Fin24

Aid freeze forces Malawi spending cuts

2011-05-20 12:34

Lilongwe - Malawi will introduce austerity measures this year to deal with a hole in its finances left by a British government aid freeze, Finance Minister Ken Kandodo said on Friday.
 
“Clearly the 2011/12 financial year resource envelope will fall short of our expectations in view of the British decision,” Kandodo told Reuters.

“But Malawi is ready to make tough decisions and choices on spending cuts in order to sustain growth and be able to deliver public services.”
 
Kandodo gave no specifics of measures he might take, but the budget squeeze could jeopardise a six-year economic boom in the country which has enjoyed 7% average annual growth and inflation falling to single digits.
 
A donor squeeze and questions over the future of tobacco exports, which account for 70% of foreign exchange earnings, could also put pressure on the the kwacha currency. Despite the recent economic boom, Malawi’s government remains heavily dependent on foreign aid, with donor funding accounting for more than 40%  of official receipts.
 
Former colonial master Britain was Malawi’s single largest bilateral donor.

However, relations have nosedived since Lilongwe’s expulsion of Britain’s ambassador last month for referring to President Bingu wa Mutharika in a leaked diplomatic cable as “autocratic and intolerant of criticism”.
 
Britain responded by expelling Malawi’s acting ambassador to London, and earlier this week said it had decided to freeze new aid pending a review of its relationship.

Last month, the United States approved a $350m grant for Malawi’s dilapidated electricity network that had been delayed because of concerns about a law preventing gay marriages and another that lets the government ban newspapers.