July 3, 2006

Poor Malawi struggles beyond reach of G8 largesse

BLANTYRE (Reuters) - Malawian widow Akice Kunkhoma makes
just pennies a day as she looks after five grandchildren
orphaned by AIDS, but she still owes the world's richest
nations $240 -- with interest.

With her 12 million countrymen, she lives in one of
Africa's poorest countries and one that, so far, has benefited
little from the rich world's pledge last year at the Group of
Eight summit to redouble efforts to end world poverty.

"The harvest from the garden was not good enough because I
spent most of the farming season in hospital tending to my late
daughter," Kunkhoma, 56, told Reuters at her small village just
outside the commercial capital of Blantyre.

"These children also need to go to school. What will I
clothe them with?" she wonders.

Critics have used the July 8 anniversary of last year's
Group of Eight (G8) Africa plan to highlight how few of its
promises to Africa have been kept, with much pledged aid still
unavailable, funding for HIV/AIDS drugs still insufficient and
agricultural trade barriers still hobbling African exports.

And while debt relief is beginning to show results in some
African countries, others such as Malawi are still on their

Struggling with a devastating AIDS epidemic and hit by
frequent food shortages, Malawi shoulders a debt burden of $2.9
billion to lenders in the developed world.

Paying it back means less money for schools, hospitals,
AIDS drugs and roads in a country where paved highways suddenly
turn into dirt tracks and many rural inhabitants bathe in
rivers, risking attack from man-eating crocodiles.

Unlike some of its African neighbors, Malawi has not
enjoyed much debt relief from lenders such as the International
Monetary Fund and the World Bank; with concerns over its fiscal
management keeping it off the list of countries earmarked for
the quickest help.


Malawi officials say the country is struggling to survive.

"It's a fighting time and we're at a very critical stage in
the country's economic history. We need immense funds," said
Finance Minister Goodall Gondwe.

Malawi's needs are apparent from almost any vantage point.
Despite boasting one of southern Africa's great natural wonders
in the form of Lake Malawi, the country is desperately poor
with many people scraping by on little more than subsistence

The lake, a source of food for much of the population, is
dangerously overfished. Malawi's main commodity export --
tobacco -- is getting hard to sell and, while tourism potential
is huge in this sun-kissed land, infrastructure is woeful.

World Bank data highlights the largely pre-industrial state
of Malawi's economy, with agriculture accounting for over 90
percent of its export earnings and 45 percent of its gross
domestic product.

Gondwe hopes to direct debt relief to areas such as health.

"Once the 2006/7 budget passes and the World Bank and IMF
boards approve debt cancellation, we should go ahead to spend
on reforms that aim to overhaul national health and education
systems," he said.

Gondwe's 2006/07 budget of about $1 billion factors about
$62.59 million expected to flow from the IMF's Heavily Indebted
Poor Country (HIPC) initiative and the International Monetary
Fund's Multilateral Debt Relief Initiative (MDRI).

The budget also assumes that about $1 billion of a total of
$2.9 billion of Malawi's external debt stock would be freed in
the first year of achieving debt cancellation -- although this
depends on whether the rich world fulfills its promises.


The IMF and World Bank are due to consider if Malawi has
reached completion point under HIPC in August and September,
World Bank Country Economist Khwima Nthara said last week.

About half of the country's total population of 12 million
was in need of food aid last year following a severe drought.

Besides food shortages, Malawi's health and education
institutions are crying out for resources as most hospitals are
short of basic amenities while state schools suffer from a lack
of teachers.

Meanwhile, AIDS kills 10 Malawians every hour.

Nthara said two conditions for HIPC are that the share of
health expenditure be at least 13 percent of the discretionary
recurrent budget and yearly enrolment of 6,000 students in
teacher-training colleges, tough goals for a country with such
limited resources.

The finance minister said Malawi was supposed to reach HIPC
completion before Zambia in 2003, but failed to implement
reforms as agreed with IMF and World Bank -- leaving Kunkhoma
pondering her future, and that of her grandchildren, in a
country that remains on the edge of disaster.