>SOCIAL
STUDIES
“Where Does the Aid Funding
Go?”
Compiled by Hastings Kafundu, Economist
1.0 Introduction
There is an urgent need to transform Malawi’s
economy and make it respond to today’s challenges of national
development. Malawi’s current socio-economic situation sharply
marked with unprecedented high poverty and unemployment levels coupled
with the HIV/AIDS pandemic calls for a re-look at the national strategies
for development. The recent years have witnessed the country overwhelmed
by a heavy debt burden accompanied by donor-driven structural and macroeconomic
reforms, and a period highly characterized by poor economic performance.
Many developing countries, Malawi being no exception, are paying more
in debt service than foreign aid received. This is regrettable especially
if seen in the light of the mounting poor countries’ external
debts not only in absolute numbers but also in percentage of the Gross
National Product (GNP). Technically speaking, foreign aid is expected
to help provide a wide range of social and economic services and favourable
conditions for the improvement of the living standards of the people.
But most foreign aid given to Malawi is tied and specific in nature-
implying that the donors put certain conditions to its provision, i.e.
the donor determines how the assistance should be used. Foreign aid
tying has become an important tool for corporate interests in donor
countries to establish or consolidate markets in developing countries,
in addition to insulating procurement procedures in the recipient countries
and national markets against competitive markets. Failure to comply
with donor conditions usually results in foreign aid being withheld
by the donor countries.
However, one thing which must be understood by both donor and recipient
countries is that tied aid makes a country’s Official Development
Assistance (ODA) conditional on acquiring specific goods, service and
technologies from that country. It is therefore not wrong to conclude
that large percentage of aid funding to poor countries returns directly
or indirectly to rich donor countries. In recent years aid flows to
developing countries have been decreasing in real terms while there
has been a corresponding increase in debt repayments from the poor countries
to the rich nations of the north. Money is being taken from the poor
to give the rich. Foreign aid is simply a method whereby donor countries
maintain position of influence and control over the entire world.
1.1 Objective of the study
This research therefore will be an attempt by the CFSC debt
and trade project to establish the total aid inflows and outflows in
Malawi for the period ranging from 1997-2003. The choice of the period
depends on the availability of data. The survey sets from the beginning
to answer very pertinent questions: where does aid money go? Are Malawians
benefiting from the aid inflows? How much aid does the government of
Malawi receive and how much goes back to the donor countries in form
of interest payment and technical expert salaries, procurement of equipments
e.t.c? This is a critical study of the economic and social imbalances
in Malawi’s development plans occasioned by a global arrangement
that pits the south on one hand against the rich north on the other
in what has come to be commonly known as the “debtor-creditor”
relationship.
The reduction of poverty and improvement of the living conditions has
in recent years become the overarching goal of most national governments
and donor agencies. The debates on how these goals are going to be attained
dominate the development planning process everywhere. In order to attain
the above goal, there is consensus is that there should be immediate
and significant reduction in external debt of poor countries to free
resources in various poverty eradicating programmes. The debt reduction
should also be complimented by significant aid flow to these poor countries.
At the time when poverty levels in the country are unacceptably high,
the burning question in every body’s mind is: “where does
the aid money go?” Thus this study sets as its objective to reach
donor community in affecting change in its borrowing policies for favourable
outcomes of the poor people in Malawi. In order to achieve our intended
objective of this study, there is need to properly define what we mean
by the word “AID”. The definition will obviously guide the
researcher in data collection from various sources.
1.2 Sources of information
In carrying out such a mammoth research task one needs to identify
the sources of information without which this would be a failure. The
following have been identified as source of information; Reserve Bank
of Malawi, Ministry of Finance, National Economic Council and some international
donor agencies. The study will have two components; a desk study and
interviewing government officials and officials from international organizations
and embassies here in Malawi.
