BASIC SOCIO-ECONOMIC INDICATORS
INCOME GROUP: LOW INCOME
LOCAL CURRENCY: KWACHA (MWK)
POPULATION AND GEOGRAPHY
- Area: 118 480 km2 (2018)
- Population: 19.129 million inhabitants (2020), an increase of 2.7% per year (2015-2020)
- Density: 161 inhabitants / km2 (2020)
- Urban population: 17.4% of national population (2020)
- Urban population growth: 4.1% (2020 vs 2019)
- Capital city: Lilongwe (5.2% of national population, 2020)
ECONOMIC DATA
- GDP: 30.4 billion (current PPP international dollars), i.e., 1 592 dollars per inhabitant (2020)
- Real GDP growth: 0.8% (2020 vs 2019)
- Unemployment rate: 7.0% (2021)
- Foreign direct investment, net inflows (FDI): 45 (BoP, current USD millions, 2020)
- Gross Fixed Capital Formation (GFCF): N/A (2020)
- HDI: 0.483 (low), rank 174 (2019)
MAIN FEATURES OF THE MULTI-LEVEL GOVERNANCE FRAMEWORK
Malawi is a democratic republic with a unicameral parliament. It is a unitary state and its governance system is based on the Constitution which was adopted in 1994. The head of state and government is the president, who is directly elected for a maximum of two five-year terms by universal suffrage. The legislative arm (parliament) is responsible for enacting laws, oversight over the executive and approving presidential appointments. Parliament has 194 members elected by plurality vote in single-member constituencies. The judiciary is independent from other branches and has unlimited jurisdiction to hear and decide on any case. Members of the judiciary are appointed by the president upon recommendation of the Judicial Service Commission.
Malawi has a single tier of decentralised governance. Local government authorities are established in Chapter XIV of the Constitution. In 1998, Malawi reinforced the decentralisation framework by adopting the National Decentralisation Policy and enacting the Local Government Act (notably amended in 2010). The Act states the objectives of local government and sets out the effective framework for decentralisation, establishing that local governance shall be articulated by the councils and providing for their composition, powers, functions and financing.
The national government is responsible for supporting local governments with policy guidance, financial and technical assistance. Policy issues are channelled through the Ministry of Local Government and Rural Development (MLGRD), which acts as a link between the national government and local governments. Local governments’ role is mainly to reenforce national policies through local programmes and activities thereby ensuring their subsidiarity and complementarity to the central government. Though Article 22 of the Local Government Act assigns responsibilities to local governments, the distinction between central government and local government responsibilities is often unclear as functions are performed by both central and local governments. Furthermore, the heavy dependence of local government budgets on central government transfers, mostly conditional transfers, limits the autonomy of local government and exposes them to great influence by the central government on their expenditure priorities.
In 2021, the central government announced that it was undertaking a review of the Local Government Act and the Decentralisation Policy to strengthen the decentralisation process.
TERRITORIAL ORGANISATION |
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MUNICIPAL LEVEL | INTERMEDIATE LEVEL | REGIONAL LEVEL | TOTAL NUMBER OF SNGs (2021) | |
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4 city councils 2 municipal council 1 town council 28 district councils |
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Average municipal size: 591 425 |
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35 | 35 |
OVERALL DESCRIPTION: Malawi has a single-tier structure of decentralised governance consisting of 28 district councils, 4 city councils, 2 municipal councils and 1 town council, which were created as the result of a presidential decree in 2012 following constitutional provisions. They are all in the same level with no subsidiary or hierarchical link. The Local Government (Amendment) Act of 2010 amended the First Schedule by merging town councils with their respective district councils in order to reduce expenditure on administration of councils. The legislation does not distinguish between urban and rural councils and their responsibilities, although their capacity to fulfil their functions is indeed influenced by their urban or rural characteristics and based on them, councils are allowed to request exemptions from functions specified in the legislation.
MUNICIPAL LEVEL: The local government councils are governed by assemblies consisting of (i) one member elected from each ward (for a five-year term) within the local government area, (ii) traditional authorities and sub-traditional authorities from the local government area as non-voting members (ex-officio), (iii) members of parliament from the constituencies that fall within the local government area as non-voting members (ex officio), and (iv) five persons as non-voting members to be appointed by the elected members to cater for the interests of such special interest groups as the assembly may determine. Members of the assembly elect from among themselves a chairman and vice-chairmen of the assembly at their first meeting. The chairman of the city and municipal councils are referred to as mayors. The chief executive officer of the assembly is appointed by the assembly.
HORIZONTAL COOPERATION: The Malawi Local Government Association (MALGA) is an association that brings together all local government authorities. Its objective is to defend the interests of local government authorities through representation and advocacy. There is little cooperation in implementation of projects by councils. They typically plan, budget and execute projects that are only within their jurisdiction.
