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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
Public Financial Management for PRSP Implementation in Malawi Figure 8: Commitments and Actual Inflows (in Mio U.S. dollars) Source: IMF (2004b) In addition to this, not only are the amounts disbursed subject to a high degree of uncertainty, also the time of disbursement is often unclear to Malawian officials in advance. Sound resource and budget planning as well as inyear cash management are further complicated in Malawi because planning cycles of donors are not coordinated with the Malawian budget cycle and planned disbursements are often delayed. 33 In the words of a government official: “There’s no point in planning for three years if you can’t even plan for six months. If suddenly 50 % of the money doesn’t come, there’s really no point.” Weak capacities to meet overly demanding or poorly communicated donor requirements and conditionalities also lead to delayed or withheld disburse- 33 Many donors announce their commitments only after the budget is approved. This has, for example, led to the practice that the Ministry of Health asks its deconcentrated units to prepare two budgets, one with and one without donor support. This serves to reflect different scenarios in the planning process – one optimistic, one pessimistic – regarding donor support during the fiscal year. German Development Institute 107
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Public Financial Management for PRS
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Studies Deutsches Institut für Ent
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Preface The present study on ‘Pub
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4 The Case of Malawi 44 4.1 Why Mal
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Bibliography 151 Annexes 157 Tables
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Boxes and Tables in the Annexes Box
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DS EHP ESAF EU GBS GDP GoM GRF GTZ
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TOR UDF UNCDF UNDP UNV USAID VAP VD
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Discussion Paper 16/2007 Schirm, St
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