Idasa tips Malawi on mitigating impacts of donor flight

Given the loss of donor aid, it is critical for the Malawi government to come up with innovative ways of closing the financing gap created by the donor flight, particularly ensuring that HIV programmes remain adequately funded to prevent massive loss of lives, Institute of Democracy (Idasa) has said.

In the report, Malawi's Governance and Foreign Aid, published in September 2011, Idasa observes that in the wake of political unrest in Malawi, President Bingu wa Mutharika has come under fire from bilateral and multilateral agencies for persistent failures in governance, his disregard for human rights and constraints on press freedom.

Idasa says the withdrawal of funding will exert pressure on resources available to the Malawian government as the effects of the donor pull-out are abrupt and there is no gradual transition to self-sustainability.

Lipenga: New purse keeper for Malawi

The Mutharika administration is implementing a "zero-deficit" national budget. Mutharika said Malawi government current expenditure would now be financed entirely from local resources and that he expected that for development projects expenditure, development partners would continue financing that.

The budget presented by former finance minister Ken Kandodo showed drastic increases in taxes including the introduction of value added tax (VAT) on commodities such as bread, milk, salt, and meat offal.

The report, authored by its Head of the AIDS Budget Unit, Vailet Mukotsanjera-Kowayi, tips Malawi that not all is lost following the donors' withdrawal as the government can explore homegrown initiatives to reduce the financial gap so created.

It says Malawi can learn from other countries, notably South Africa, on how to effectively collect taxes using advanced technology and thereby improve revenue collection, saying the method does not imply an increase in the tax rate but it is rather it is about broadening the tax base and minimizing tax avoidance.

Specifically addressing the HIV/AIDS sector, the report says although the projected dwindling financial resources is a global challenge, it presents an opportunity for African governments and other stakeholders to reprioritize, refocus and find ways of making HIV/AIDS interventions more sustainable.

"One option is to improve revenue collection systems by introducing a new tax to finance the HIV programmes. Zimbabwe introduced the 3% AIDS levy in 2000 through the National AIDS Council (NAC) Act Chapter 15/14 of 2000.

"The Act mandates individuals and companies in Zimbabwe to pay 3% of their taxable income to the NATF. The funds are collected by the Zimbabwe Revenue Authority (ZIMRA), which then disburses the funds to National AIDS Councils through direct deposits. These funds are used to support national prevention, treatment and care, mitigation, advocacy, and monitoring and evaluation programmes in the response to HIV & AIDS," says the report.

According to UNAIDS (2009), the main concern about the effects of the recession is the financial sustainability of antiretroviral treatment programmes in countries like Malawi that depend mainly on external aid.

The sustainability of antiretroviral treatment would be compromised by the decline in balance of payment support and lack of foreign exchange, the report observes.

"The donor pull out may also affect other macroeconomic fundamentals like inflation, unemployment, high interest rates and trade deficits. This also increases the risk of declining food security as food prices increase, which may force some people to discontinue treatment. Adequate food is essential for those patients who are taking antiretroviral drugs," reads the Idasa report.

Britain, the United States, Norway, Germany, the European Union and the Global Fund have either suspended or ended general budget support to Malawi.

The US has suspended $350 million aid package while Germany has put on hold half of its budget support to Malawi. Malawi has also lost a Global Fund application for US$560 million with no option for re-submission.

Human rights abuses and financial mismanagement by the Malawian government have given these bilateral and multilateral organizations justification to reduce their support to Malawi.

Malawians are praying that the eloquent new Finance Minister Ken Lipenga (Maapwiya) could turn around things and sweet-talk donors to open their aid taps once again.

Nyasa Times 19 Sep, 2011

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Source: http://www.nyasatimes.com/national/idasa-tips-malawi-on-mitigating-impacts-of-donor-flight/
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