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African Forum and Network on Debt and Development (AFRODAD)

A critical assessment of aid management and donor harmonisation: The case of Malawi

African Forum and Network on Debt and Development (AFRODAD)

2007

SARPN acknowledges AFRODAD as the source of this document: www.afrodad.org
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Executive summary

The Paris Declaration committed its signatories to moving institutional harmonisation of donors' policies, procedures, and practices to country-level implementation and alignment with the partner country's policies and systems. It goes beyond previous agreements by attempting to lay down a more practical, action-oriented roadmap to improve the quality of aid and its impact on development. It expands on the five key principles of ownership, alignment, harmonisation, managing for results, and mutual accountability and establishes a commitment to track and set targets against 12 indicators of progress.

Malawi has benefited from substantial donor support and it has implemented liberalisation and structural adjustment programmes, yet it still has high levels of poverty. A number of previous studies have focused on how Malawi has not been fully committed to these programmes or how it has misused or misappropriated aid. The effectiveness of aid depends on both donor and recipient country policies and practices. This study intends to expose the difficulties related to these issues in the context of Malawi and propose ways on how to resolve them.

While a high level of dependence on aid at this stage of Malawi's development is inevitable, the high level of dependence has created a number of problems for the country's budget process. These problems include unpredictability of aid, inflexibility of aid as most of it is project support, creation of parallel implementation units, high transactions costs and neglect of priority sectors in the allocation of the aid by donors. Despite these problems, the country has not formulated a plan for reducing dependence on aid or an aid exit strategy.

As a signatory to the 2005 Paris Declaration on Aid Effectiveness, the Government of Malawi has taken steps to strengthen the capacity of the Debt and Aid Management Division of the Ministry of Finance. However, this division does not seem to be working closely with the Ministry of Economic Planning, which is the other main official actor on aid issues. Other ministries that handle aid and interact with donors also seem to have little interaction with the Ministry of Finance on aid issues. These ministries should be encouraged to play their part in implementing the Paris Declaration.

As the ministry that has overall responsibility for managing debt and aid in the country, the Ministry of Finance has spearheaded the formulation of the Development Assistance Strategy (DAS), which sets out the policies and strategies for increasing efficiency and effectiveness in the mobilisation and utilisation of aid so as to achieve the development objectives contained in the Malawi Growth and Development Strategy (MGDS). The drafting of the DAS was completed in October 2006. The DAS seeks to improve the delivery of aid through a number of reforms to be undertaken by both the Malawi Government and donors, aimed at operationalising the five principles of the Paris Declaration on Aid Effectiveness.

Donors too have laid some foundation upon which to build in implementing the Paris Declaration; for example, the establishment of the Common Approach to Budget Support and the Health Swap, which implies that donors have already started to harmonise their aid operations in Malawi.



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