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Stefan Leiderer et al.
6.3 Donor impact on PFM
Malawi is even more dependent on foreign aid to finance its balance of payments
and public expenditures than most other African countries (IDD and
Associates 2005, 18). Up to 80 % of the capital budget and around 23 % of
Malawi’s GDP are donor-financed (Whitworth 2005, 1). Consequently, donors
interfere in many ways and at various levels in Malawi’s PFM.
Three areas appear to be most problematic to Malawian stakeholders: lack of
predictability of donor funds; different, complicated and poorly harmonised
donor procedures; and insufficient donor support for the adoption of PFM
reforms.
6.3.1 Lack of predictability of donor funding
The high dependency on external aid creates special problems for Malawi’s
government in terms of in-year monetary management and it is an important
factor behind the observed fiscal volatility and budget deviations.
To make matters worse, as Figure 7 on page 96 illustrates aid flows to Malawi
are highly volatile and ODA commitments have been systematically
higher than actual ODA inflows. According to a recent evaluation of general
budget support 32 for Malawi, the share of external resources has fluctuated
between 33 and 57 percent of total inflows since the mid-nineties (IDD and
Associates 2005, 6). Consequently, ODA flows are highly unpredictable for
the Government of Malawi and commitments contain little information on
actual future inflows (IMF 2004b, 43; see Figure 8).
32 Malawi was not receiving general budget support (GBS) when this research was conducted
in 2005. Only the UK and the EU had GBS programmes. However, while DFID had
pledged £ 68m for the 2005/2006 budget, the EU had stopped disbursing when Malawi had
gone off-track. Other donors organised in the CABS (Common Approach to Budget Support)-Group,
were considering providing budget support but had not taken a final decision
(Whitworth 2005).
106 German Development Institute