AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT FUND MALAWI COUNTRY STRATEGY PAPER 2005–09 COUNTRY OPERATIONS DEPARTMENT NORTH, EAST & SOUTH (ONCF) SEPTEMBER 2005 MALAWI 2005-09 COUNTRY STRATEGY PAPER Table of Contents EXECUTIVE SUMMARY--------------------------------------------------------------------------- VI 1. INTRODUCTION -------------------------------------------------------------------------------- 1 2. COUNTRY CONTEXT ------------------------------------------------------------------------- 2 2.1 POLITICAL SITUATION ------------------------------------------------------------------------- 2 2.2 MACROECONOMIC AND STRUCTURAL ISSUES----------------------------------------------- 2 2.3 SECTORAL CONTEXT ISSUES ------------------------------------------------------------------ 5 2.4 PRIORITY CROSS-CUTTING ISSUES ----------------------------------------------------------- 6 2.5 POVERTY, SOCIAL CONTEXT AND ISSUES---------------------------------------------------- 8 2.6 MEDIUM-TERM ECONOMIC OUTLOOK AND EXTERNAL ENVIRONMENT ------------------10 2.7 PRIVATE SECTOR CLIMATE AND ISSUES ----------------------------------------------------11 3. NATIONAL DEVELOPMENT AGENDA AND MEDIUM-TERM PROSPECTS 13 3.1 KEY ELEMENTS OF THE GOVERNMENT DEVELOPMENT AGENDA -------------------------13 3.2 ASSESSMENT OF IMPLEMENTATION PROGRESS OF THE AGENDA -------------------------14 3.3 THE PARTNERSHIP FRAMEWORK ------------------------------------------------------------16 3.4 CHALLENGES AND RISKS---------------------------------------------------------------------18 4. BANK GROUP COUNTRY ASSISTANCE STRATEGY-------------------------------18 4.1 COUNTRY CONTEXT AND STRATEGIC SELECTIVITY ---------------------------------------18 4.2 PORTFOLIO MANAGEMENT AND LESSONS LEARNT FROM PREVIOUS CSP ----------------21 4.3 CSP AREAS OF FOCUS -------------------------------------------------------------------------22 4.4 REGIONAL DIMENSIONS OF BANK GROUP ASSISSTANCE ----------------------------------25 4.5 CSP RESULTS FRAMEWORK ------------------------------------------------------------------25 4.6 BANK GROUP ASSISTANCE: PERFORMANCE-BASED RESOURCE ALLOCATION, PERFORMANCE BENCHMARKS, AND LENDING AND NON-LENDING ACTIVITIES---------27 4.7 PARTNERSHIP AND HARMONISATION -------------------------------------------------------29 5. RESULTS-BASED MONITORING AND EVALUATION -----------------------------31 5.1 MONITORING OF CSP OUTCOMES AND BANK GROUP PERFORMANCE --------------------31 5.2 MANAGING RISKS -----------------------------------------------------------------------------32 5.3 COUNTRY DIALOGUE ISSUES-----------------------------------------------------------------32 6. CONCLUSION AND RECOMMENDATION---------------------------------------------33 ii CURRENCY EQUIVALENTS (end-August 2005) UA 1 = US$ 1.460 UA 1 = MK 179.142 US$ 1 = MK 122.717 FISCAL YEAR 1 July to 30 June WEIGHTS AND MEASURES Metric System Boxes Box I: Key Features of Malawi ............................................................................................................... 2 Box II: Impact of Higher Oil Prices on Malawian Economy.................................................................. 4 Box III: Causes of Poverty and Vulnerability in Malawi........................................................................ 9 Box IV: Food Security Developments in Malawi ................................................................................. 10 Box V: Summary of Vision 2020.......................................................................................................... 13 Box VI: Donors’ Intervention by Sector ............................................................................................... 16 Box VII: Consultations on Bank Group Strategy.................................................................................. 19 Tables Table 1: Macroeconomic and Financial Indicators .................................................................................3 Table 2: MDGs-MGDS-CSP Linkages and Results Flow .................................................................... 20 Table 3: Summary of CSP Framework Matrix...................................................................................... 26 Table 4: ADF-IX & ADV-X Allocations.............................................................................................. 28 Table 5: Reforms and Benchmarks to Improve Country Performance ................................................. 