2.0 Conceptual Definition of
Foreign Aid
Over the past years, there have been some conceptual
problems in definition of foreign aid. Different schools of thoughts
have come up with different definitions of what foreign aid is. Todaro
(2000) define foreign aid as all government resource transfers from
one country to another. While some economic experts have defined foreign
aid as flow of capital or any assistance to a country which would not
generally have been provided by natural market forces. Others have defined
it as the capital flow in form of long term loans, the soft loans, the
sale of surplus export products on preferential treatment and technical
assistance. The concept of foreign aid that is now widely used and accepted
is the one that encompasses all official grants and concessional loans,
in currency or in kind, that are broadly aimed at transferring resources
from developed to LDCs on development or income distribution grounds
(Todaro 2000: 591). Under the later definition, it is therefore not
technically wrong to categorize all grants and concessional loans from
developed countries to Malawi as foreign aid.
Just as there are problems associated with defining foreign aid, there
are also some conceptual problems in the calculation of foreign aid.
Firstly, you can not just add together the dollar value of grants to
the dollar value of loans as each has different significance to the
donor and to the recipient countries. It is proper to discount the dollar
value of the interest bearing loans before adding them on to the grants
dollar value. Secondly, the introduction of SAPs, ESAFs e.t.c has been
associated with inflow of tied aid either by source or by project. Either
way, it has been established that the real value of foreign aid could
be reduced as the specified source could be very expensive or the project
could not be of significant importance to the nation. Furthermore, foreign
aid may be tied to the importation of capital intensive machinery resulting
in mass unemployment in the recipient countries. It has also been observed
that foreign aid is normally calculated in nominal terms and the values
tend to show a steady rise over a period of time. However, at this moment
of rising prices, the actual real volume of aid has significantly declined
over the past decade.
2.1 Aid Dependence Syndrome
As already discussed in the introduction of this paper,
many political and economic commentators have proved without reasonable
doubt that donors give aid because of their political, strategic and
economic self-interest. However some donor assistance may be motivated
by moral and humanitarian desires to assistance the less fortunate.
There is no historical evidence to suggest that donor nations assist
others without expecting anything in return. Following the above observations,
motivations of donor nations have been broadly categorized into two
main groups namely: political and economic motivations.
2.1.1 Political Motivation
Most donor countries give aid for political reasons. This is
more evidenced under the Marshall Plan when United States of America
(US) gave aid towards the reconstruction of the war torn Europe as a
way of avoiding the spread of communism. When the balance of cold war
shifted from Europe to third world countries, US aid policy too shifted
to support the friendly third world countries. Most foreign aid programmes
to third world have been for strategic purposes rather than promoting
long term social and economic development (Todaro, 2000). Other donors
like United Kingdom (UK), France, Japan e.t.c have similar objectives
that of US in their respective aid policies. The only few exception
were the Nordic countries and perhaps Canada whose foreign aid policies
are to developing the third world countries other than strategic or
political leverage.
2.1.2 Economic Motivation
While some give foreign aid for political reasons, others extend
their foreign aid programs to developing world purely on economic rationale.
Although political and strategic rationale are given paramount importance
from other donors, at least Japan and the Nordic countries have extended
foreign aid to needy third world countries to expand their bilateral
trade and investment. It is realized that external finance is very crucial
in third world countries to supplement their merge domestic resource
base. In order for third world countries attain economic growth, there
is need for those countries to accumulate sufficient investment which
in turn is dependent on domestic savings. Foreign aid assistance supplements
the domestic resources with the much needed foreign exchange to finance
the importation of capital and intermediate goods and services.
Studies conducted on aid have established that benefits of foreign aid
accrue to donor countries other than recipient countries. This has been
the case because most donors have been extending more loans which accumulate
interest than grants. In tied aid situation too, a sizeable amount of
foreign aid also goes back to the donor countries in form of importation
of capital equipment and other goods and services. The Table 1 below
shows countries which paid more in debt service than foreign aid received
in 1999.
