Bretton Woods financial lending institution, the World Bank, in its quest to improve resource mobilization, budget execution, and transparency of public finances has approved an $80 million (approximately K139.1 billion) grant to bolster the south-east Sub-Saharan nation’s public finance management systems.
The new $80 million International Development Association (IDA) grant complements the International Monetary Fund (IMF) Extended Credit Facility (ECF) arrangement and World Bank Development Policy Financing (DPO), both approved in late 2023.
Malawi’s minister of Finance and Economic Affairs Simplex Chithyola Banda said: “The total expenditure required by our PFM Strategy is approximately $146 million and now, with this IDA financing of $80 million, we are slightly above 50 percent of the required resources.”
“I am very optimistic that, with this, we will create a solid foundation for our fiscal governance and sustain policy reforms throughout the span of the PFM Strategy implementation.”
The Ministry of Finance and Economic Affairs is the lead implementing agency responsible for the execution of the program alongside other key implementing ministries, departments, and agencies such as the Malawi Revenue Authority, Public Procurement and Disposal of Assets Authority, Accountant General, Department of Registrar General, and National Audit Office, among others.
As a Program for Results (PforR), the funds will be unlocked upon the achievement of indicators such as an increase in domestic value-added tax (VAT) revenue collection, decreases in variance between approved budget and expenditure outturn, and an increase of contract data accessible by citizens.
The Government of Malawi recently launched the Malawi PFM Strategy 2023 – 2028 with the overarching objectives of attaining sound financial management and discipline in public service delivery for sustainable development, restoring credibility and confidence in government systems, and creating an enabling environment for more effective development performance.
The five-year Malawi Fiscal Governance Program for Results, the first of its kind for Malawi, will co-finance the implementation of the PFM Strategy.
The successful achievement of targeted results will unlock additional financing for the government and help to increase trust while strengthening controls for spending through government systems.
“Low forex reserves and limited fiscal space have been major challenges for Malawi despite a new IMF program and the recent World Bank DPO series.
“The Fiscal Governance Program for Results, therefore, presents a new and innovative financing instrument that will enable the government to unlock additional resources in a more predictable manner over the next five years, while also serving as a platform for harmonized planning, coordination, and utilization of resources for service delivery,” says Nathan Belete, World Bank Country Director for Malawi, Zambia, Zimbabwe, and Tanzania.
The operation will provide support for strategic activities and fiscal incentives that will enhance the government’s capacity to progressively strengthen its fiscal governance.
It builds on the momentum from the successful use of results-based financing instruments which incentivize the achievement of results.
The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives.
IDA is one of the largest sources of assistance for the world’s 74 poorest countries, 39 of which are in Africa.
Resources from IDA bring positive change to the 1.3 billion people who live in IDA countries. Since 1960, IDA has provided $458 billion to 114 countries.
Annual commitments have averaged about $29 billion over the last three years (FY19-FY21), with about 70 percent going to Africa.
In response, the Economics Association of Malawi acting president Bertha Bangara-Chikadza commended the World Bank for linking the programme to specific targets in the PFM strategy.
The link between the grant and PFM strategy provides direction and measurable outcomes.
She, however, urged the government to stay the course on implementing reforms to promote accountability in the use of public financial resources.
She said: “Proper PFM helps maintain fiscal sustainability by ensuring that expenditures match available resources.
“It prevents overspending and unsustainable debt accumulation.”
In addition, efficient PFM directly impacts service delivery.
“Well-managed finances lead to better infrastructure, improved healthcare, quality education, and other essential services.”
“Proper PFM helps maintain fiscal sustainability…”
Bertha Bangara-Chikadza
Economics Association of Malawi acting President
