of every Malawian. Hence, it is important that the reform process is driven by Malawians themselves.
‘‘More than two years after Cashgate, I would have hoped being able to report to my headquarters about relevant progress on the [PFM] reforms in Malawi,’’ said Woeste.
The International Monetary Fund (IMF) had not responded to our questionnaire by yesterday, but mid last month advised Malawi to accelerate PFM reforms to restore trust and confidence in the budget process and foster donor re-engagement.
Angered by Cashgate uncovered in 2013, major donors withheld direct budget support to Malawi worth $150 million, leaving a huge fiscal gap at Capital Hill.
It was only multilateral donors such as the World Bank, the African Development Bank (AfDB) and the EU that were flexible enough to provide some direct aid.
But now with EU-a heterogeneous multilateral body largely insulated from the influences of its powerful members-saying enough is enough, its decision could be contagious to the last holdouts; fellow multilaterals World Bank and AfDB.
Implications of losing donor aid
The donors’ unanimous decision to kick away the direct aid dish that traditionally accounts for around 40 percent of the national budget just when national purse keeper Goodall Gondwe last week claimed he was reaching for it will inflict more pain on the economy and the poor, especially with the worsening food security outlook.
Coming on the back of Malawi Revenue Authority’s (MRA) below budget revenue collection, the donors’ firm rejection of Capital Hill’s fiscal transgressions further tightens the noose around an administration that London’s Economist’s Intelligence Unit warns faces social unrest as public service delivery plunges in tandem with a dwindling resource envelop.
With budget support still out of the picture and MRA set on its underperformance path, the budget deficit will widen further; and recourse to domestic borrowing being the likely survival strategy; raising fears of even higher interest rates and its resultant crowding out effects on businesses and consumers.
Government is already running one of the highest fiscal deficits in its history. In the 2015/16 National Budget, the budget gap is projected at seven percent of gross domestic product (GDP), much higher than the 5.4 percent ratio recorded in 2014/15.
According to the World Bank, by the end of the 2014/15 fiscal year, Capital Hill had borrowed four times the amount approved in the budget estimates.
And without direct aid, the economy could continue to bleed as public sector-driven spending and investment falls to near non-existent levels.
Already real GDP growth rate is projected to fall by 2.7 percentage points to three percent in 2015.
With agricultural output threatened by nationwide dry spells in 2016 and a botched-up Fisp, economic output could be further depressed, leaving the poor poorer.
With balance of payment support that donors provide gone, the kwacha is set to continue its slide, triggering an inflation spike, now at 25.4 percent, that food shortages are already piling pressure on-again exposing the poor to price volatilities they cannot cope with and leaving businesses with an unpredictable business environment they cannot plan their investments around.
While donors have insisted that their resources are still being applied in Malawi only that it is outside government systems, measuring the impact of such disbursement channels is difficult even as development partners say they spent a total of $926 million in the country in 2014 alone.
Only a national government has the capacity to track where that money went and what it achieved at national level, which would be a difficult exercise as Capital Hill continues to be by-passed.
It is because of some of these implications that University of Malawi’s Chancellor College economics professor Ben Kalua says Malawi cannot afford to lose direct budget support when the country is already in a mess.
He does not understand why government cannot follow simple rules the donors were asking for.
Worried Kalua: ‘‘A well-wisher is giving a chance for you [Malawi] to put your house in order, for example, making the Auditors General independent and to improve on public finance management and you are not adhering to this?’’
Finance Ministry spokesperson Nations Msowoya said the European Union report Weekend Nation was quoting was still a working document which is subject to further consultation between the government and the EU. He cautioned that quoting it may prejudice the discussion government was having with the EU.
Said Msowoya: ‘‘Having said that, let me update you on the progress that the government has made so far on PFM issues.
Government has appointed 20 controlling officers in line with PFM Act;
It has done reconciliations of cash book and the Reserve Bank;
It has established the directorate of internal audit to reinforce issues of internal control in ministries and departments;
It uses sanctions and punishments to would-be offenders once evidence of wrongdoing is there;
There is no encashment of any government cheques at bank counters;
It has commissioned a head count of civil servants which is currently underway to flush out ghost workers
Government is conducting training and orientation of senior government officers involved in management of public funds on an ongoing basis
There is institutionalisation of good public procurement practices in government through publication of all procurement results in the news papers and website;
Government continues to exercise fiscal discipline which has resulted in reduced domestic borrowing.
With regard to the extended credit facility, Msowoya was optimistic that the next International Monetary Fund (IMF) mission would assess Malawi positively considering what government has achieved.n