Malawi: ‘Cashgate’ scandal ripples widen

Malawi: ‘Cashgate’ scandal ripples widen

Malawi: ‘Cashgate’ scandal ripples widen, involving millions of dollars and in which civil servants and government ministers are allegedly involved, has infuriated international donors, who have withheld desperately needed support. Lameck Masina reports.

Donors who provide budget support to Malawi are withholding their aid to the Southern African country in reaction to the fraud in which millions of public funds have been siphoned from the government in what is known as Capital Hill cashgate scandal, named after the seat of power.

The fallout from the Capital Hill cashgate scandal has hit Malawi hard. International donors, who fund 40% of the country’s budget, have halted disbursement until the whole issue can be satisfactorily solved. 

The crime involved the systematic siphoning of cash from government coffers. Investigators say a loophole in the government payment system, adopted in 2005, known as Integrated Financial Management Information System (IFMIS), allowed the fraudsters to easily help themselves to millions of dollars of public money. 

The amount discovered to be missing so far is above $250m.

The scandal first came light in September, a week after the country’s Budget Director, Paul Mphwiyo, survived a shooting by unknown assailants at the gate of his house in the capital, Lilongwe. He was immediately flown to a South African hospital where three bullets were removed from his body.

State President Joyce Banda indicated that Mphwiyo was shot for threatening to reveal names of members of a syndicate which had been looting government money. Malawi police arrested and charged several civil servants, businessmen and government officials. 

Government workers, mostly accounts assistants from the Auditor General’s Office were also arrested after being found with cash stashed in their cars and houses. Several local companies were revealed as conduits of the millions paid without providing any service to the government. 


Protecting the public

President Banda said the scandal had been discovered due to mechanisms which her administration had put in place to root out corruption in the country.

“I am assuring Malawians that my government will spare no one in the effort to root out corruption in the country and that I will not be intimidated in the fight of protecting what belongs to the public. 

“I will make sure that all those involved in the plundering of government money are brought to book and I will shield no one,” she said.

Barely a day later, President Banda dismissed the entire cabinet. She later dropped some cabinet ministers including Finance Minister, Ken Lipenga, and Justice Minister Kasambara. 

In addition to the turmoil this has caused internally, the external blow-back is serious. 

The European Union announced it was withholding $40m due in December unless it saw sufficient signs of action taken by the Malawi government in dealing with the looting of public finances. Norway followed by suspending its funding citing its “zero-tolerance policy on corruption”.

The UK Department for International Development (DFID) also announced that it was delaying the majority of its aid payments to Malawi until the government sorts out the problem.

Donors under the Common Approach to Budget Support (CABS), which include the IMF and World Bank, who were reviewing the progress of the country’s 2014/2014 national budget in the capital Lilongwe, resolved to withhold the $150m quarterly funding until the situation is settled. 

CABS co-chair Sarah Sanyahumbi said: “Clearly as investigations are ongoing, we cannot speculate too much on what the outcome will be. 

“But we do know that this has seriously dented confidence in the government’s financial management systems and that, as a result of this, donor funds are currently delayed. 

“We will not be able to resume support through government systems until we have a clear assurance, independently verified, that our resources are all being used for their intended purpose.” 


Heavy blow

This is a heavy blow for President Banda, who had considered the return of donors who had left after tiffs with former president President Bingu wa Mutharika as one of her achievements. Sanyahumbi, who is also head of DFID Malawi, said that once trust and confidence was lost, it takes time to rebuild, “And I’m afraid there are no quick fixes to this problem.”

She said it was time for Malawi to take the action needed to address the weaknesses in the system and make 2013 go down in history as the year that Malawi turned a corner and became a beacon in the region for strong, clean and accountable budgetary and financial management.

If government can do this, we will support you. Donors have already quickly mobilised support to the ‘cashgate’ investigations, including an independent investigator, a forensic audit team and support to strengthening IFMIS. 

“And more support is being discussed. We are committed to supporting the government in taking forward these investigations.”  


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