Fiscal Management and Accelerating Growth Program

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The Fiscal Management and Accelerating Growth Program Project for Malawi (FIMAG) will support structural reforms in: (i) Fiscal Management, (ii) Parastatal Reforms, (iii) Agriculture, and (iv) HIV/AIDS. The reforms in fiscal management are designed to strengthen the Government's capacity to meet macroeconomic stabilization targets while the parastatal reforms will help in both reducing the burden on the budget and improve delivery of key infrastructure services crucial for growth. The reforms in agriculture will contribute to growth by increasing the returns to smallholder farmers through creating better functioning land, tobacco and maize markets. The reforms in HIV/AIDS will provide the framework for channeling resources and strengthening institutions in order to mitigate the health and social impacts of HIVIAIDS. There are four main risks to the operation. First, there is a risk of policy slippage. Malawi goes to general elections in May 2004. In the run up to the elections, there is a risk of fiscal slippages due to election related expenses. In addition, a new Government after May 2004 may be less committed to reforms than the present one. Second, there is a risk that delays in donor inflows could create the need to approach the domestic market tofinance the Budget. Third, there is risk of exogenous shocks, especially one of drought and famine, destabilizing the macroeconomic agenda. Fourth, there is risk arising from the high incidence of HIVIAIDS. The first risk has been mitigated by the wide consultations with all stakeholders, including civil society organizations (CSOs) to create broad support for the program and providing technical assistance to firm up the analytical basis for the reforms. The second risk has been mitigated by working closely with all our development partners, including the Common Approach to Budget Support (CABS) group and the African Development Bank (AfDB) to make sure that all our operations are coordinated. The third risk is mitigated by efforts made to strengthen the systems to respond quickly to early warnings of a possible famine. The fourth risk has been addressed by including HIV/AIDS as one of the four reform areas. The Credit consists of a single component of untied balance of payments support, which will be disbursed in two equal tranches.