MALAWI: FISCAL TRANSPARENCY GOOD AND GETTING BETTER

UNCLAS SECTION 01 OF 02 LILONGWE 000040

SIPDIS

STATE FOR EEB/IFD/OMA BRIANA SAUNDERS
STATE ALSO FOR AF/EPS MARY JOHNSON AND AF/S PHAEDRA GWYNN

E.O. 12958: N/A
TAGS: EAID ECON EFIN PREL AID MI
SUBJECT: MALAWI: FISCAL TRANSPARENCY GOOD AND GETTING BETTER

REF: SECSTATE 1923

LILONGWE 00000040 001.2 OF 002



1. Summary. Malawi's budget is a matter of public record and fiscal
information is available through the Ministry of Finance. U.S. and
other donor programs have contributed to improvements in GOM
capacity, and to the quality and transparency of the budget process.
Although there is still room for improvement, the GOM boasts a
largely transparent fiscal system that continues to improve. End
summary.


2. The GOM is expected to receive USG assistance under the FY10
SFOAA.


3. Malawi's annual budget is a matter of public record. Budget
documents are made available to parliament and can be viewed at the
Ministry of Finance (MoF) budget office. The Minister's budget
speech is available on the MoF webpage, along with expenditure and
various other reports. A budget brief was recently added. The GOM
is working to address concerns over data consistency and to align
the national budget with the Malawi Growth and Development Strategy
(MDGS),the country's primary planning document.


4. In addition to presenting the budget in parliament and making the
data publicly available, the MoF annually solicits public
participation in the budget preparation. In the past, typically in
early spring, the Finance Minister spends several days meeting with
private sector representatives, civil society organizations and
other members of the public. The Ministry also accepts input by
mail, email or fax. Such public consultation has been a traditional
practice in Malawi.


5. The publicly available budget includes both revenues and
expenditures funded through the government accounting systems.


6. Donor funded projects with separate accounting systems are
included in budget reports, but are listed as "off budget." USAID
and other donors provide projections and then actual disbursement
information on a yearly and monthly basis. The Debt and Aid
division at the MOF does a good job at tracking projections and
disbursements and presenting them in annual debt and aid reports and
other GOM budget documents. A large majority of international
donors report their budget projections and disbursements to the GOM.
Exceptions include the Chinese and large foundations.


7. The publicly available budget figures are reasonably accurate.
The Budget Brief was instituted to make the large volume of data
more comprehensible. While government expenditures generally follow
the published budget, actual government expenses typically vary in
details. A revised budget including actual expenditures is
published at the end of the fiscal year and is publicly available.


8. There have been no events since the previous review that could be
expected to affect fiscal transparency.


9. Historically, the GOM has faced significant institutional
capacity limitations. Capacity limits have contributed to the lack
of greater transparency in Malawi's budget process.


10. Several aspects of Malawi's MCC Threshold Program, which
concluded in 2008, directly contributed to improving GOM capacity in
this area. These included interventions to:

-- procure and fully deploy an Integrated Financial Management
Information System (IFMIS),

-- pass and implement Anti-Money Laundering and Combating Financing
of Terrorism legislation that conforms to international standards,
and establish an effective Financial Intelligence Unit,

-- strengthen the Government of Malawi's audit capacities by
recruiting, training, and equipping the staff of the National Audit
Office,

-- build capacity for prudent fiscal management by strengthening
capabilities in the Ministry of Finance, Ministry of Economic
Planning and Development, and the Malawi Revenue Authority, and

-- strengthen National Assembly oversight by empowering the
committee system.


11. DFID, GTZ, Swedish CIDA, the EU, and the World Bank have also
carried out programs to help the GOM develop sound fiscal policies
and support transparency and good governance.


12. Malawi volunteered for the IMF Report on the Observance of
Standards and Codes (ROSC) covering financial transparency. The IMF
released its second ROSC on financial transparency in March, 2007.
The report can be accessed at:
http://www.imf.org/external/np/rosc/rosc.asp

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13. The IMF report notes that fiscal accounts are often presented to
Parliament and the public with long delays. The reports are
required to be submitted by the Accountant General by October 1.
This target has been met since 2007, reflecting significant
improvement in capacity and efficiency at the Ministry of Finance.
The National Accounting Office has received training, expanded
staffing, and other donor assistance to improve their capacity and
provide for timely quality reporting. This was funded through MCC,
Swedish CIDA and Norway.


14. Only the Auditor General can submit the National Audit to
Parliament. A substantial back-log developed from 2006-2008 when
Malawi was without an Auditor General. Since the appointment of an
Auditor General in May 2008, National Audits have been completed for
2006, 2007, and 2008. Officials expect the back-log to be
eliminated in 2010 and that National Audits will thereafter be
completed on time.


15. The GOM has demonstrated a commitment to continued strengthening
of its financial management systems. In consultation with key
stakeholders, it has developed a Second Public Financial and
Economic Management (PFEM) Action Plan, to follow up on the first
that ran from 2006 to 2008. The Second PFEM Action plan was
approved in May 2009 and included a list of 130 activities, with 48
identified as priorities. As of November 2009, 11 activities had
been completed, 24 were underway, 11 were planned, and only 2 had
received little or no action. The Action Plan includes the
following activities: Planning; Resourcing the National Development
Strategies; Budgeting; Budget Execution; Accounting and Financial
Systems; Reporting; and PFEM Administration and Programming.


16. The GOM is working to address several shortcomings in the budget
preparation process identified by the IMF. Public participation in
budget preparation is being solicited in newspaper advertisements.
Training for ministries is ongoing. A budget calendar has been
prepared and distributed. Compliance is being tracked. Budget
ceilings are being issued earlier (although still not in compliance
with the budget calendar). The program structure is in draft format
and SOFTECH, the contractor, is restructuring Malawi's IFMIS system
to align the budget with the IMF's Government Finance Statistics
(GFS) standards.


17. Implementation of IFMIS remains incomplete. As of December
2009, IFMIS was installed and functioning in all central government
offices in Lilongwe. Only the Budgeting and Accounting module is
functioning, however, with other modules, including Payroll and
Auditing yet to be implemented. The system does not yet generate
customized reports. While a comprehensive solution has not been
identified, the GOM plans to obtain training in IFMIS for user
ministries particularly with regard to report generation.


18. Payroll, one of the critical weaknesses in fiscal data quality
that the IMF highlights, continues to be an issue. The government
has instituted a number of mechanisms for arrears. Utility
companies have been notified that if bills are not paid in a timely
fashion, the Ministry of Finance will take action. The payments
will be made by the Accountant General, with the appropriate budget
category charged for the payment. Other mechanisms (prepaid
electrical meters) are in the process of being implemented. Most
arrears have been paid or securitized.


19. Malawi has a substantially transparent fiscal system and has not
previously required a waiver under SFOAA. While some issues remain,
the GOM is committed to ongoing efforts to improve the efficiency
and transparency of its system and it has made noticeable progress
in the past few years. Post recommends that Malawi be deemed to
meet the fiscal transparency standard and that no waiver be
required.

BODDE