World Bank tells Malawi to maintain progress on PFM reform

Malawi must continue to implement public financial management reforms to overcome the mismanagement of public funds, the World Bank has said.

In its Malawi economic monitor report, the bank said economic growth in the country would continue at a moderate pace, but financial struggles due to high inflation, high interest rates, public debts and other budget pressures would impair growth if nothing is done.

Growth in 2015 is expected to slow to 5.1% down from an estimated 5.7% last year, partly because of adverse weather which is likely to affect agricultural production.

‘With these significant challenges, Malawi needs to prioritise the restoration of macroeconomic stability through such actions as reducing the size of the budget deficit, scaling back domestic borrowing, and reforming key subsidy programmes, particularly the fertiliser input subsidy,’ Richard Record, senior country economist for Malawi and lead author of the report said.

The government should also continue implementing PFM reforms to rebuild confidence in the integrity of government accounts, Record urged.

A political scandal in 2013, dubbed cash-gate, exploited weaknesses in the Malawi’s PFM systems and saw millions of dollars in public funds looted from government coffers.

This put a lot of pressure on the country’s budget, which is expected to run a deficit of 5.9% of gross domestic product in 2014/15, coupled with a loss in budget support from donors, the World Bank said.

Public debt has also risen sharply in recent years, with annual debt service costs now at a value equivalent to 5.3% of GDP, the bank added.

Last week, Malawi’s president Peter Mutharika said that there had been a continued culture of non-compliance with the laws and regulation that govern how public finances should be managed, the StarAfrica newspaper reported.

A new PFM system launched at the weekend would be the ‘perfect remedy’ to deal with lax leadership, Mutharika added.

‘Malawi still has an excellent framework of financial laws, rules and regulations that follow well-established international standards of public finance management which, if observed and complied with, financial fraud would be rare and public resources would be protected,’ he said.

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