This first annual review of MPRS takes a deep analysis of assessing progress towards the implementation of pro-poor activities with focus on inputs and annual outputs. The review process has shown that the allocation of resources in the MPRS is more comprehensive than in the budget. The MPRS allocations include wages and salaries and other administrative expenditure while pro-poor expenditures in the budget are for actual implementation of the pro-poor activities excluding any administrative costs.
A lot of challenges have emerged during the first six months of the implementation such as non-availability of Balance of Payment (BoP) support. The Government monetary programme for 2002/2003 fiscal year, which was the basis of the budget, assumed substantial amount of external assistance in the form of BOP. Lack of programmed external assistance, in the first six months, forced the government to increase its domestic debt to unsustainable levels. The poor flow of funds to Ministries resulted into diversion of HIPC resources to fund ORT activities.
Review of Macroeconomic Targets
The resource envelope of the MPRS and the budget were developed on assumptions of some macroeconomic targets. The main targets were economic growth, inflation and exchange rate. The MPRS assumed the growth rate of 3 percent, inflation rate of 11.5 percent and exchange of K71 to one US dollar while the 2002/03 budget framework assumed growth rate of 1.4 percent, inflation of 15.0 percent and exchange rate of K71 to one US dollar. These targets were based on the assumptions that the MPRS will be fully implemented and there will be no external shocks.
During the review period, the GDP growth attained was 0.1 percent. This dismal growth has not come from the sectors where most of the poor are expected to participate and benefit as such the 0.1 percent growth has not been pro-poor. The challenge to Malawi Poverty Reduction Strategy is to ensure that there should be increased economic activities in declining sectors of the economy where the poor participate. Inflation rate was 14.8 percent and exchange rate was K76.7 to one US dollar. The depreciation of the exchange rate has been due to the slowing down of external assistance and increased budget deficit to support maize operations.
Expenditure Framework
In the first year of implementation, the 2002/03 budget instituted some tax and expenditure control measures in line with MPRS overall goal of improving revenue collection and prioritising activities in the budget.
The Government has collected 53.1 percent of the targeted domestic revenue during the first six months of implementation of the pro-poor budget while external revenue has only amounted to 2.1 percent of expected total inflow. The unavailability of programmed resources has rendered fiscal policies ineffective in reducing interest rates.
The six months data reveal that MK29.9 billion of the total expenditure has been funded of which PPEs amounted to K4.9 billion. The distributions of resources by pillar show that pillar 2 has been allocated the highest resources of MK2.6 billion, followed by pillar 1 MK0.5 billion, then pillar 4 MK0.2 billion and lastly pillar 3 MK0.1 billion.
During the review period, however, we note that the government budget is running a deficit of MK11.8 billion. The deficit has been financed through increased issuance of Treasury Bills. Consequently, the stock of domestic debt has increased from MK26 billion to MK42 billion within a short period of time. The current levels of domestic debt stock, if not reversed, will undermine the implementation of the MPRS.
Conclusions and Recommendations
The link between the activities in the budget and the MPRS should be spelt out clearly for comprehensive analysis. Protected Pro-Poor expenditure allocations in the budget should be as comprehensive as those in the MPRS by including wages and salaries and administrative costs. Furthermore, in crafting the budget, a worst scenario should be adopted by excluding donor funds. This is evident from the little funds that have been realised from donors in this year's budget. In addition, all activities funded by donors should be included in the budget. The review has also shown that there is little mainstreaming of cross cutting issues in their activities hence the implementing institutions are encouraged to mainstream.
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