PROGRAM INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB6313

Operation Name / Malawi: Development Policy Grant 1
Region / AFRICA
Sector / Central government administration (30%);General public administration sector (30%);Public administration- Finance (25%);Public administration- Information and communications (15%)
Project ID / P122854
Borrower(s) / GOVERNMENT OF MALAWI
Implementing Agency / Ministry of Finance
Date PID Prepared / January 26, 2011
Estimated Date of Appraisal Authorization / March 21, 2011
Estimated Date of Board Approval / May 10, 2011

1.  Key development issues and rationale for Bank involvement

Malawi experienced a strong surge in economic activity in the five year period ended 2010, albeit in an adverse external environment; real GDP growth averaged 7.8 percent and inflation declined to single digits. The Government has made efforts to ensure fiscal sustainability and has introduced measures to instill discipline in the overall management of public finances which in turn have resulted in a narrowing of the fiscal deficit from 6 percent of GDP in 2009, to an estimated fiscal surplus of 0.1 percent of GDP in 2010. Higher revenues, as well as improved expenditure management, have also in turn contributed to increased outlays for poverty-reduction and social expenditures. The Government is also strongly committed push forward the public financial management reforms to help the country improve its chances of meeting its poverty reduction and growth goals as set out in the Malawi Growth and Development Strategy (MGDS) and the Millennium Development Goals (MDGs). While poverty remains widespread and concentrated in the rural areas, there are signs that it is going down. The 2009 Welfare Monitoring Survey (WMS) indicates that the number of Malawians living below poverty line has fallen to 39 percent from 50 percent reported in 2005. However, given non-comparability of the WMS and Integrated Household Surveys (IHS), the IHS-3 survey results (due in a couple of months) will provide a more reliable updates on poverty levels in the country.

The Medium term outlook for Malawi is positive as the country’s macroeconomic policy framework remains sound, though still subject to some downside risks. While the external sector performance remains weak, the Government is working closely with the IMF under the three year program, the Extended Credit Facility (ECF), to address the external imbalances by focusing among others on improving the functioning of foreign exchange market and correct the exchange rate misalignment. So far, the country remains on track.

2.  Proposed objective(s)

This Development Policy Grant (DPG) is a self-standing, single-tranche operation cast within a medium-term framework of policy and institutional reforms that the Bank has been supporting under the PRSC series I-III. The objective of this program is to support the authorities’ efforts geared towards strengthening controls, accountability and oversight in the area of public finance and debt management in order to accelerate the achievement of the country’s development goals in the Malawi Growth and Development Strategy (MGDS II) and the Millennium Development Goals (MDGs) by supporting the implementation of policy and institutional reforms that will lead to the following medium-term outcomes: (i) Strengthened budget planning and execution, (ii) Improved internal and external audit and legislative scrutiny, (iii) Improved payroll management, (iv) improved public procurement, and (v) improved public debt management. Within this framework, the proposed PFEG seeks to achieve three main objectives. Firstly, to build upon progress made in supporting economic governance reforms under PRSC I-III series. Secondly, to build on Government commitment to push forward the PFM reforms as well as join forces with CABS development partners who have resolved to give priority to PFM reforms in FY11. Lastly, to use this Bank’s instrument to provide the Government with the much needed resources to boost the country’s fiscal position.

3.  Preliminary description

The Public Sector Finance and Economic Governance Development Policy Grant is a self-standing single tranche operation serving as a bridge between the Poverty Reduction Support Credit series (PRSC I-III) and the new possible PRSC series to be launched in FY12 in line with the Government’s own new poverty reduction and growth strategy (MGDS II).

The grant selectively supports the reform efforts by the Government in the following areas: (i) strengthen budget planning and execution by taking measures to strengthen controls on spending through quarterly monitoring of budget implementation and increased roll-out of IFMIS to district assemblies. (ii) Improve internal and external audits and legislative scrutiny by establishing the legal and regulatory framework, through the Audit Charter, to support the internal audit functions, operationalization of Audit Committees to follow-up on audit queries as well as to ensure timely submission of audit reports to Parliament. (iii) Improve payroll management through the activation of all functional modules in the Human Resource Management System (HRMIS) and operationalization of four other HRMIS modules as well as undertake a review to streamline procedures for updating personnel procedures. (iv) Improve public procurement management capacity by undertaking a joint review with the Government of the fertilizer procurement under the 2010/11 Farm Input Subsidy Program as well as to establish a regulatory framework for the supply and disposal of public assets. (v) Improve public debt management by supporting the development of the debt management strategy to help the Government manage better their debt, especially domestic debt.

4.  Environment Aspects

Policy actions supported by the proposed PFEG are not expected to have significant impacts on the environment, forests, or other natural resources. The specific policies supported under this operation address primarily institutional reforms. The focus of the reforms is on transparency and accountability or public resources, on the efficiency of public expenditures, and on promoting good economic governance.

5.  Tentative financing

Source: / ($m.)
BORROWER/RECIPIENT / 0
International Development Association (IDA) / 40
Total / 40
  1. Contact point

Contact: Appolenia Mbowe

Title: Senior Economist

Tel: 5394+3203

Fax:

Email:

Location: Lilongwe, Malawi (IBRD)