News24

Malawi's FM: Aid expected to return

2012-04-10 10:50

Lilongwe - Malawi's finance minister expects suspended international aid to be restored under its new president, Joyce Banda, helping prop up a budget increasingly under strain after the previous president picked fights with overseas donors.

Finance Minister Ken Lipenga also told Reuters on Monday that former President Bingu wa Mutharika, who died on Thursday of a heart attack, had blocked plans called for by the International Monetary Fund to devalue the currency because he was worried the move would hurt the poor.

Aid-dependent Malawi slid into economic crisis over the past year as Mutharika, a professorial but temperamental former World Bank economist, squabbled with major western donors who then froze millions of dollars of assistance that had traditionally bankrolled about 40% of the budget.

"I expect the resumption of aid will happen," Lipenga said.

Foreign diplomats showed their support for Banda by visiting her residence even before she had been officially installed, but so far there have been no concrete signs the West is preparing to restart the flow of aid.

The finance minister has not yet discussed economic policy with Banda since she became president but he thinks she will be able to address some issues that raised red flags with donors including suppression of human rights and the media.

"The donors were emphasising the concerns of the Malawi people," he said.

Mutharika plunged the country into isolation last year when he expelled the ambassador from former colonial master and biggest aid donor Britain, who said in a leaked diplomatic cable Mutharika was autocratic and intolerant of criticism.

In a watershed moment for the normally peaceful state known as the "Warm Heart of Africa" Mutharika's police killed 20 people in anti-government protests in July 2011, leading to international condemnation and a cut of aid packages from other donors.

Devalued

The IMF, which has suspended a $79m aid facility due to conflict with Mutharika, wants to see Malawi's currency, the kwacha, further devalued, saying too much of the state's precious reserves are being used to defend it.

Malawi devalued the kwacha last year to 165 to the dollar from 150. On the black market, the price is nearly double, reaching 295 to the dollar just before Mutharika's death.

On news of his death, the rate dropped to 270-275 with many anticipating an end to a foreign currency crisis that had crippled the economy. As dollars disappeared, fuel prices had soared and foreign goods such as medicine became prohibitively expensive.

Lipenga said the government was poised for another devaluation in September, after he returned from a meeting with the IMF in Washington, but Mutharika blocked it.

"He was very much against devaluation unaccompanied by other measures because he argued it would hurt the poor," Lipenga said.

Malawi was one of the fastest growing economies in the world after Mutharika took office in 2004, averaging 7% expansion between 2005-2010 thanks to internationally funded fertiliser subsidies and seed programmes that turned the nation of subsistence farmers into food exporters.

But the aid cut-off and Mutharika's steadfast ways put the economy on a death spiral.

Lipenga said the economy could return to its fast rate of growth if aid was restored but added the country needed to move away from its biggest cash crop tobacco, which at one point provided up to 80% of its foreign currency, by increasing the strength of its value-added businesses.

"We really need to start generating forex for ourselves," he said.

Comments
  • Graham - 2012-04-10 11:25

    So typical! Expects aid to return! Try and earn it first, I know that is a alien concept in Africa.

      James - 2012-04-10 12:28

      The average Malawian probably works harder than you! Donors are not just being kind-hearted. They have agendas too.

  • Michael - 2012-04-10 11:46

    So....waiting for the EVIL West to bail you out AGAIN????!!! How about making a budget that you can actually sustain without the begging bowl being part of it. See how long it takes before

      James - 2012-04-10 17:54

      James - April 10, 2012 at 14:52 Report comment Something more needs to be said in defence of the "average Malawian". Returns for his considerable efforts are often very disappointing, for example,last year's tobacco prices left him with little or no money to buy fertiliser again this season. More importantly for his family, and, despite what has been said about "bumper maize yields", the "new" seed is in many ways less suitable. The necessary fertilisers are far too expensive and there are problems with storage of the maize (often requiring the purchase of more chemicals). So please consider the effect that fertiliser dependency must be having on their economy and also whether outside vested interests may have played a part. On the all-important question of aid, I would hope that it resumes very soon but not before donors have studied ways of preventing its misuse.

  • Sean - 2012-04-10 12:49

    Will you guys stop talking rubbish do you know anything about the country! were you born there? do you live there? does not sound like it. Malawi is a beautiful country but is still VERY rural in most parts of the country & does not have loads of natural resources to trade etc. they have a long way to go & you can't just replace 40% of the budget suddenly use your brain they will need that budget for many years to come as they slowly build up the infrastructure which they have been doing slowly but surely. They only built their 1st mall a few years ago for crying out loud. If you don't know the country or live there rather comment on your own countries problems. @James you are correct the average malawian lives in a village & either farms or fishes in the lake for food & then sells some of it for cash or they make bricks or chop wood to sell etc. etc.

      Bibi - 2012-04-10 13:32

      Malawi is greatly dependent on tourism and AID form Western countries. The deceased president has once again enriched himself and his own family whilst overlooking the needs of the very poor and sick. He gave his own sister a cellphone network licence with himself some shares in it. @James: Of course donors want something back for there money, it is after all a form of investment not a charity. We have the Red Cross, US/Scandinavian AID for donations. For one look how many Chinese nationals are currently living in Africa...

  • Irene - 2012-04-10 14:49

    How typical. It expects the aid to return!! I sincerely hope it doesn't. The West must not aid Africa IN ANY WAY. African solutions for African problems, remember!

  • Lorraine - 2012-04-11 11:41

    why is that the western is very keen on always giving Africa AID. Why is that the never suggest exchange of skills to Africans. The question is that why does an ex-world bank economist would cut out western AID?? When will we find the Right approach to deal with the ills of colonisation???

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