PRSPs

A Position Development From Debt Cancellation Campaign?

Malawi’s perspective ‘Under the Microscope’

This paper seeks to provide a brief overview of some of the experiences and general attitudes of the stakeholders in Malawi to Poverty Reduction Strategy Papers (PRSPs). It includes an overview of the political environment in the country, including the possibility by civil society to advocate and influence some positive changes. It also provides an overview of some of the more technical issues considered in the various tracking efforts, down to the feedback process, necessary to ensure that the PRSP work has impact on future budget allocations and policy decisions.

The Political Context

After 30 years of oppressive rule and brutal governance, 1993 marked the formal commencement of the first multiparty system of government with the country’s first ever referendum. In 1994 the first multi- party elections were held, which saw Malawians claiming and defending their human and economic rights. Malawians have thus gradually become used to standing up for their rights and fighting against any oppressive rule that smacks of elements of an autocratic regime.

This change was further consolidated with the second round of elections held in 1999, which retained the incumbent United Democratic Front (UDF) and President Bakili Muluzi in power. Despite some general reservations and criticisms of the electoral process, the country is considered to be moving towards a more representative and open form of politics. With the ongoing display of vibrancy by civil society and the church, Malawians have successfully fought against any form of abuse of power. Cases in point were:

• The failed Open Term and Third Term bills in parliament. In 2003 there was enormous pressure exerted on parliament to amend the constitution arbitrarily in the interests of the ruling party and a few top politicians including the president. The amendment would have given President Muluzi unlimited terms of office. Failing this, they changed to pushing for the president to get a third tenure. This amendment too failed.

• The emergence of the Malawi Economic Justice

Network (MEJN) Civil Society Manifesto for pro-poor elections fostering people’s informed choices. The Manifesto called for competing parties and the government that emerges victorious to strictly adhere to and respect the enshrined concerns and expectations of the people. The Manifesto is also being used as the benchmark for gauging the performance of government, which will be monitored until the next general elections in 2009.

In May 2004, Malawi had an election which was riddled with more controversy than previous ones, resulting in the ruling party UDF maintaining its reign amidst overwhelming challenges and mixed fortunes for both the ruling and the opposition parties.

In his inaugural speech the new president, Bingu wa Mutharika, highlighted Malawi’s difficult economic situation and emphasized the importance of improved expenditure management. The new minister of finance also emphasized that strengthened expenditure management will be his highest priority, and donors welcomed this commitment by the new government to improved economic management. However, it is a general belief that the public and many others in government are not aware of the full extent of the economic problems facing them, let alone the challenge lying ahead for both the new government and the civil society fraternity to overcome this crisis.

“Instability can partially be explained by our inability to institute fiscal discipline and reduce public expenditure. We have domestic debt that is clearly unsustainable and is eating through our resources thereby inhibiting growth. In order to get out of this poverty trap, we need to reduce public expenditure and domestic borrowing,” said President Mutharika at his inauguration.

The Economic Context

In economic terms, Malawi remains agriculturally dependent and is one of the world’s least developed countries. The UNDP Human Development Report ranks it as number 162 out of 175 countries on a composite index that incorporates indicators of health, education and income. This represents deterioration in Malawi’s position. In 2001 it was number 151 out of 162 countries.

Despite numerous efforts to diversify the economy, agriculture accounts for almost 40 percent of the Gross Domestic Product (GDP).

This figure has been gradually increasing over the past few years – since 1994 it has increased from slightly above 25 percent to its current level of

40.3 percent. The economy’s narrow, undiversified base also limits Malawi’s capacity to generate revenue. As a result, locally generated revenue barely covers public expenditure. Grants assist in narrowing the gap between expenditure and revenue although the picture has got bleaker over the past few years with the GDP per capita falling as low as US$132. For more than ten years now, the government has been spending significantly more than its revenue. In 2003 for example, government revenue was equivalent to 20.2 percent of GDP, which is quite a high figure by regional standards. However, government expenditure (excluding donor funded projects) that year amounted to 32.9 percent of GDP.

Poverty is a major issue in Malawi. According to the PRSP, in 1998 poor people could only afford to spend MK10.47 (US$0.10) or less per day on food and other needs. An estimated 65.3 percent of the population live below the poverty line, with at least 75 percent of this number being women. The phenomenon is more prevalent in rural areas where approximately 85 percent of Malawi’s total population live. An estimated 66.5 percent of the rural population live in poverty as compared to 55 percent for urban areas. A brief survey of the socio- economic indicators paints quite a bleak future, yet Malawi’s poverty is not caused by war. Poverty is deep, severe and widespread throughout, and the worst affected groups are smallholder farmers, female and child-headed households, estate workers and the disabled.

