Common Approach to Budget Support (CABS) in Malawi

The Project
Malawi is currently receiving general budget support from a group of donors that includes UK, Norway, the African Development Bank, and the European Commission. Although not reserved for any particular project or program, budget support is often a part of a wider aid-agreement that includes provisions and conditions for dialogue, technical assistance, capacity building and regular review of the performance of the receiving government. This report outlines the results of the review of the Government of Malawi performance during 2006, assessed against Performance Assessment Framework agreed upon between the government and the donors.

Interesting Findings: Performance during 2006
• There has been significant progress in some areas of Public Financial Management such as staffing of the National Audit Office, tabling of the 2003/04 audit report in Parliament, and the scrutiny of the 2002/03 audit by Parliament. The approval of the Malawi Growth and Development Strategy is welcome. Good progress has been made with respect to use of the Integrated Financial Management System. Sound overall economic management continues to strengthen macroeconomic stability

• Macroeconomic stability in Malawi is closely related to the performance of its agriculture sector which is highly dependant on rainfall. An important factor in the improvement in macroeconomic stability has been the recovery of the agriculture sector from the drought in 2005. Given the current expectations of bumper harvest, economic prospects are good for 2007.

• Social sector targets have been met in some areas, indicating some progress in service delivery in education and health sectors. Gender equality target has also been achieved, although progress during the current year was low on this count

• Some progress has been made in strengthening governance particularly in the areas of anti-corruption, and procurement.

Concerns remain in the following areas:

• A factor that accounts for the current recovery of the agriculture sector is the government fertilizer subsidy program - the largest single item of expenditure after the wage bill. The review indicates a serious overrun on this budget item. It is critical that government together with the donors improves its planning and budgeting for this subsidy program.

• The fiscal impact of over-expenditure in 2006/07 has been contained with the help of increased revenue and debt relief. It is important that the government properly manages public and political expectations of increased resources.

• It is important that the 2007/08 budget:
o Reflects the findings of the Public Expenditure Review.
o Honours the governments' commitment to improvements in health sector.

• Final accounts for 2005/06 are not yet available and there is an urgent need for improvement in the quality and timeliness of the annual accounts. No accounts for expenditures undertaken by the current government have been audited to date. In the light of Parliament's rejection of the nominee for Auditor General, it will be necessary to find a solution to this stalemate.

• Local elections are an important signal of government's commitment to good political governance. The uncertainty surrounding the local elections, and the decentralization process, also affects financial management and the legitimacy of district authorities.