Malawi loses an estimated 7.5 percent of aid disbursed by the World Bank due to leakages, a research by the Bretton Woods institution shows.
In its February 2020 paper titled Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts of the World Bank, Jørgen Juel Andersen, Niels Johannesen, and Bob Rijkers found that Malawi, as a highly aid-dependent country, and 21 other countries collectively get 10 percent of the aid disburses by the World Bank.
The study says the leakage estimates are averages for the highly aid-dependent countries, with annual aid from the World Bank above two percent of gross domestic product gross domestic product (GDP).
The figures show that Malawi’s annual World Bank flow stands at 3.9 percent of GDP.
Reads in part the report: “We cannot exclude that firms benefiting from aid-sponsored spending receive payments in quarters with aid disbursements and deposit the funds with foreign banks. However, this mechanism cannot explain why the money only flows to havens.
“It seems even less likely that the results reflect profit- shifting by multinational firms, the effect of aid on income through aggregate demand and portfolio adjustments by commercial and central banks.”
The study says estimates suggest a leakage rate of around 7.5 percent for the average highly aid-dependent country.
The 2018/19 Annual Debt Report published by Ministry of Finance, Economic Planning and Development shows that the International Development Association (IDA) of the World Bank tops the list of external creditors to Malawi at 44 percent of total external debt. The report says in the past 10 years, the IDA has remained the largest creditor to the Malawi Government.
Treasury, in its Development Cooperation Strategy, aspires to reduce aid dependency by mobilising domestic resources to finance the country’s development needs.
Minister of Finance, Economic Planning and Development Joseph Mwanamvekha said that on the policy front “government will endeavour to widen the tax base through promotion of business cooperatives to bring the informal sector into the tax base”.
In recent years, Treasury has found itself in a tight corner to shore up expenditure in the national budget by balancing with available resources in the wake of continued withdrawal of direct budget support since Cashgate was uncovered in 2013.
Donors have since changed their mode by preferring to re-channel their assistance to Malawi through non-governmental organisations or what is called off-budget support.