EU resumes direct budgetary support to Malawi starting next financial year

In November 2013, several donor nations withheld aid to Malawi in reaction to a growing scandal over government money commonly referred to as Cashgate.

The latest to announce the delay of funding were donors under the Common Approach to Budget Support (CABS).

That was the genesis of economic problem in a country where 40 percent of its national budget comes from donor aid.

Announcing the move during its first review meeting of the 2013-2014 budget on the funding, the group said it decided to delay its aid to Malawi after its loss of confidence in the government’s financial system.

The so-called Cashgate scandal had thus far resulted in the looting of more than $250 million from government coffers.

This is what Sarah Sanyahumbi who was co-chair of the CABS group and head of the Department for International Development (DFID) in Malawi said: “It is clear from what we already know, even though investigations are ongoing, that there are serious weaknesses in the government’s financial systems which allowed [what] we call Cashgate to actually happen.

“So we have seen serious weaknesses which have enabled people to take money out of the government system. While that is the case, you know the donors cannot responsibly continue to put money into government systems. So at the moment, while the investigations are going on, we have delayed any funding which was planned to go into the government system.”

The decision came a few days after the European Union and DFID withheld their funding to Malawi until authorities came to the root of the financial looting.

Ten years down the line Malawi President Dr. Lazarus McCarthy Chakwera in March this year met Commissioner Jutta Urpilainen of European Union (EU) on the sidelines of the LDC5 5th United Nations Conference on the Least Developed Countries (LDCs), in Doha, Qatar.

Chakwera held bilateral talks with the European Union Commissioner who is also Ambassador to Malawi -Rune Skinnebach and the president appealed for the resumption of budgetary support which would invigorate forex flows and by extension pave way for greater economic movement.

The EU expressed the possibility of aligning the budgetary support to specific sectors in particular education and pledged its continued support to Malawi.

Eight months down the line EU has lived to its promise following the announcement that it is starting direct budgetary support.

“I am very hopeful that the EU will now be in the a position to resume direct budgetary support in the next fisical year if Malawi continues to be on track and meet the benchmarks of the ECF,” said Skinnebach.

Commenting on the devaluation, the EU chief commended Government for the decision.

Said Skinnebach: “Prior to devaluation there was a misalignment between the informal and the formal exchange rate. The misalignment inspires all kinds of frauds and it undermines the possibilities of regulating the economy.”

He said it was necessary to devalue the Kwacha to ensure a stronger degree of alignment.

“On top of that we saw that it was followed through with the ECF and a series of development partners including the EU have been engaged to do our utmost to cushion the negative effects of devaluation. I am sure in the longer term its a right decision,” he said.