The social indicators are also substantially negative – 25 percent of males over 15 years of age are classified as illiterate. The figure for females is considerably higher at 52 percent. Amongst the adult population only 11 percent have completed standard 8; for women, the figure is even lower at 6 percent. In a five-year spell (1996 – 2000), life expectancy dropped from 43 years to 39 years, mainly because of the HIV/AIDS pandemic in the country. Other health indicators, such as infant and under-five mortality rates (estimated to be 104 and

189 deaths per 1,000 live births, respectively) are also exceptionally poor. The maternal mortality rate is 1,120 deaths per 100,000 live births, a rise from 620 in previous years.

The Advent of the Poverty Reduction Concept

The International Monetary Fund’s (IMF’s) Independent Evaluation Office has defined a category of countries as ‘prolonged users’ of IMF loans. These are countries engaged in IMF- supported programmes for at least seven years out of any ten. During 1971 – 2000, 51 countries met the definition of prolonged users. Malawi was among the top 16. It must be noted here that the whole idea of IMF support is to provide a temporary balance of payment support.

Despite the government’s poor track record throughout the 1990s, following promises of improved fiscal discipline, the IMF agreed a Poverty Reduction & Growth Facility (PRGF) for Malawi in December 2000. At that time, Malawi also joined the ranks of the highly indebted poor countries (HIPC). This means that the international community was committed to forgiving a significant portion of Malawi’s external debt – on the clear understanding that Malawi maintains sound macroeconomic policies and redirects the funds that would have been spent on debt servicing poverty alleviation. The United Kingdom, the European Union, Norway, Denmark and Sweden also agreed to provide substantial budget support to Malawi in support of the PRGF. This support is in the form of a grant directed to the government-consolidated fund. Unlike traditional project aid, it is used to finance the budget in general rather than specific activities. The UK, EU and Swedish agreements specified that budget support was conditional upon Malawi remaining ‘on track’ with the IMF.

The growth in debt in Malawi, just as is the case with several other Sub-Saharan African countries, has continued to be so rapid that the government is now in danger of falling into a ‘debt trap’, i.e. the situation where it is unable to prevent the debt/GDP ratio from continuing to increase until a rescheduling becomes inevitable.

As a result of the various gross failures to control expenditure, Malawi has accumulated a dangerously large domestic debt stock virtually overnight. This threatens macroeconomic and financial stability and is crowding out investment thus bringing to the fore the inherent link between debt and poverty. Perhaps most seriously, with over 30% of government expenditure eaten up by interest payments there are insufficient resources remaining for the provision of basic but key poverty fighting services.

Applying the PRSP

Since independence, Malawi has adopted policies like the Statement of Development Policies (1971

– 1980) to combat poverty, disease and ignorance. While these existed on paper, however, the reality and implementation did not match the rhetoric.

The situation changed considerably following the country’s shift to a democratic multiparty state in 1994, which coincided with the adoption of a Poverty Alleviation Programme (PAP) as the “operative development philosophy in the country”. This was subsequently complemented by the longer term Malawi Vision 2020, which was drawn up after alleged ‘extensive’ public consultations. However, neither of these initiatives was funded or implemented. More recently, the country adopted a Poverty Reduction Strategy (PRS).

What remain to be seen is what criteria the IMF and the World Bank will use to determine that a country’s PRSP has been successfully implemented and completed so as to provide these countries with the promised 100% debt relief.

The Malawi PRSP has been the officially adopted foundation of policy implementation, which is supposed to champion the country’s economic growth and development plan for the near future. This is based on four pillars, namely: rapid sustainable pro-poor economic growth and structural transformation; human capital development; improving the quality of life of the most vulnerable; and promoting good governance. Cross cutting issues such as HIV/AIDS, gender, environment and science and technology are also covered.

The government pledged commitment to relocating funds in line with the priority poverty expenditures identified and streamlined in its poverty reduction strategy. This has to be in line with the overarching fundamental requirement subscribed to the HIPC Debt Relief Programme, i.e. that countries receiving debt forgiveness (no matter how small the percentages) pledge to apply the funds freed for activities stipulated in the national

PRSP plan. This should be done without reducing the amount of funding that previously went to those activities from the recipient government’s own revenues.

The Attitude of Civil Society to the PRSP

An organised and developed civil society in Malawi has been evolving since the introduction of multi- party politics. However, this was given a major boost with the process surrounding the formulation of the PRSP. The emergence of the umbrella grouping, the MEJN, can be traced to a November

2000 meeting of 27 civil society organisations in

Mangochi, southernMalawi. This event produced

a statement of principles concerning how the PRSP formulation process should be conducted, and it critiqued the preparation of the road map for the interim PRSP as being non-inclusive and stated that the timetable for preparation of the full PRSP be redesigned as it was ‘unrealistic’. The MEJN has since assumed the role of chief interlocutor with the government on the design of civil society’s involvement in the PRSP process.

