Context
With an average per capita income of USD 270, Malawi is one of the poorest countries in the world. Around 72 per cent of the population lives below the poverty line. In 2014, Malawi ranked 173rd out of 188 countries listed in the Human Development Index of the United Nations Development Programme.
The population has little trust in the government’s efforts to improve this situation. Repeated corruption scandals (such as the case known as Cashgate that emerged in October 2013) reveal severe shortcomings in the use of public funds. If resources are not put to correct and proper use, it will be difficult for Malawi to achieve sustainable development as foreseen in the Malawi Growth and Development Strategy II.
The Integrated Financial Management Information System (IFMIS), which is designed to record all public expenditure electronically, is not functioning effectively. This makes internal control and oversight as well as external audits by the National Audit Office considerably more difficult. Moreover, the Central Internal Audit Unit and the National Audit Office are not able to carry out all necessary audits due to a lack of technical and human resources. The inability of the population to put sufficient pressure on the government is another challenge to government’s accountability. So far the media and civil society have not been vocal and contentwise strong enough to effectively demand accountability.
Objective
PFEM institutions (the Ministry of Finance, Economic Planning and Development, the Office of the President and Cabinet and the National Audit Office) are more effective, accountable and transparent.
Approach
The project is working on improving general conditions in the public finance system, including both domestic resource mobilisation as well as internal and external audit. This is to enable the government to successfully implement its national poverty reduction strategy.
The Project’s main partner institution is the Ministry of Finance, Economic Planning and Development, which plays a key role in the country’s budgetary and financial policy. Other important partners are the Office of the President and Cabinet, the Supreme Audit Institution (National Audit Office), the Central Internal Audit Unit, the Government Contract Unit and the Malawi Revenue Authority. These partners are being supported through technical, organisational and system-based assistance. The focus is on strengthening the public finance system, in order to increase in the medium term the Government’s ability to deliver services to its citizens as well as to reduce corruption.
Support to the Accountant General’s Department focuses on basics of government accounting such as bank reconciliation and financial reporting. Furthermore, the project is advising the Malawian Government on how to improve the legal framework for internal and external audit. The Supreme Audit Institution is to be given the necessary freedom to exercise its duties independently. In addition, the project is helping partners to network with one another more effectively, and is creating forums for regular exchange. These will ensure that important information is made available in good time to all the institutions involved. For instance, the Government Contract Unit is supported in the set-up of database for all commitments of government contracts. Cooperation with the Malawi Revenue Authority focuses on the improvement of tax policy and administration in order to raise capacity to mobilize domestic revenues. In order to raise the demand for government’s accountability by the Malawian citizens, the Project also works with civil society. In that context it supports, with the help of a cofinancing agreement through the British Agency for International Development, DFID, the Malawian Candidature for the global Extractive Industry Transparency Initiative (EITI). Through a regional study and expert fund, the project supports the set-up of a Malawian Transparency International Chapter.
Results achieved so far
A business process review of the IFMIS has revealed the areas in which further work needs to be undertaken for future sound public financial management, for instance with regard to bank reconciliation and automation of financial reporting. The Ministry of Finance has started to implement the required changes with support from the project. The ability of the Central Internal Audit Unit to guide and monitor the internal auditors in the Ministries and Agencies has improved. The National Audit Office has been supported in auditing payment arrears to assess claims made by suppliers of goods to either verify or reject their validity. This exercise has led to substantial savings for Government. Further, National Audit Office developed and introduced a new audit manual which will help it improve the quality of audits. With assistance of the project the Government has been accredited with the candidature status for the Extractive Industry Transparency Initiative (EITI). The preparation of the first EITI report is underway which already helps shedding light on activities, contracts and cashflows in the extractives sector. A comprehensive assessment of Malawi’s tax administration system in accordance with international benchmarks as endorsed by IMF (TADAT methodology) enables the authorities to address key reform areas for improving performance across the organization in a prioritized way.