Subnational government responsibilities
Local governments are allocated functions by the Constitution (Chapter XIV), the Local Government Act (Article 6 and Second Schedule) and are guided by the Malawi Decentralisation Policy (1998). The constitution provides that where possible, issues of local policy and administration be decided by local government authorities. Article 6 of the Local Government Act and the second schedule to the Act define the functions of local governments. The 1998 Decentralisation Policy further details the functions and responsibilities to be assigned to district assemblies (Councils). However, even among the devolved sectors, not all earmarked functions have been fully devolved. Some of these functions are shared with sector ministries of the central government. The central government still retains some functions such as defence, international trade, policy formulation and enforcement and foreign affairs as well as the responsibility of setting standards and quality assurance in service provision, through line ministries.
The central government is considering strengthening devolution to implement complete decentralisation of some sectors, e.g., police services, education, health, youth and sports, and tourism through provision of clear decentralisation frameworks and planning guidelines/tools. These intended reforms aim at completing decentralisation of functions assigned to Local Governments in the Decentralisation Policy but are still partially being undertaken by the Central Government.
Main responsibility sectors and sub-sectors |
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SECTORS AND SUB-SECTORS | Municipal level |
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1. General public services (administration) | Provision of public buildings and amenities to facilitate administrative services. |
2. Public order and safety | Community police; Control of petroleum products, explosives and other combustible or hazardous materials. Fire prevention services |
3. Economic affairs / transports | Abattoirs;Cold storage facilities for the milk, meat and fish;Road construction subject to the National Roads Authority Act.Vehicle parking.Business premise LicensingMarkets.Ferry service,Tourism promotion Trade development |
4. Environment protection | Solid and liquid waste management.Control of noxious trade. Forests and wetlands.Parks, gardens and nature reserves |
5. Housing and community amenities | Housing.Water supplies. District statistics services;Local government development planning; Land administration;Land surveying; Physical planning |
6. Health | Hospitals (other than hospitals providing referral and medical training)Health centres, Dispensaries. Maternity and child welfare services; Cemeteries and crematoria |
7. Culture & Recreation | Recreation grounds, Cultural interest facilities and sitesSports and games Swimming facilitiesCamping grounds; Theatres and galleries, MuseumsPublic libraries |
8. Education | Nursery, Primary and Distance education |
9. Social Welfare | Social rehabilitation; Labour matters;Probation and welfare;Street children and orphans;Women in development;Community development; |
Subnational government finance
Scope of fiscal data: 35 councils | SNA 2008 | Availability of fiscal data: Medium |
Quality/reliability of fiscal data: Medium |
GENERAL INTRODUCTION: The main laws related to subnational government fiscal framework are the Constitution of Malawi (Article 150) and the Local Government Act. Malawi is classified by the United Nations Economic and Social Council as being in the group of countries that have planned to transition to the 2008 SNA between 2018 and 2020.
The 1998 National Decentralisation Policy mandates that at least 5% of net national revenues (NNR) be transferred to local governments for development financing. The intergovernmental fiscal transfer system (IGFTS) is the primary mechanism by which decentralised local service delivery responsibilities are financed. However, this system has not adequately matched policy commitments with fiscal outlays. An example of the mismatch is the transfers for health and education since 2014 which have been retained close to the nominal value of the previous year’s transfers. This has resulted in a decrease in real per capita basis for almost all local governments.
The Constitution establishes the Local Government Finance Committee (LGFC) whose function is to distribute central government subsidies to local governments and to assist them to prepare their budgets. The Committee supervises and audits accounts of local government authorities.
Subnational government expenditure by economic classification |
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2018/19 | Dollars PPP / inhabitant | % GDP | % general government | % subnational government |
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Total expenditure | 47 | 2.9% | 13.6% | 100% |
Inc. current expenditure | 43 | 2.7% | 15.5% | 91.4% |
Compensation of employees | 34 | 2.1% | 43.5% | 72.3% |
Intermediate consumption | 9 | 0.6% | 15.6% | 19% |
Social expenditure | - | - | - | - |
Subsidies and current transfers | - | - | - | - |
Financial charges | - | - | - | - |
Others | - | - | - | - |
Incl. capital expenditure | 4 | 0.3% | 6% | 8.7% |
Capital transfers | - | - | - | - |
Direct investment (or GFCF) | - | - | - | - |
% of general government expenditure
- Total expenditure
- Compensation of employees
- Current social expenditure
- Direct investment
- 0%
- 10%
- 20%
- 30%
- 40% 50%
SNG expenditure by economic classification as a % of GDP
- Compensation of employees
- Intermediate consumption
- Current social expenditure
- Subsidies and other current transfers
- Financial charges + other current expenditures
- Capital expenditure
- 5% 4%
- 3%
- 2%
- 1%
- 0%
EXPENDITURE: In FY 2018-2019, local government current expenditure represented 91.4% of total expenditure compared to only 8.7% capital expenditures. Staff expenditures were 72.3% of total expenditures thereby contributing significantly to the high ratio of current expenditures. In 2016, the staff expenditures were 15.6% of total expenditures. This reflects an increase of 363%. The high increase in staff expenditure is as a result of local authorities increasing their capacity to deliver services in the sectors whose functions were devolved following the implementation of the National Decentralisation Policy. The high current expenditure ratio also indicates reduced capital expenditure which translates to reduced investments in development projects which are the backbone for provision of sector services and facilities.