Recognising that the PRSP implementation is the responsibility of all stakeholders, serious efforts are being made by civil society (MEJN and others) to maximise and utilise the space given to contribute to its success. Civil society is establishing independent partnerships with the overall monitoring and evaluation coordination points currently resting with the Ministry of

Economic Planning and Development. The overall monitoring and evaluation of the process has been theoretically designed to take place at the local, district and national levels, invoking the strong need for partnering with the civil society structures, involving all stakeholders, and being mindful of the common goal and objective of reducing poverty levels.

Challenges faced along the way

The growth in civil society activity and its relevance to PRS monitoring is recognised in the strategy, which commits itself to “encouraging the development of other external monitoring systems, for example through civil society institutions”.

This is slowly being accepted and embraced by government, albeit modestly.

In very specific terms, the Malawi PRSP identifies that expenditure tracking will “start at the source of funding (the Ministry of Finance) and then move all the way to the actual expenditure point. Expenditure tracking will involve identifying specific pro-poor programmes or line items in the Budget. These will be tagged and expenditure on those will be closely monitored”. It goes on to say that “The Ministry of Finance will thus be responsible for collecting, aggregating and disseminating this information”.

The MEJN is working closely with established specific sister networks around the country to facilitate the division of labour in order to maximise coverage and impact in examining expenditures. This has included making presentations of research results to the Budget and Finance Committee and other committees of parliament, incorporating the results as newspaper inserts and briefing sheets, panel discussions and radio debate programmes.

Identifying the indicators to be tracked is a key element of the exercise. This is not particularly easy, based on the way the PRS and the traditional budget documents are produced. There is no clear chain identifying how inputs will translate into outputs (let alone to outcomes and impacts), while the budget document does not identify clearly what each budget line is to produce, i.e., there is no output based budgeting.

Overall Assessment of the Participation Strategy

Civil society fought hard to have a number of clear indicators and Priority Poverty Expenditures (PPEs) outlined in the budget documents after the formulation of Malawi’s PRS. During the 2001/2002 budgets, a number of civil society groups worked closely with the Budget and Finance Committee in parliament. Recommendations were made to ensure that the 12 areas identified were prioritised. The Budget and Finance Committee, together with non- governmental organisations proposed that these 12 poverty reduction areas be clearly identified in the budget. It further proposed that the expenditures should be ring-fenced to prevent budget cuts on those items and regular monthly reports be supplied on the progress of implementing the PPEs.

The PPEs have become so ingrained in the budget process that the letter of intent, forwarded to the IMF and the World Bank as part of the PRSP by the government, contains a commitment from the minister of finance that they will be protected should shocks require adjustments to the budget.

However, while government is committed to allowing external monitoring from civil society, a number of organisations have complained about obstacles being put in their way by specific government institutions when they have tried to fulfil their mandate. This suggests that some of the changes are only on paper.

Civil society and other stakeholders have taken up the responsibility to ensure the successful implementation and monitoring of the PRSP.

Through the varying civil society efforts and initiatives, the government of Malawi is being held accountable for its public finance management with a view to influencing allocations of funds to poverty alleviation in the national budget. Various ills have been exposed through such efforts, such as the diversion of funds meant for priority poverty expenditures to non-priority areas. This has been a further threat in the re-establishment of ‘donor aid flows’, a major component of the national budget.

As was noted in various reports of the civil society surveys, although funds allocated to key sectors like health, education and agriculture had increased, funding for poverty reduction programmes declined since Malawi got its

HIPC status. Meanwhile, funds were diverted to unnecessary expenses like foreign travel by the president, which almost tripled in the 2002/03 budget. Budget allocations for social service ministries and key institutions of justice and public accountability declined. Such changes show that government is spending less on relevant programmes, which is, however, not the expected outcome.

We have come a long way and can proudly say that the prospects of our democracy surviving are much better than in many other African countries. We have already passed one major test by valiantly defending our constitution from being re-written around the interests of one person. We have demonstrated once again a capacity for self- organisation to defend our republican institutions. In the current debates good governance and empowerment of the people must entail enhancing the capacity of the government they have elected, to play a bigger developmental role. It must mean allowing governments to pursue policies that enhance people’s sense of citizenship and that minimise social alienation and conflict. Good governance is not simply a question of rules and institutions, but also of content and purpose. It also means that elected people govern with due respect for the rules of the game and are accountable to their voters.

By Dalisto Kingsley Kubalasa – Malawi

Economic Justice Network (MEJN)