Table
1: Debt Service Vs Aid, 1999 (million US$)
| Country | Debt Service paid | Aid | Debt Service as a percentage of Aid received |
| Angola | 1144 | 261 | 438 |
| Cameroon | 549 | 190 | 289 |
| Cote d’Ivoire | 1449 | 366 | 396 |
| Gambia | 21 | 14 | 156 |
| Ghana | 524 | 255 | 205 |
| Kenya | 716 | 195 | 367 |
| Zambia | 439 | 346 | 126 |
Source: World
Bank (2001), Global Development Finance
Sadly this has been the trend in recent years and the same case can
generally be replicated for the rest of the Third World countries. This
is regrettable situation especially in the light of the amounting poor
countries’ external debts not only in absolute numbers but also
in percentage of the Gross National Product (GNP). The overall Third
World countries debt to GNP ratio reached 27% in 1980 and 38% in 1994.
For the SSA; debt to GNP has risen to 79% in recent years. It must be
understood that donations/grants are only a portion of what is conventionally
called development aid. In SSA most aid takes the form of loans, lines
of credit, investments, paid technical assistance and thus, provides
profits for the “donor” as opposed to grants to help provide
a wide range of social and economic services for the improvement of
the living standards of the people. Aid tying has become an important
element of aid disbursement to SSA in recent years, i.e. the donor determines
how the assistance should be used.
Why then LDCs accept foreign aid in the form that is described above?
In whatever form, foreign aid is very crucial and essential ingredient
in development process of any particular country. As already indicated
in earlier sections of this paper, foreign aid supplements domestic
resources and provides the much needed foreign exchange for the importation
of capital equipment and raw materials essential for economic growth.
Both donor and recipient countries agree that foreign aid contributes
to the achievement of the laters’ takeoff into self-sustaining
economic growth. The conflict between the two sides arises over the
volume of aid and conditions attached to it. Often times recipients
would like to be favoured with aid which is untied i.e outright grants
are preferred. They also like long-term loans which disburse fast bearing
very minimum interest rates if not service charge. Much as these sentiments
could be appreciated by the donor community, it has been observed that
this kind of aid has either been wasted in very unproductive projects
or misappropriated by the past corrupt regimes. This kind of aid utilization
has forced the donor countries to put strings on any aid flow whether
in form of grants or loans.
Evidence has shown that LDCs seek foreign aid for moral motivation.
Many LDCs have the belief that donor countries have the moral obligation
to support the economic and social development of LDCs economies. Recipient
countries believe that donor countries have the moral responsibilities
towards the welfare of the poor in the recipient countries. The donor
countries are therefore responsible for the provision of humanitarian
aid and any other aid because there is a general belief that rich countries
owe the poor countries substantial amount of money from the past exploitation.
In some countries aid is perceived by both donor and recipient countries
as providing a greater political leverage to the existing leadership
to suppress the opposition and maintains the ruling party in power.
In such a scenario, foreign aid takes not only the form of financial
resources transfer but military and internal security reinforcement.
In practice once this kind of aid is accepted by recipient countries,
it becomes very difficult to prevent donor countries from interfering
in matters of internal security of recipient countries.
3.0 Economic Overview
Malawi is ranked amongst the poorest countries in the world with an
official per capita income of less than $200 and an average life expectancy
at birth of approximately 39 years. According to United Nation’s
Human Development Index classification, Malawi ranks 162 out of a total
of 175 countries with an infant mortality rate of 114 per 1000 (UNDP,
2003). The maternal mortality ratio is at 580 per 100,000 live births.
The prevalence of HIV/AIDS (13 per cent of the adult population) is
high in both absolute and relative terms. In terms of population output,
the economy is heavily dependent on agriculture with a very narrow export
base. According to the Economic Report (2003), agriculture contributes
45% of the Country’s GDP. Tobacco alone accounts for nearly 65%
of Malawi’s export earnings followed by teas and sugar. On the
whole agriculture sector generates up to 95% of the exchange earnings
and employs a sizeable number of the rural population in the country.
