The World Bank has called for the adoption of three bold reforms as Malawi aims to navigate through the hostile global economic environment worsened by a combination of shocks such as the Covid pandemic and the Russian-Ukraine war.
World Bank County Manager for Malawi Hugh Riddell was speaking in Lilongwe when the bank launched the 15th edition of the Malawi Economic Monitor, titled ‘Strengthening Fiscal Resilience and Service Delivery’.
Riddell said the Malawi Government could restore short-term macroeconomic stability through a package of reforms such as flexible exchange rate management, fiscal consolidation and debt sustainability.
He said, together, the short-term measures would provide confidence to the market and unlock private sector response.
“The government can prioritise private sector-led solutions to chronic forex shortages, including scaling back expensive government interventions in the imports of strategic commodities, while facilitating domestic and foreign investment in export sectors like agri-business and agri-processing.
“The government can, further cushion the vulnerable with social protection. Price rises are hurting the poorest most but they reflect global factors and, therefore, most countries struggle to respond. Ultimately, a more diverse economy will create resilience but, in the short term, targeted and sustainable safety nets can protect household assets through difficult times,” Riddell said.
According to Riddell, the Board of the World Bank recently approved the $188 million scale-up of government’s Social Cash Transfer Programme and enhanced climate smart public works, which includes shock-responsive financing in the event of food insecurity.
The Malawi Economic Monitor also explores the role of decentralisation and the intergovernmental fiscal transfer system to the protection of basic services.
The monitor argues that while the promise of decentralisation has been widely recognised in Malawi’s national development strategies for nearly 30 years, the commitment to follow through has been held back by a lack of trust in the capacities of Local Government systems.
“Finance has not followed function in Malawi’s decentralisation journey to date,” Riddell said.
Local Government Minister Blessings Chinsinga admitted that fiscal decentralisation has substantially lagged and finances have not correspondingly followed devolved functions.
Chinsinga said the resources have been decentralised in a fractured, uneven and incomplete fashion and, sometimes, have been unpredictable.
“The report alludes to a vicious cycle of low trust, low investment and low accountability in local governments that must be broken for decentralisation to meaningfully deepen and I could not agree more to this. More specifically, the Mem is in tune with my fundamental belief that capacity cannot be legislated in abstract; it develops through opportunities for action and learning, which, the report notes, has not always been given to our councils often on the pretext that they lack capacity.
“This does not help matters and, as the report notes, “it makes it difficult to distinguish coping from corruption and helps maintain the status quo,” Chinsinga said.
Malawi Local Government Association Executive Director, Hadrod Mkandawire said there have been issues of trust between the Central Government and the local councils as Central Government feels that the local councils do not have capacity to handle public finances well.
But Mkandawire said, through a programme by the World Bank which has perfomance-based grants, local councils have proven to have the capacity to handle public funds well, adding that, out of 28 local councils, only two did not perform well.