The Guardian (via Reuters) is reporting on the demonstrations in Malawi. While the political issues that underly the demonstrations deserve their own post, I noted some odd wording in Reuters’ assessment of Malawi’s recent performance:
The outburst of public anger … was directed mainly at Mutharika, a former World Bank economist who was first elected in 2004 and has presided over six years of high-pace but aid-funded economic growth.
The freeze has left a yawning hole in the budget of a country that has relied on handouts for 40% of its revenues…
If we take this at face value, and assume that Malawi’s economic growth was ‘aid-funded’ (as opposed to aid-accelerated or aid-independent), is this a bad thing? It seems that Reuters is devaluing the economic growth because it has taken advantage of external assistance, but surely if the economic growth effect of aid is greater than the volume of aid, implying some kind of multiplicative effect of aid on growth in Malawi, this is a positive. It tells us that aid can indeed improve economic performance and contribute to growth, something that most aid workers and thinkers are deeply unsure of. The statement on Malawi’s ‘reliance on handouts’ also strikes me as a little disingenuous. A little digging by the staff would have shown them that while 40% of the budget surely constitutes aid dependency, this isn’t particularly high for the region, especially considering that Malawi gets almost all of it’s aid on budget, unlike most of its neighbours, and thus has a more accurate estimate of aid dependency than others countries, for whom estimates are almost universally biased downwards. I have seen incomplete estimates of aid dependency as high as 60%.
It seems to me that of all the criticisms we might wish to make of Malawi and its economic management, turning aid into growth and accurately assessing a not-astronomical aid dependency ratio should be very, very low on the list.