After discussions with the Malawi government, this week the Common Approach to Budget Support (CABS) donor group of the United Kingdom, Norway, Sweden and the European Commission decided to keep to its decision to withhold budget support until it was satisfied with the government's financial performance.
In a statement CABS said: "The group recognises recent improvements in areas such as keeping total government spending under control and bringing down inflation. There are still some areas of concern, including implementation of sound financial management systems. We hope too that the share of expenditure devoted to items like medicines and teaching materials will be back on target by the end of the fiscal year."
It said the future of the economy depended largely on the government restraining expenditure to bring down interest rates and creating conditions for growth.
"This is critical to successful implementation of Malawi's Poverty Reduction Strategy (MPRS) which budget support is intended to underpin. We look forward to the annual review of the MPRS."
Spokesman for the United Kingdom, Michael Nevin, told IRIN that the suspension by his country did not affect aid programmes which were still going ahead.
He described the latest meeting with the Department of Finance as positive but said the donor group was waiting for the International Monetary Fund's (IMF) report on the government's budget and spending adjustments, which was expected to be released soon, before deciding to lift the suspension.
Last year the IMF said it would withhold the US $47 million earmarked for Malawi under its Poverty Reduction Growth Facility due to government overspending beyond targets set by the Fund.
Nevin added that although the funds were suspended, about US $15 million had been released since 2001 to assist during the country's food crisis.
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