3.1 Economic Performance between 1970-1979
Since independence in 1964, Malawi experienced variations in
its economic performance. Evidence from Harrigan (2000) indicates that
the economy experienced a gradual and steady economic growth in the
immediate post-independence period, with a healthy balance of payments
position achieved through export of cash crops. Chalira (1993) and Harrigan
(2000) describe the impressive economic performance during the 1970s
to the successful pursuit of the export-oriented, agro-based, labour
intensive development strategy. During the period under study, agricultural
sector was seen as the engine of economic growth, providing much of
the revenue that government used to build the infrastructure system.
The agricultural export earnings were used to finance the import substitution
industrialization program which played a secondary role in Malawi’s
impressive economic performance during the 1970s. Malawi’s achievements
relating to capital formation and its financing were also impressive
during the same period.
3.2 Economic Performance of the 1980s
Malawi like many other countries in SSA started showing some
signs of macroeconomic disequilibria during the late 1970s and from
the beginning of the 1980s after a decade of economic prosperity. According
to the macroeconomic indicators shown in the Table 2 below, the real
GDP growth rate fell from 5.11% in 1979 to a dismal 0.23% in 1980 and
its growth rate has been disappointing during the period between 1980
and 2003, swinging from negative to positive in almost each every other
year. According to the same Table 2, investment as a percentage of GDP
fell substantially, from 30.7% in 1979 to 21.8% in 1980 while domestic
savings as percentage of GDP growth fell from 15.1% in 1979 to 10.9%
in 1980. Malawi suffered the worst ever economic stagnation in 1992
and 1994 where the real GDP growth rates registered negative 7.3% and
negative 11.6% respectively (Monthly Economic Review 1999).
The slowdown in economic activities was also manifested in the external
sector of the economy. Export performance, in real terms, increased
from US$447 million in 1990 to US$513 million in 1991 before a steady
sharp drop to US$320 million in 1994 (Monthly Economic Review 1999).
The drastic drop was a result of the poor weather conditions while the
imports were overshooting their normal anticipated levels. The imports
of goods and services increased by 59.1% from US$480 million in 1980s
to US$764 million in 1992. Food, capital equipment and raw materials
were the fastest growing categories of imports (NEC, 1982). The food
importation was to supplement the food crisis associated with the 1979
drought weather condition that prevailed in the Sub-Saharan region.
The magnitude of Malawi’s economic decline between 1977 and 1980
was equivalent to a 9.0% loss in GDP (Harrigan, 2000).
The unexpected development between 1979 and 1980 also greatly distorted
the expected flow of financial resources, making it necessary for the
government to engage in massive borrowing from domestic banking system
and from bilateral and multilateral institutions to finance the balance
of payment and execution of development projects.
Table 2: Macroeconomic Indicators 1970-1980
| 1970 | 1971 | 1972 | 1973 | 1974 | 1975 | 1976 | 1977 | 1978 | 1979 | 1980 | |
| GDP growth rate | 0.47 | 16.23 | 6.22 | 2.29 | 6.13 | 4.18 | 5.83 | 9.07 | 6.99 | 5.11 | 0.23 |
| Total Investment/GDP | 26.10 | 19.40 | 24.70 | 22.70 | 24.00 | 28.40 | 16.40 | 21.90 | 37.30 | 30.70 | 21.80 |
| Domestic savings/GDP | 13.30 | 9.30 | 12.20 | 13.70 | 13.60 | 10.10 | 10.70 | 17.60 | 20.90 | 15.10 | 10.90 |
| Net Govt borrowing(MK million) | NA | 5.50 | 7.30 | -1.00 | -3.30 | 18.00 | 17.20 | -9.30 | 25.00 | 27.20 | 62.60 |
| BOP current account defict/GDP | 10.22 | 7.88 | 10.53 | 7.84 | 7.04 | 12.88 | 9.82 | 6.71 | 16.81 | 19.81 | 16.77 |
Source: Monthly
Economic Review, Reserve Bank of Malawi, various
The causes
of these macroeconomic imbalances in Malawi became source of dispute
by a number of analysts. Chalira (1993) and Harrigan (2000) blame the
interaction between unfavourable and unstable circumstances in the international
environment (deterioration in the terms of trade; a sharp rise in international
interest rates; drought conditions in 1970-1980; and disruption to Malawi’s
traditional trade route to the sea due to civil wars in Mozambique)
and internal economic mismanagement as responsible for the Malawi’s
economic crisis. The internal factors included increased budget deficit;
overvalued exchange rate; controls in prices and income policies; narrow
export base and dependence on tobacco as the main foreign exchange earner;
deterioration of parastatal finances; slow growth in smallholder exports.
