1. Malawi Public Expenditure Review: Inter-Sectoral Allocations
21 November 2007

2. Background to the analysis
Within the context of the MGDS, government’s strategy is to rebalance expenditure from social to economic sectors
Using the Maquette for MDG Simulations (MAMS) model, the research conducted simulations on the impact of changing the balance of expenditures between economic and social sectors on growth, poverty, and selected social indicators in Malawi
The MAMS is an economy-wide simulation model created to analyze development strategies

3. Main Findings

4. (1) Shifting the composition of expenditures across sectors matters for both growth and human development indicators
There is a trade-off between increasing expenditures in infrastructure Vs on social sectors in terms of outcomes
A moderate relative increase in infrastructure spending leads to faster GDP growth rate, exports, investments and poverty reduction, but at the expense of slower improvements in human development indicators
On the other hand, a relative increase in expenditure in social sectors has a slower and less impact on growth, but a more rapid impact and great impact on human development

5. (2) Good macroeconomic policies are critical for both growth and human development indicators
Maintaining sound macroeconomic policies is critical for improvements in both growth and human development indicators
Changing the intra-sectoral allocation of expenditures only brings a small additional impact on accelerating growth or progress towards human development indicators

6. (3) Ensuring the ‘quality’ of public expenditures is critical to accelerate growth and progress towards the MDGs
The results of the MAMS model assume that the ‘quality’ of expenditures and investments (within each sector) does not change substantially
But model shows that improving the efficiency in use of resources within each sector is also critical to realize the impact of increased expenditures
Hence there is a need to carefully assess public expenditures within each sector to improve efficiency

7. Recommendations

8. (1) Need to strike a balance between expenditures on economic & social sectors to achieve growth & improve human development indicators
Given that rapid progress in both, growth and human development indicators are needed, there is need to strike a good balance between expenditures in economic and social sectors
Maintaining sound macroeconomic policies is critical for both growth and human development indicators
The implementation of the efficiency reforms recommended by the sectoral PERs (in education, roads, health and nutrition) is critical to accelerate growth and progress towards MDGs