Strengthening public financial and economic management

Project description

Title: Strengthening public financial and economic management in Malawi
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Malawi
Lead executing agency: Ministry of Finance, Economic Planning and Development
Overall term: 2004 to 2017

Malawi © GIZ

Context

With an average per capita income of USD 270, Malawi is one of the poorest countries in the world. Around 65 per cent of the population lives below the poverty line. Malawi ranks 174th out of 187 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 currently experiencing operational problems. This makes audits considerably more difficult. Moreover, auditing institutions are not able to carry out the necessary inspections because of a lack of technical and human resources. Exacerbating the situation is the failure of the population to put sufficient pressure on the government because so far the media and civil society have not been critical enough in probing the government’s activities.

Objective

Key stakeholders in the public finance system (the Ministry of Finance, Economic Planning and Development, the Office of the President and the Supreme Audit Institution) work more efficiently and more transparently, and are accountable. Public funds are used more effectively to reduce poverty.

Malawi © GIZ

Approach

The project is improving general conditions in the public finance system and in the internal and external monitoring of expenditure. This is to enable the government to successfully implement its national poverty reduction strategy.

The lead executing agency 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, the Supreme Audit Institution, internal financial auditors and the Anti-Corruption Bureau. These supervisory bodies of the Malawian Government are being supported through technical and organisational consultancy. The international consultancy firm Sofreco is working as implementation partner to support internal auditing. This is to enable cases of corruption to be flagged up more quickly and investigated more intensively in future. In the medium term they are to be reduced altogether.

The project is also advising the Malawian Government on how to improve the legal framework in relation, for example, to external auditing. The auditing authorities are to be given the necessary freedom to exercise their 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, and that forecasts –for example of tax revenue – can be used more systematically. Cooperation with the Malawi Revenue Authority focuses on ensuring that the government is accountable to taxpayers.

Furthermore, the project is collaborating with universities, media and civil society to inform the population about the principles of good governance, particularly with regard to the use of natural resources (see the Extractive Industries Transparency Initiative).

Results

  • The 2013 review of the working processes used in the IFMIS electronic payments system indicated some clear weaknesses. Work is currently being undertaken to eradicate these. This should mean that cases of embezzlement similar to Cashgate will no longer be possible in future.
  • The project has helped to connect the last seven districts to the IFMIS electronic payments system. These can now record all their transactions electronically.
  • The project has also helped to devise a programme of reform for the public finance sector, and is cooperating on its implementation.
  • The Malawian Government now has more and better information at its disposal for making decisions based on the results of several impact assessments.
  • Medium-term budget planning has improved significantly and now covers the next three financial years.
  • Experts in the finance ministry have attended training courses supported by the project in which they have learned how to make better use of macroeconomic modelling techniques in their work.