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Despite the government-renewed efforts in restructuring its economy
with the purpose of enhancing its growth rate and payment capacity,
paradoxically, Malawi’s economic performance during the 1980s
never recovered to 1970 levels. In the first half of the 1980s when
the policy emphasis was on stabilizing economic growth, growth disappointingly
stood at 2.5%, less than the rate of the population growth (Monthly
Economic Review 1999). According to Chilowa (1994), the economic growth
stagnated completely in the mid 1980s due to poor performance in the
agricultural sector and civil war in Mozambique which disrupted transport
and led to an influx of over million refugees.
3.3 Economic Performance in the 1990’s
Malawi’s economic performance showed signs of recovery
at the end of 1980s and during the beginning of the 1990s. This is during
the period when Malawi was implementing both stabilization and structural
adjustment programs (SAPs) under the auspices of the IMF and the World
Bank. The period between 1988-1991 was marked by a significant improvement
in the economic performance as growth rate reached as high as 5% which,
according to Chilowa (1994), was comparable to the high performing African
countries like Ghana and Uganda. During the same period, inflation was
reduced to lower levels. However, Malawi’s impressive economic
performance could not be sustained during the early 1990s. According
to Chalira (1993) and Chilowa (1994), the economic down turn was due
to both exogenous and domestic shocks.
The beginning of the 1990’s marks Malawi’s political revolution
which has also had an impact on its economic performance. Following
the suspension of aid in May 1992 by the international donor community
due to issues of governance, Malawi held a national referendum in 1993
and the first general elections took place in 1994. This is also the
period when domestic debt in Malawi began to build up in absolute terms
(Ngalande, 2000). The inadequacy of fiscal adjustments required to offset
shortfalls in external borrowing led to increase in central government
borrowing internally.
The government under the leadership of President Bakili Muluzi made
a promising start. Due to its dependence on donor support for BOP financing,
the government enhanced liberalization and privatization programs under
the supervision of the IMF and the World Bank. To promote the role of
the private sector, the 1990’s policies of the Malawi government
have mainly been privatization, investment promotion, financial deepening,
and promotion of competitive exchange rate, external tariff rationalization,
export diversification and development (RBM, 1999). Evidence from GoM
(1998) suggests that the government has also been following strict expenditure
control measures. However, the implementation of expenditure control
measures by Muluzi government was short lived as it experienced yet
another serious economic down in 2003 and 2004.
In addition, Malawi has in recent years taken steps to reduce macroeconomic
imbalances by broadening market-oriented reforms and improve outcomes
in the social sectors. The macroeconomic performance improved under
the 1995-1999 period of the an ESAF program relative to the early 1990s,
apparently as a result of IDA-supported programs that helped to stabilize
the economy and liberalize the agricultural, trade, financial and the
oil importing sectors (IMF, 2001) Malawi also took measures to address
poverty directly, including the launching of Malawi Social Action Fund
(MASAF). Nevertheless, sustained economic growth has not been achieved
and poverty remains widespread. Instead of enhancing growth rates and
payments, continued borrowing in the 1990’s resulted in decline
in real income per capita growth with far reaching implications economically,
socially and politically.
