Malawi’s key donors under the Common Approach to Budget Support (Cabs) on Wednesday faulted recent large payouts in compensation to individuals whose contracts were prematurely terminated by the Joyce Banda administration.

The donors, speaking during the second Cabs Review Meeting in Malawi’s capital, Lilongwe, described the payouts as “unjustified” in the current economic environment.

“There are, for example, large payouts to individuals, in terms of ‘golden parachutes’. This cannot be justified in the current economic climate and sends a message that while many are suffering, a lucky few are able to gain and even prosper,” said Cabs co-chairperson Peter Woeste, who is also German Ambassador.

He was speaking at the review meeting which focussed on the outturn for the 2011/12 national budget, the budget performance and the outturn for the first half of the 2012/13 fiscal year as well as the outlook and priorities for the financial year 2013/14 budget.

Said Woeste: “Naturally, this [large payouts] causes resentment and dissatisfaction and undermines the efforts of government to handle the economic crisis.”

Malawi continues to undergo one of the worst economic crises, characterised by a high cost of living, triggered by the implementation of a package of economic reforms by the Joyce Banda administration as an attempt to heal the ailing economy.

The economy is currently reeling from a high double-digit inflation rate—which stood at 34.6 percent as of December 2012, according to the National Statistical Office—and a high cost of borrowing in most commercial banks which are charging as high as 40 percent in interest rates, among other indicators.

“The much-needed public support for the indispensable economic reforms has decreased in recent months with the feeling of the population that the burden of economic reforms is not equally shared,” said Woeste in a speech titled ‘Being Responsible’.

While saying “the battle is not yet won”, Woeste noted that continued fiscal and monetary discipline is required to bring down inflation and restore macroeconomic stability.

Adherence to principles of budget support

He also reminded Malawi to ensure adherence to underlying principles of budget support in the areas of public finance management, human rights and political governance which, he said, is necessary for the development of Malawi “and for us to continue to provide budget support”.

But Woeste said donors support the difficult decisions that government has made on the economy and reminded Malawians not to forget the bad situation they were wallowing in 10 months ago.

He said measures such as devaluation and subsequent floatation of the kwacha were difficult decisions, but necessary one if Malawi were to have a hope of regaining economic stability.

Reacting to the concerns raised by the donors, Minister of Finance Ken Lipenga, who was accompanied by his deputy Ralph Jooma, said government has the responsibility to ensure that its actions do not result in ‘sinking the economy’.

‘Compensations a robbing effect’

In their ‘Economic Governance Issues Paper’, made available at the meeting, major civil society organisations (CSOs) also described compensations towards premature contracts by public servants as turning into ‘a robbing effect on the taxpayers’.

The CSOs, however, recommended that the provisions for termination of contracts need to be critically looked into, to reconcile the high costs being experienced against the reportedly growing list of potential compensations and payouts.