We are in a big mess, economically speaking. The kwacha is in free fall, and there is not much we can do. Limiting government expenses may have a marginally beneficial effect in the short term, but it will slow down the economy even further than is already the case. Selling off some foreign exchange reserves would help a little, short term, but it is a risky strategy: having a shortage of forex will kill the economy, as we saw under President Bingu wa Mutharika. The only real solution is getting more forex flowing into the country. That can be donor support, but that is problematic at the moment, or it can be export, which means we have to get more productive. That must be possible, but it is a long term project. In the mean time we are stuck between a rock and a stone.
Donor support has always been the lifeboat that kept the Malawian economy above drowning. But our ruling class has abused it time and again, and donors are getting weary with the theft of their tax payers hard earned money.
Look at it: they gave Dr Banda the benefit of the doubt and he was a ruthless dictator who enriched himself and his cronies at the expense of the population, and threw his political opponents for the crocodiles. That was a feasible strategy during the Cold War, when the West gave out un-earmarked funds to any government –good or bad- that supported its policy against the Soviets. When the Cold War was over with the fall of the Berlin Wall in 1989, it took both Malawi and South Africa 5 years to adjust to the new situation.
Then came Muluzi, and he got the benefit of the doubt. He abused donor funds big time. They withdrew.
Bingu wa Mutharika came in, and he got the benefit of the doubt. He abused donor funds and practiced bad governance to the point where he got the biggest demonstrations in democratic history against him. His answer was shoot-to-kill. Donors withdrew. Bingu got a heart attack.
In came Joyce Banda, and the donors gave her the benefit of the doubt. She organized Cashgate, and the donors withdrew.
All that time donors had been talking about good governance and prudent financial management, and our ruling class ignored that to their own benefit and at the cost of the Malawian population. Donors, time and again, overstepped their own rules of good governance and disbursed funds in questionable situations. Our ruling class has gotten used to this scenario. The Italian scholar Robert Calderisi has written a book about this Africa wide phenomenon: The Trouble With Africa. Our policy makers as well as our journalists would do us and themselves a favour by reading it well.
Now donors (after reading Calderisi and a number of other scholars) have gotten wiser: they have been cheated four times, and the ruling party is one that has gotten to them before, with the current President as a government minister. He is even the brother of the man who cheated the donor community to the point that the usually calm Malawian population revolted. Arthur Peter Mutharika was personally responsible for some bad policies, such as the flag change and the closure of Chancellor College. No wonder donors are reluctant to disburse funds before the public finance management system has been cleaned of opportunities for theft and corruption, and until more than a few token criminals have been taken to task. For the moment they do not have much reason to believe that their tax payer’s hard earned money will go to the poor of Malawi, and will not be tapped off on the way there by the rich that do not need any support.
In the past donors were very easy on Malawian rulers, and they have gotten a lot of theft and corruption in the bargain. They are wiser, and they are not shifting their goal posts to the advantage of the ruling class of Malawi any more. They seem to be keeping their word: clean up the mess before we disburse budget support. In the mean time they are giving us and our rulers a lot of slack by still supporting projects, NGO as well as government projects. It is not that all of the 40% support is frozen, it is only the 20% budget support that is frozen until Arthur Peter Mutharika cleans up his act. The other 20% project support is still disbursed into our economy. There is no such thing as a zero aid budget in Malawi, it is a 20% aid budget. God forbid the donors find out a Cashgate-like scandal in that area! Then our state will fail within months, the rich will leave the country with the stolen cash, and we are stuck with a failed state.