Malawi risks losing 10.5 million euro (about K19 billion) European Union (EU) funding due to Treasury’s failure to facilitate district councils’ opening of foreign currency-denominated accounts (FCDAs) with commercial banks, it has emerged.
The EU had requested that the FCDAs for councils should be operational by the end of November 2024.
The resources, according to a letter from EU Head of Delegation Rune Skinnebach to Minister of Finance and Economic Affairs Simplex Chithyola Banda, are meant for some district councils for projects under the Greening and Growing Malawi-Ulimi ndi Chilengedwe m’Malawi (Uchi) project.
However, following the Malawi Government’s publication of new regulations on FCDAs, Treasury stated that it wanted all the accounts at the Reserve Bank of Malawi (RBM).
Meanwhile, a meeting has been set for this week to discuss the way forward because the EU reportedly still wants to proceed with the initial arrangement.
In the letter, Skinnebach highlighted that communication from Secretary to the Treasury (ST) Betchani Tchereni indicated that there was a waiver to allow councils that had qualified for the funds to engage commercial banks.
Reads the EU letter: “The letter [from the ST] further instructed the Accountant General [AG] to provide guidance to these district councils on opening the FDCAs with commercial banks. In acknowledging and appreciating the decision made by the ST, I requested in the referenced letter to the ST that the bank accounts should be operational by the end of the month of November 2024.
“Honourable minister, there has been no action from the AG on this subject up to date despite a number of follow ups by my services in person and through calls. I must reiterate the urgency of resolving this issue promptly.”
The project seeks to increase the share of commercial agriculture by smallholder farmers and agri-businesses in targeted areas through more inclusive, sustainable and territorial relevant value chains.
And in the December 11 2024 letter, the EU Ambassador warned that they would be left with no choice but to terminate the contracts with the councils and request a substantial amendment to decommit the said funds.
He said: “This is a scenario we are keen to avoid, given the critical inter-linkages within the programme components, the significant financial contribution involved, and the substantial impact these projects are expected to have on Malawi.
“Please note that the accounts in question, if they are not operational by January 13 2025, we will be compelled to initiate the much de-commitment of funds.”
In his reaction to the development yesterday, Malawi Local Government Association executive director Hardrod Mkandawire said the inaction on the part of government on the matter was counterproductive.
He said it was the same government that has been urging councils to look for alternative sources of revenue, but is not willing to support such initiatives.
Said Mkandawire: “There is no justification whatsoever that any reasonable and patriotic public servant would furnish to the people of Malawi for this laxity, incompetence and unreasonable extended delays.”
Minister of Finance and Economic Affairs Simplex Chithyola Banda did not respond to calls or messages while Tchereni referred us to Accountant General Henry Mphasa.
When contacted, Mphasa said leaving the accounts under the control of local councils would be contravening the Public Finance Management Act (2022).
He said: “We had a discussion with them [councils]. We said we cannot allow this, but they put their foot down. We sat with the ST, and a waiver was provided. But now, as we were dispatching the letter, there is now a new directive that all MDAs have to have their FDCAs with the RBM. You now understand the crossfire.”