4.0 Research Findings
4.1 External Debt Stock by Creditor Category
The purpose of this section is to give the leader the total debt and
aid flow levels to Malawi basing on the definition of aid discussed
in section 2 of this paper. External debt and aid portfolio is a situation
analysis which reveals the composition, structure and magnitude of existing
and future debt and aid flows to Malawi.
The study has established that the debt burden of Malawi has increased
steadily since the early 1980s despite the various rescheduling, restructuring
and debt conversion schemes put forward by the creditors. In fact, these
procedures when combined with IMF-World Bank policy-based lending (under
SAPs) were conducive to enlarging the outstanding debt of Malawi while
ensuring prompt reimbursement of interest payments. By the mid-1980s,
Malawi had become net exporter of capital in favour of its creditors
and other rich nations. In other words, the flow of actual debt servicing
was in excess of the new inflows of capital in form of loans, foreign
investment and foreign aid. In the same period the IFIs had re-financed
debt largely in the name of commercial bank and official creditors.
Under the articles of agreement of the Bretton Woods institutions, these
loans cannot be rescheduled.
Malawi’s medium and long terms disbursed outstanding debt stock
amounted to US$0.63 billion by the end of 1991 and grew to almost US$2330.7
billion by the end of 1998, representing an increase of over 100 per
cent. The total debt stock of medium and long-term by creditor category
at the end of 2003 was US$2,480 million (see figure 1 below).
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Statistics from Ministry of Finance and Reserve Bank of Malawi
The study has revealed
that the increase in the public debt stock is mainly attributed to fast
disbursing loans from IDA to Malawi Social Action Fund; Education Sector
Projects; Fiscal Restructuring and Deregulation and some BOP support.
There was, however, a sharp increase in debt stock from 1996 to 1999
due to accumulation of arrears resulting from poor fiscal position and
foreign exchange squeeze. This resulted from significant cut in aid
flows by the donor community. The drop in debt stock in 1997 below was
due to repayment of accumulated arrears and commitment from donors associated
with the aid freezing.
According to various government publications consulted in this study,
IMF and World Bank are the main traditional creditors. At the meantime
Malawi is currently on IDA-only borrowing terms resulting in government
confining its additional borrowing on concessional terms predominantly
from the World Bank’s IDA window, the African Development Fund
(AfDF) and the Overseas Economic Cooperation Fund of Japan (OECF). The
multilateral creditors are the most dominant, accounting for nearly
85 per cent of the total debt stock, whereas bilateral creditors account
for 14 per cent and commercial creditors representing 1 per cent by
the of 2003 (see figure 2 below).
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Statistics from Ministry of Finance and Reserve Bank of Malawi
4.2 Official Grants
Table 4 below shows the trend of inflows of grants to Malawi
between 1997–2003. Like the trend for the rest of SSA countries,
inflows of grants to Malawi have been decreasing in real terms while
there has been a corresponding increase in debt repayments from Malawi
to the rich creditor nations of the north. According to the statistics
in the Table 4 below, the total grant inflows has decreased from US$106.2
million in 1999 to US$98.3 million in 2003. The sharp drop in grant
flow to Malawi is attributed to political pressure by the donor countries
which resulted in the suspension of aid in 1992. Malawi has also experienced
further drop in aid in flow due to economic mismanagement by the previous
Muluzi administration resulting in the suspension of Poverty Reduction
Growth Strategy Facility (PRGSF) by the IMF and the rest of the donor
community.
