Malawi Public Expenditure Review

1
Malawi Public Expenditure Review

• Background and Overview
• PER Dissemination Workshop
• Capital Hotel, Lilongwe
• 21 November, 2007

2
Public Expenditure Review

• PER is not an audit of expenditures
• Scope is to assist Government to critically
  review its operations and the use of public
  resources
• Identify policies to support fast and equitable
  growth and wealth creation
• Improve the effectiveness, quality, and equity in
  delivery of services to the people of Malawi

3
Institutional arrangements for Malawi PER 2006

• Prepared by GoM, with assistance by WB and CABS
  partners
• Preparation overseen by PER Taskforce
• GoM officials from line ministries
• Chaired by Economic Affairs, in Ministry of
  Finance
• Chapters prepared by PER Thematic Working
  Groups, chaired by respective line ministry

4
Good progress in Macroeconomic front since 2003/04

• In 2003/04 Malawi was on the verge of a
  macroeconomic crisis
• Weak fiscal performance between 1999/00 to
  2003/04
• Domestic debt at 25 of GDP
• Domestic interest bill at 10 of GDP
• But since 2004/05 GoM has taken rapid steps to
  prevent a crisis, and has reestablished
  macroeconomic stability
• Domestic debt down to below 14 of GDP in 2006/07
• Domestic interest bill down to 5 of GDP

5
Malawi is now at a critical juncture

• Reduction in interest bill has released resources
  that can be channeled to priority expenditures
• GoM need to decide how best to utilize these
  resources
• Report addresses two related questions
• How best can GoM use these resources to
  consolidate recent gains, and accelerate economic
  growth and poverty reduction?
• What reforms should GoM pursue to improve
  efficiency and equity of public expenditures?

6
What are the key priorities for GoM over the
next few years?

• (i) stay the course with the macro economic
  program, and continue reduction of domestic debt
  burden
• (ii) continue to strengthen the budget process,
  payroll management, and debt management, and take
  action to protect public finances from the impact
  of external shocks, notably weather
• (iii) improve efficiency and equity of public
  expenditures by implementing the key measures
  recommended in this report

7
How should GoM use the savings from domestic
interest bill?

• In addition, a strategic balance must be struck
  between investing interest savings to
• (i) accelerate retirement of domestic debt, to
  achieve additional interest savings that can
  channeled to priority expenditures at a later
  stage
• (ii) build up Malawis external reserves and/or
  purchase drought insurance, as coverage to
  protect against exogenous shocks
• (iii) expand investments in infrastructure and/or
  social services, to boost growth rates and
  progress towards the MDGs
• The three options above underpin much of the
  analysis in the PER
• GoM needs to carefully consider the costs and
  benefits of each option

8
Structure of PER 2006

• Discuss priorities in public financial
  management, including to protect against external
  shocks
• Identify measures to improve debt management, and
  reduce debt vulnerability
• Assess the implications of changing allocation of
  resources across sectors for growth, poverty, and
  MDGs
• Assess the efficiency and equity of expenditures
  in education, health, and roads (and assessment
  in agriculture is ongoing)
• Four largest expenditure votes in the budget
  account for almost 60 percent of total voted
  expenditures
• Provide public services critical to accelerate
  growth
• Assess expenditures on nutrition
• Added following the analysis in the 2006 Malawi
  Poverty and Vulnerability Assessment (MPVA)

9
Headlines in Macro and Debt

• Reforms to strengthen budget process and payroll
  management should remain at the center of the
  reform agenda
• Reforms to insulate budget implementation from
  the impact of exogenous shocks should be pursued
• Changing allocations across sectors can be
  important but
• Maintaining sound macroeconomic policies is
  critical for growth and human development
  indicators
• Ensuring the quality of public expenditures in
  all sectors is critical to accelerate growth and
  progress towards the MDGs

10
Headlines in Education

• Efficiency of education expenditures is low
• Around 50 percent of the resources spent on
  primary education are wasted, due to drop outs
  and repetition
• Increasing number of qualified teachers is
  critical to raise quality efficiency of primary
  education
• Two-track system in secondary (CSSs and CDSSs) is
  inequitable and inefficient
• Malawis University system is very inefficient
• The benefits from public spending in education
  are not equitably distributed

11
Headlines in Health

• Two areas are critical to improve efficiency in
  the provision of health services
• (i) Lack of skilled health workers and
  overloading of the available staff results in low
  quality of services
• (ii) Unavailability of even basic drugs, mainly
  due to slow progress in reforming the Central
  Medical Stores (CMS)
• Medium-term financing for meeting GoMs target in
  HIV/AIDS programs needs to be urgently
  identified available funding will run out within
  the next 2-3 years

12
Headlines in Nutrition

• Malnutrition is the most severe challenge facing
  Malawians, irrespective of their income status
  and level of calorie consumption
• Current portfolio of nutrition interventions in
  Malawi does not prioritize cost-effective
  interventions
• Interventions are not targeted at the most
  vulnerable

13
Headlines in Roads

• Road network is imbalanced
• Small network of main roads is mostly paved and
  in good condition
• The rest of the network, mainly rural roads, is
  unpaved and mostly in poor condition
• Funds spent on routine maintenance, have been
  inadequate to meet maintenance needs of network
• There is a need to introduce planning and
  prioritization in road maintenance and
  construction activities
• There has not been a poverty focus in the road
  sector expenditure, and access to roads is
  heavily tilted in favour of the richest households

14
Conclusions

• Many areas to improve efficiency and equity have
  been identified
• Real challenge is the implementation of the
  proposed reforms