BBC News Online: Business

Hope fades for Malawi aid

Malawi is already facing one of its worst ever famines

The International Monetary Fund (IMF) refused to release the money after a two-week meeting with the government concluded that previous funds had been mismanaged.

"Lack of good governance has resulted in a misallocation of resources, increased the cost of doing business, created a general distrust in public sector activities and weakened civil service morale," a statement from the IMF said.

The Fund said there was a need to recognise that corruption and bad politics made financial aid ineffective.

The news is a severe blow to Malawi which is already struggling to cope with food shortages and minimal international help.

Promise to improve

The IMF said the money would not be released until the government stopped overspending and implemented a new budget by July.

Malawi Finance Minister Friday Jumbe has promised the government will now enforce tough fiscal and monetary policies in order to win IMF approval.

The aid is part of a poverty reduction package first agreed in 2000, but only an $8m tranche has been made available so far.

Malawi is one of the poorest nations of the world, and faces spiralling inflation of 18% and a widening budget deficit.

While the IMF's review concluded the economy was going downhill, Mr Jumbe claims there have been improvements since December.