30 Annexes Annex 1: Map of Malawi Annex 2: Malawi: Bank Group Operations Annex 3: 2005-09 CSP Framework Matrix Annex 4: 2005/06 CABS Performance Assessment Framework Annex 5: Malawi’s Millennium Development Goals Annex 6: Main Donor MPRSP Interventions by Sector Annex 7: Malawi: Comparative Socio-economic Indicators Annex 8: Malawi: GDP by Economic Activity at Constant 1994 Factor Cost, 1999-2003 Annex 9: Malawi: GDP by Expenditure at Constant 1994 Market Prices, 1999-2003 Annex 10: Malawi: GDP by Expenditure at Current Market Prices, 1999-2003 Annex 11: Malawi: National Composite Consumer Price Index, 1999-2004 (August) Annex 12: Malawi: Central Government Operations, FY 1998/99-2003/04 Annex 13: Malawi: Monetary Survey March 2001-June 2004 Annex 14: Malawi: Balance of Payments, 1999-2003 iii ACRONYMS AND ABBREVIATIONS ADB : African Development Bank ADF : African Development Fund ADMARC : Agricultural Development Marketing Corporation AGOA : African Growth and Opportunity Act APPR : Annual Portfolio Performance Review APR : Annual Progress Reports BWI : Bretton Woods Institutions CABS : Common Approach to Budget Support CAP : Country Assistance Paper CAS : Country Assistance Strategy CCA : Credit Ceiling Authority CCS : Commitment Control System CDSS : Community Day Secondary School CFAA : Country Financial Accountability Assessment CEDAW : Convention for the Eradication of Discrimination Against Women COMESA : Common Market for East and Southern Africa CPAR : Country Procurement Assessment Review CPIA : Country Policy and Institutional Assessment CPRR : Country Portfolio Review Report CSP : Country Strategy Paper CWIQ : Core Welfare Indicator Questionnaire DHS : Demographic Health Survey DfID : Department for International Development DHS : Demographic and Health Survey DPP : Democratic Progressive Party EBA : Everything But Arms Initiative ESP : Education Sector Plan EU : European Union FIMAG : Fiscal Management and Accelerating Growth GDP : Gross Domestic Product GFEM : Group on Financial and Economic Management GNI : Gross National Income GoM : Government of Malawi Ha : Hectare HDI : Human Development Index HDR : Human Development Report HIPC : Heavily Indebted Poor Countries Initiative HIV/AIDS : Human Immunodeficiency Virus/Acquired Immuno-Deficiency Syndrome HPI : Human Poverty Index IFMIS : Integrated Financial Management Information System IHS : Integrated Household Survey ILO : International Labour Organisation IMF : International Monetary Fund ISP : Institutional Support Project MARDEF : Malawi Rural Development Fund MASIP : Malawi Agriculture Sector Investment Programme MCGP : Malawi Country Gender Profile iv MDG : Millennium Development Goals M&E : Monitoring and Evaluation MFAAP : Malawi Financial Accountability Action Plan MGCWCS : Ministry of Gender, Child Welfare and Community Services MGDS : Malawi Growth and Development Strategy MIDC : Mining Investment and Development Corporation MIPA : Malawi Investment Promotion Agency MMR : Maternal Mortality Ratios MTEF : Medium-term Expenditure Framework MSE : Malawi Stock Exchange MSME : Micro, Small, and Medium-scale Enterprises MPRSP : Malawi Poverty Reduction Strategy Paper MRA : Malawi Revenue Authority NAC : National AIDS Commission NEAP : National Environmental Action Plan NEPAD : New Partnership for Africa’s Development NGO : Non-governmental Organisation NSO : National Statistical Office PAF : Performance Assessment Framework PBA : Performance-Based Allocation PCR : Project Completion Report PFM : Public Financial Management PHC : Population and Housing Census PIF : Policy and Investment Framework PIU : Project Implementation Unit POW : Plan of Work PP : Problematic Project PPE : Pro-poor Expenditure PPP : Potentially Problematic Project PR : Project at Risk PRGF : Poverty Reduction and Growth Facility PRS : Poverty Reduction Strategy RMB : Reserve Bank of Malawi RWSSI : Rural Water Supply and Sanitation Initiative SADC : Southern African Development Community SGR : Strategic Grain Reserve SMP : IMF Staff-Monitored Programme SPFS : Special Programme for Food Security SSIDS : Small-scale Irrigation Development Study STABEX : Stabilisation of Export Earnings SWAp : Sector-Wide Approach UA : Unit of Account UDF : United Democratic Front UNAIDS : United Nations AIDS Programme UNICEF : United Nations Children’s Fund UNDP : United Nations Development Programme UNFAO : United Nations Food and Agricultural Organisation UNWFP : United Nations World Food Programme USAID : US Agency for International Development v EXECUTIVE SUMMARY 1. INTRODUCTION The objective of the 2005-09 CSP is to provide the Bank Group with an assistance strategy in Malawi that contributes to poverty reduction and socio-economic development. The CSP is linked to the successor strategy of the Malawi Poverty Reduction Strategy Paper (MPRSP), the Malawi Growth and Development Strategy (MGDS), which will run from 2006 to 2011. The Bank’s strategy, with its focus on rural poverty, aims to assist government to promote rural development, especially by addressing the problem of food insecurity,