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Friday, August 24, 2007

IMF hails Malawi on aid usage
By DANIEL NYIRENDA - 24 August 2007 - 08:35:05

An International Monetary Fund (IMF) senior official has hailed Malawi for being a good user of foreign aid inflows.

Benedicte Christensen, Deputy Director of the African Department, said Malawi has plans for using additional donor inflows.

Briefing members of international NGOs early this month through a conference call, he singled out the Sector Wide Approach (SWAp), a health sector donor supported programme aimed at ensuring that the health sector has enough resources to avoid brain drain.

He said the sectoral programme was particularly developed in Malawi such that there are advance plans for how money could be spent.

Christensen said the country’s PRGF-supported programme has a wage bill ceiling that is a performance criterion.

IMF employs wage bill ceilings in a number of Fund-supported programmes, especially when wage dynamics threaten macroeconomic stability and when a country's budgetary and other control systems are weak.

According to Christensen, an adjuster applies to that wage bill ceiling and would allow for additional expenditure under the SWAp programme, in case additional donor funds emerge during the programme period.

“In other countries cases, this is not the case. As you probably know, the health sector is one of the weaker ones in many of the African countries. It is weak on administrative capacity, on the ability for planning.

“So, therefore, if there is a good case with good plans for spending additional aid money, it can be spent, and that is the case in Malawi. In other cases where we don't have that well-developed sectoral programme, we have reviews every six months and those reviews under the programmes do allow us to look at the spending, also social spending,” Christensen says in a transcript posted on IMF website.

During the conference call, several IMF officials emphasised on the need for low-income countries to make full use of aid inflows through increased spending and absorption.

Mark Plant, Deputy Director of Policy Development and Review Department, said the IMF board reaffirmed that the Fund needs to work with low-income countries to create an enabling environment for full use of aid.

“When we talk about spending, we are talking about the government making room for increased spending as a result of the inflow of aid, so that the government budget expenditures on health and education, and whatever the aid is going to be used for, increases,” Plant said.

The absorption, Plant said, is when aid given to a country effects a transfer of real resources, real goods and services from abroad into the country- drugs to combat malaria or HIV/Aids or it could be that the foreign exchange is used through the private sector, so the private sector then increases its absorption of foreign resources.

He said in that way aid could be helpful, when resources move from abroad into the low-income country.

Sanjeev Gupta, Senior Advisor in the Fiscal Affairs Department said effective use of aid inflows might require some aid to be saved temporarily, but there are limits to how much a country can save.

“Donors have an interest in seeing that resources they transfer are, in fact, used for intended purposes, and there are domestic political pressures in aid-receiving countries to spend aid to improve economic and social outcomes,” Gupta said.

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