Table 3: Aid flow and External Debt Service between 1997 –
2003 (US$ Million)
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Source: Magalasi C. “Malawi Debt Burden and Effects”,
2002, Ministry of Finance and Reserve Bank of Malawi
| 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |
| Aid flow | 433 | 375 | 106.2 | 105.6 | 78.4 | 165.2 | 98.3 |
| Debt Service | 75 | 56 | 56 | 44 | 110 | 67 | 64 |
4.3 External Debt Service
Malawi’s external debt service fluctuated a lot between
1997 and 2003. The debt service decreased sharply from US$75 million
in 1997 to US$44 million in 2000 before increasing to US$110 million
in 2001. The debt service then slumped from US$67 million in 2002 to
US$64 million in 2003 (see Table 4). According to the Global Finance
indicator (2004), multilateral debt service was the most dominant over
bilateral and commercial debt service. In terms of debtor category,
central government is dominant over the public corporations debt service.
In general the actual debt service has remained relatively stable over
the last decade, however, as a percentage of economic output, spending
on debt service is thrice the amount spent on health.
On comparative terms aid flow has shown the same trend as that of external
debt service. The aid flow decreased continuously from US$433 million
in 1997 to US$78.4 million in 2001. According the figure below the trend
in donor inflows have remained continuously low from 1999 to 2003 compared
to the 1990s. One major reason for the decrease in grant inflows is
the loss of trust in the economic management of the country by the donor
community. However, the study has shown that Malawi unlike other countries
in SSA get more aid than what it pays out in debt service, a trend depicted
from the figure below. Grants are expected to increase as a result of
favourable response from donors following the approval of the new Poverty
Reduction Growth Facility (PRGF) with IMF. The newly approved PRGF will
definitely restore donor confidence in the day to day operations of
the economy and the inflows are therefore expected to increase during
the period of the new PRGF.
Statistics from Monthly Economic Review, 2004, and Magalasi, C.
“Malawi Debt Burden and Effects”, 2002
One wonders why Malawi is getting poorer and poorer irrespective of
all the aid monies coming from donors and the massive presence of various
non-government organizations (NGOs) working directly with the people?).
The answer lies in the aid utilization. According to media reports,
Malawi has more than 47 donors and close to 300 registered NGOs. The
role of the NGOs is to ensure that developmental capital goes directly
to the grassroots. However, evidence has shown that despite the influx
of these NGOs in Malawi, the targeted population at least remains indefinitely
poor. One Malawi news reporter reported that a huge sum of developmental
aid is spent on hotel accommodation, meals and salaries of the staff
and consultants working on the project. Mind you that that consultants
are normally from donor countries where these project money come from
and all payments of their services is made in foreign currency. It is
a well known fact to all the Malawians that those working either for
a project or in with an NGO are supposed to either be paid a good salary
or drive a project vehicle or both. From the above analysis one would
conclude that getting where aid is most needed proves a very difficulty
and swallows a lot of donor funds than implementing the project itself.
A lot of coins are spent on non project related activities allowances
of various types, salaries for locally recruited staff, running and
maintenance of project vehicles and substantial amounts of monies are
siphoned back to donor countries through payment of consultancy fees,
importation of project materials and salaries for expatriates working
on the project.
The other problem which is seriously affecting the utilization of foreign
aid in Malawi is corruption. According to Malawi New of 20-26 May, 2006
over MK8 million DanChurch Aid money were misappropriated by one of
the local beneficially HRCC. The same article alleged that the Director
of HRCC failed to account for MK7 million meant for administration of
HRCC. These are only few cases of corruption which are leaving Malawi
with more destitute with untold poverty. Who would forget the Fieldyork
scandal, the Chilumpha MK187 million case, the Philip Bwanali MK11 million
saga just to mention a few corruption cases. These resources whether
local donations/grants/loan would have gone long way to improve the
social economic living conditions of Malawians. Imagine that Malawi
is now doing very little with just enough foreign aid as displayed in
the figure above, one would imagine what will happen when Malawi will
have a lot to do with very little foreign resources when most of the
donors and NGOs are tired and have pulled off? This should be thought
in the context that around 80% of Malawi’s annual capital budget
is supported by the donors and creditors.
