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Malawi: Joint staff assessment of the Poverty Reduction Strategy Paper progress report

Prepared by the Staffs of the IMF and IDA

Approved by Michael Nowak and Michael T. Hadjimichael (IMF) and Paula Donovan and Gobind Nankani (IDA)

IMF Country Report No 03/345

November 2003

SARPN acknowledges the IMF website as the source of this document: www.imf.org
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INTRODUCTION
  1. 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.


  2. 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).


  3. 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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