The International Monetary Fund (IMF) has warned that unless Malawi weans itself off donor aid, the country faces an uncertain future because bilateral donors are experiencing difficulties in their own countries.
IMF, which on Monday approved $156.2 million (about $40bn) for a new three-year arrangement for Malawi under the Extended Credit Facility (ECF), said donor commitments across Africa are beginning to narrow.
The institution said this reflects the difficult situation the global economy is experiencing.
Executive director at IMF Moeketsi Majoro, who is responsible for 22 countries, including Malawi, said with the approval of the ECF programme, multilateral and bilateral donors will find it easier to re-engage with Malawi, particularly on budget support.
But he warned that although the programme catalyses donor re-engagement and flows, the funding will not be available in perpetuity.
Majoro, who was in the country to discuss the IMF programme with government officials, on Friday briefed the media in Blantyre.
“The traditional donors in Europe and America are also facing very, very serious financial difficulties at home and politically it is now difficult to be giving money away when they are running very large deficit. So, even though donors will commit to Malawi, it is not expected that in the medium to long term donor money will continue to be available to Malawi.
“Malawi will, therefore, have to find itself a way of weaning from donor flows which are significant in the budget which go up to 30 to 40 percent and that is a very large amount of funding coming from outside and Malawi has a window in the next three years,” he said.
Majoro added that Malawi needs to find ways of getting away from depending on outside support.
“For that to happen, firstly Malawi will need macro-economic stability which is the purpose of this programme which was approved on Monday. Secondly, Malawi needs to re-ignite investment and pursue growth by diversifying activity and finding new opportunities for growth.
“If the economy grows rapidly, taxes will also begin to grow then you can substitute donor flows,” he said.
He said the ECF programme is very tight because there will be frequent revisions to ensure that commitments are being implemented as agreed.
Early this month, Britain, Malawi’s key bilateral donor, also said the country needs to migrate from the current aid dependency.