VZCZCXRO3148
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0040/01 0201614
ZNR UUUUU ZZH
P 201614Z JAN 10
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC PRIORITY 0262
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

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 
 
LILONGWE 00000040  002.2 OF 002 
 
 
 
¶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