The study has also established that lack of donor coordination can also
undermine recipient priorities which could be costly to the recipient
countries. How? It could put a burden on recipient countries where public
service is put on too much pressure due to too numerous donor missions.
A lot of employees working on projects in Malawi spend a lot of time
preparing documents at various stages of aid projects from preparation
to negotiations to implementation to monitoring and evaluation. The
staff are always very busy receiving donor missions and preparing donor
reports while others spend lot of foreign exchange meant for the execution
of the project on air tickets and allowances to go and attend bilateral
talks and attend multilateral meetings of Brettonwoods institutions
such as IMF/World Bank Annual meetings, WTO Negotiation meetings etc.
All the above activities draw resources that could otherwise been put
into priority areas in the recipient countries.
4.4 Foreign Direct Investment
The study has revealed that due to privatization process, the
foreign direct investment (FDI) has slightly improved as the new investors
have come to take up the shares in the newly restructured and privatized
local companies. However, despite the improvement, Malawi is still classified
as one of the lowest recipients of FDI in the world according to UNCTAD
ranking 109 out of 140 economies. Some of the reasons for the persistently
low levels of FDI inflows to Malawi as cited by the Annual Economic
Report, 2005 are as a result of unfavourable macroeconomic conditions;
poor economic infrastructure; low labour productivity; high taxation
and inadequate funding for investment promotion. Indeed one would not
expect a lot FDIs in a country where corruption is an order of the day
and uncertainties in the political arena. Investors would go to places
where there is political stability in addition to stable macroeconomic
stability and good infrastructure facilities; roads, telecommunication
e.t.c.
5.0 Conclusion
Malawi’s social-economic situation paints a cloudy
picture. A large population lives in the rural area deriving their livelihood
from agriculture. The recent non-performance of the agricultural sector
due to droughts has wounded the vulnerable group. Poverty is rampant
with about 60% of the population living below the poverty line. In the
process of repaying the debt, the social sectors have been neglected.
This study has established that debt service payments in Malawi are
impediment to economic growth and human development. A continuation
of debt payments without first addressing the social and economic needs
of the Malawians would be offensive to human rights. The study has noted
that Malawi has escaped some serious debt crisis and has not had any
defaults, although it had recourse to rescheduling facilities on more
than one occasion. This is because Malawi has been able to attract substantial
capital inflows in form of grants or balance of payments support facilities
from bilateral and multilateral institutions. Furthermore authorities
have placed top priority to debt service ahead of all other external
payments.
Experience has shown that Malawi can no longer its debts. Malawi has
been servicing its debts at the expense of social and economic development.
In this respect, the traditional creditors must no longer encourage
the Malawian government to borrow, even at high concessional rates.
Instead Malawi should be given grants which should be monitored in order
to achieve more pro-poor outcomes, especially in agriculture, health
and education. There will be no meaningful development and significant
poverty reduction in Malawi if major social and economic activities
will be financed through loans, even loans with high grant element.
Debt is already depriving Malawi of huge resources through debt servicing.
With more grants than loans, Malawi will be given a chance to plan and
function properly for national development.
To reinforce the above point, Malawi needs to break the spiral growth
of indebtedness by becoming more responsible in the manner in which
loans are contracted. The government must ensure that the loan contraction
process is open for members of Parliament to approve when, why and how
much Malawi needs to borrow. The public must also be provided with adequate
and timely information of the loans contracted by the Government.
Today, one of the major tasks that government has is to ensure that
there is transparency and accountability in the use of the public resources.
For debt relief resources, it is important that government accepts to
establish a system that would ensure proper use of debt relief resources
for the benefit of the poor Malawians. The civil society and parliament
must be involved in the management of these resources.
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©
Montfort Media, 2007 |
