INTRODUCTION
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Malawi has prepared its first Annual Review of the Malawi Poverty
Reduction Strategy (MPRS). The progress report was undertaken from February to
April 2003. The final progress report was formally submitted to the International
Monetary Fund (IMF) and the World Bank on September 17, 2003.1 The progress report
assessed progress made in implementing the Malawi Poverty Reduction Strategy Paper
(MPRSP) during the first half of FY 2002103 with the aim to provide inputs for FY
2003/04 budget preparation. The strategy, which was launched in April 2002, was
endorsed by the Boards of the IMF and the IDA on August 5, 2002 and August 29, 2002,
respectively.
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The progress report concluded that the implementation of the MPRSP has
been unsatisfactory as actual funds allocated for pro poor activities have been
substantially lower than envisaged in the strategy paper (See para. 5). The progress
report also underscored the fact that Malawi's economic program supported by the
Fund's Poverty Reduction and Growth Facility (PRGF) arrangement has been off track
since the beginning of 2001, and this has led to the suspension of external budgetary
assistance and to increased recourse to domestic borrowing to finance large budget
deficits. The resulting increase in domestic debt of the government required more
resources for debt service and thereby reduced the resources available to finance pro poor
activities. Moreover, the review observed that the actual allocation of funds to the various
pillars of the poverty reduction strategy has been substantially below what was anticipated in the MPRSP and that poor flow of funds to line ministries contributed to the diversion of funds from pro poor activities to finance other recurrent transactions (ORT).
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The progress report does not analyze in detail the implementation of the
sectoral and policy reforms identified in the MPRSP. The staffs' assessment of these
initiatives, some of which are not covered in the progress report, indicates that although
many of these reforms have been initiated, the pace of implementation has been slower
than envisaged in the MPRSP. For instance, although the land policy has been approved
by cabinet, there has been a delay in translating it into law. Similarly, although some
progress has been made in implementing the privatization agenda and various public
expenditure management (PEM) initiatives, the pace has been slower than expected.
Substantial progress has, however, been made in tracking pro poor expenditures (PPEs),
preparing and approving the micro finance policy, developing the wage policy, and
developing and passing the new Public Finance Management, Public Audit, and Public
Procurement Bills.
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