Malawi - Country assistance strategy public information notice (CPIN)

Report No. PIN58 Report No. PIN 58 Republic of Malawi CAS: Public Information Notice World Bank Board Discusses Republic of Malawi Country Assistance Strategy On December 21, 2000, the World Bank's Board of Executive Directors discussed the Bank Group's Country Assistance Strategy (CAS) Progress Report for Malawi, covering the period from August 1998, when the CAS was formulated, to December 2001, when the next CAS will be presented to the Board. Country Context Until 1994, the Government of Malawi pursued an elitist development model which left a legacy of high inequality in income and access to services. Private investment was limited and the business environment unfriendly, due to excessive red tape, poor macroeconomic management, and an ineffective public service. After Malawi's first democratic elections in 1994, a four-part reform program was introduced to address these constraints. Program elements include establishing a supportive macro framework, prioritizing public expenditure and improving service delivery, creating an enabling environment for private investment, and developing a cost-effective social safety net. Malawi has made considerable progress in implementing this reform program recently. In June 1999 President Muluzi was returned to power in the country's second multiparty elections, and in November 2000 local authorities were elected for the first time. Growth since mid-1998 has averaged 3 to 4 percent per annum, reflecting an economy that is much more open and competitive than before. To ensure that the benefits of growth reach the poor, public spending has been shifted towards the social sectors and smallholder farmers have been permitted to grow cash crops such as tobacco, leading to some remarkable pro-poor transformations. On December 21, 2000, the Boards of the IMF and IDA discussed Malawi's Interim Poverty Reduction Strategy Paper (PRSP) and decided that Malawi is eligible for debt relief under the enhanced HIPC initiative. On the same day, the IMF Board agreed to a new Poverty Reduction and Growth Facility arrangement for Malawi and the Bank's Board approved a new adjustment operation. The Government is targeting additional resources on poverty reduction, and the Medium-Term Expenditure Framework, supported by solid reforms in budget management, reflects this commitment. Bank Strategy Malawi remains a very poor country with significant development challenges: limited resources, landlocked position, poor social indicators, high incidence of HIV, environmental degradation, and heavy reliance on tobacco. To promote growth and reduce poverty, the country has to move systematically on a broad front. The 1998 CAS aimed to assist the Government in (i) creating conditions for broad-based labor-intensive growth, (ii) fostering environmental sustainability and human development, (iii) improving public sector management and capacity, and (iv) strengthening the policy dialogue. This strategy remains appropriate.  There has been progress in implementing the CAS. On the macroeconomic side, trade tariffs have been reduced; public spending has been prioritized; a revenue authority has been established; and financial management has been strengthened. On the structural side, transport and telecommunications have been liberalized; the electricity and water utilities have been restructured; and the Commercial Bank of Malawi has been brought to the point of sale. Within the social sectors, community-led development initiatives remain strong; primary school enrolment rates are high; the quality of education is beginning to receive needed attention; and a strategic plan for controlling HIV/AIDS is being implemented. In addition, service delivery is gradually being devolved to local authorities, and the Government has started to deal decisively with several high-profile corruption cases. Bank support to the Government's program has been substantial. The Bank's portfolio currently includes 12 projects in seven sectors, for a total commitment of $450 million ($201 million undisbursed). Portfolio performance has improved since the last CAS, in part as a consequence of joint Bank- Government portfolio reviews (occurring most recently in July and November 2000), with projects such as Malawi Railways and the Social Action Funds performing very well. The next full CAS will be elaborated on the basis of priorities set in the Government's full PRSP, which is expected to be completed in June 2001. Over the next 12 months, and until the new CAS is completed, Bank activities in Malawi will involve completing the program set out in the current CAS. Projects planned for FY01-02 include a new adjustment credit (approved on December 21, 2000) and several other operations supporting private sector development. The thrust of the Bank's non-lending program will be to support preparation of a full and prioritized PRSP and to bring all key economic and sector work up-to-date. In elaborating the next CAS, the Bank intends to be more strategic and selective in determining the level, type and sectoral composition of Bank support to the Government's poverty reduction strategy. This is likely to involve placing higher levels of resources into fewer sectors to achieve real sectoral transformation. Discussions concerning sectoral composition will involve close coordination with the Government, its external partners, and civil society, both to determine the Bank's comparative advantage and to ensure that important activities continue to receive support. Partnerships The Bank Group continues to work closely with the IMF to help the Government to sustain and broaden improvements in financial management, and it coordinates its activities in Malawi with the African Development Bank, the UN system, the European Union, and numerous bilateral donors. The Bank and other partners also occasionally hold high-level consultations in Malawi to discuss and coordinate on issues of strategic importance to the country. - 2 -