EU, Malawi signs MK40bln budget support agreement for 3 years

The European Union and Malawi Government on Wednesday signed a financing agreement worth MK39.7bn (98m Euros) for General Budget Support for the next 3 fiscal years.

The EU budget support which is now called Good Governance and Development Contract (GGDC) is expected to contribute to the consolidation of macroeconomic stability, reforms in the area of public finance management and the scaling up of social protection programs, according to EU Ambassador to Malawi, Alexander Baum.

The EU Ambassador said the signing of the financial agreement symbolized the trust the union has in the policies adopted by the Government of Malawi to overcome its current economic and development challenges.

He said the Extended Credit Facility (ECF) Agreement with the International Monetary Fund (IMF) which had just undergone its first quarterly review was a clear sign of Malawi Government’s determination to pursue the macroeconomic adjustments.

Finance Minister Ken Lipenga (l) and EU Ambassador to Malawi Alexander Baum (r) exchange documents of the contract

The EU leader of delegation added that there was need to buffer the negative impact of the adjustment on the population and therefore called upon Malawi Government to review constantly the Government expenditures to ensure that they concentrate on pro-poor programs and to maintain utmost discipline in non-pro-poor expenditures.

“The fact that this program is labeled ‘Good Governance and Development Contract’ is not without meaning,” cautioned Baum, “It highlights first of all the contractual nature of this agreement.

“This means that there is a clear expectation on the side of the EU that Government delivers not only in terms of consistency of macroeconomic policies overtime but particularly on Public Finance Management in broader terms.”

The EU further said it will within the next 3 weeks release 40m Euros as the first disbursement of the GGDC financing agreement to help Malawi Government replenish its foreign currency reserves during this period when more expenditure are incurred.

Pledge

In his remarks Finance Minister Ken Lipenga hailed the EU for the budget support in form of the GGDC and pledged that President Joyce Banda’s government would continues to pursue policies that are good for the people of Malawi.

He said the 40m Euros that was going to be front-loaded in a few weeks time would assist Malawi government achieve the zero-net domestic borrowing of government while allowing the country to have the much needed foreign exchange to finance imports.

“You know, this period is what we call lean period because normally during the months of October to February government makes more expenditure through procurement of fertilizer among other things so the 40m Euros will help us seal the forex gap,” said Lipenga.

On good policies the Finance minister said it was very encouraging to note that Malawi government had won back the donor confidence following its policy direction.

“We do not want to repeat what has never worked with our donors before because policy reversals do not inspire development partners,” said Lipenga, adding, “We are not pursuing these policies because donors want them but because they are the right things to do for our people.”

Recently, the EU and Malawi government also signed a financing Agreement of MK4.8bn (11.6m Euros) to be made available to smallholder sugar sector in Malawi.

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