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Stefan Leiderer et al. more by informal procedures and ad-hoc behaviour by virtually all relevant stakeholders in the PFM process. This observed gap between the formal framework for PFM and actual PFM practice in Malawi has a wide range of causes. In order to provide a clearer picture of these discrepancies and their relevance for PRSP implementation in Malawi, the following sections contrast the ‘theory’ and ‘practice’ of PFM 9 in more detail before Chapter 6 goes on to examine the underlying determinants of informal PFM practices in Malawi. 5.1 The formal legal and institutional framework for PFM in Malawi This section first introduces the formal and institutional framework for PFM in Malawi including the formal links between the MPRSP and the budget, before examining the determinants for these divergences more closely in Chapter 6. The empirical findings with regard to actual PFM practice in Malawi are presented in Section . 5.1.1 The legal framework for PFM in Malawi The most important laws regulating Public Financial Management in Malawi are the — Constitution of the Republic of Malawi 2002 — Public Finance Management Act No. 7 of 2003 — Public Audit Act No. 6 of 2003 — Public Procurement Act No. 8 of 2003 These acts have replaced the Public Finance and Audit Act, which was considered inadequate for modern financial management. The new acts are mainly based on the recommendations given by a team of experts led by the 9 In this context ‘theory’ of PFM refers to the formal legal institutional framework for the management of public finances while ‘practice’ covers the actual reality of PFM in Malawi. While it is obvious that a certain gap between the formal framework and practical reality always exists, the degree to which a formal legal and institutional framework actually guides real processes may differ widely in different contexts. 56 German Development Institute
Public Financial Management for PRSP Implementation in Malawi World Bank in the course of a Country Financial Accountability Assessment (CFAA) undertaken between February and December 2001, following a previous breakdown of donor-government relations. In addition to these legal acts, financial management within government institutions is guided by the issuance of circulars. The purpose of these circulars is to clarify and update the above-mentioned regulations. At the local government level, PFM is regulated mainly by the following acts, guidelines, and regulations: — Local Government Act 1998 — National Decentralisation Policy (NDP) 1998 — Development Planning System Handbook for District Assemblies 2001 — Financial Reporting Guidelines for Local Authorities 2004 5.1.2 Formal PFM at central government level The financial year in Malawi covers the period 1 July to 30 June. The most important public actors involved in the budget process at the central government level are the Ministry of Finance (MoF), the Ministry of Economic Planning and Development (MEPD), respective line ministries, the National Parliament, and the National Audit Office (NAO). Malawi operates a dual budget system, i.e. the recurrent budget and the development or capital budget are prepared separately. 10 In the specific institutional setup of Malawi’s PFM system this has the consequence that the responsibility for the budget planning process is distributed between two ministries, namely the Ministry of Finance (MoF) and the Ministry of Economic Planning and Development (MEPD). The MoF is responsible for mediumterm expenditure planning (i.e. the MTEF) and the formulation of the annual budget (consisting of the recurrent and the development budget). The MEPD is in charge of compiling the Public Sector Investment Programme (PSIP), a five-year rolling plan of prioritised investment projects. The first year of the PSIP provides the basis for the annual development budget. The harmonisa- 10 The term capital budget is somewhat misleading, as it can contain recurrent expenditures related to investment projects as well. The reverse is true for the recurrent budget, which can contain capital expenditure. German Development Institute 57
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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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Publications of the German Developm
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Discussion Paper 16/2007 Schirm, St
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