DIRECT INVESTMENT: There is little direct investment by local authorities as over 90% of spending is on current expenditure.
Subnational government expenditure by functional classification |
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2018/19 | Dollars PPP / inhabitant | % GDP | % general government | % subnational government |
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Total expenditure by economic function | 4 | 0.3% | - | 100.0% |
1. General public services | - | - | - | - |
2. Defence | - | - | - | - |
3. Security and public order | - | - | - | - |
4. Economic affairs/transports | 0 | 0.0% | 0.7% | 10.5% |
5. Environmental protection | 0 | 0.0% | - | 1.5% |
6. Housing and community amenities | 0 | 0.0% | 1.8% | 1.7% |
7. Health | 2 | 0.1% | 8.9% | 38.3% |
8. Recreation, culture and religion | 0 | 0.0% | 2.3% | 0.7% |
9. Education | 2 | 0.1% | 5.7% | 43.5% |
10. Social protection | 0 | 0.0% | 2.1% | 3.8% |
SNG expenditure by functional classification as a % of GDP
- General public service
- Defence
- Public order and safety
- Economic affairs / Transport
- Environmental protection
- Housing and community amenities
- Health
- Recreation, culture and religion
- Education
- Social protection
- 1% 0,8%
- 0,6%
- 0,4%
- 0,2%
- 0%
SNG expenditure by functional classification as a % of SNG expenditure
- General public service: 0%
- Defence: 0%
- Public order and safety: 0%
- Economic affairs / Transport: 10,53%
- Environmental protection: 1,51%
- Housing and community amenities: 1,65%
- Health: 38,26%
- Recreation, culture and religion: 0,72%
- Education: 43,54%
- Social protection: 3,78%
Two sectors, health and education, account for over 80% of local government spending.
Subnational government revenue by category |
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2018/19 | Dollars PPP / inhabitant | % GDP | % general government | % subnational government |
---|---|---|---|---|
Total revenue | 47 | 2.9% | 21.2% | 100.0% |
Tax revenue | - | - | - | - |
Grants and subsidies | 43 | 2.7% | - | 91.4% |
Tariffs and fees | 4 | 0.3% | - | 8.6% |
Income from assets | - | - | - | - |
Other revenues | - | - | - | - |
% of revenue by category
- 100% 80%
- 60%
- 40%
- 20%
- 0%
- Tax revenue
- Grants and subsidies
- Tariffs and fees
- Property income
- Other revenues
SNG revenue by category as a % of GDP
- Tax revenue
- Grants and subsidies
- Tariffs and fees
- Property income
- Other revenues
- 5% 4%
- 3%
- 2%
- 1%
- 0%
OVERALL DESCRIPTION: In FY 2018/2019, total subnational government revenue represented around 3% of GDP and 21% of general government revenue. Out of the total subnational government revenue, 91.4% was derived from grants and transfers from central government, while 8.6% was from locally raised revenues. Councils (especially districts) tend to be extremely dependent on transfers from the central government.
TAX REVENUE: Councils are responsible for raising and collecting local taxes and user fees and charges. Tax revenue includes property and ground taxes, fees and licenses, commercial undertakings and services charges. According to the World Bank Malawi Economic Monitor, property tax is the largest revenue contribution at the local level. Yet the reliance of local governments on tax revenues is very limited given the low performance in local tax collection. Modernising payment systems to facilitate the collection process, to reduce leakage and to encourage tax-payers to settle property rates; implementing more sensitisation and awareness campaigns for tax-payers; and providing council revenue officials with training and modern taxation tools (such as GIS systems) are solutions listed in the World Bank report for local governments, and city councils in particular, to raise their efficiency in raising tax revenue.
Property tax accounts for between 40 and 50% of all locally raised revenues. Property tax is based on the value of either land only, improvements on land only; or both land and improvements. Local governments have autonomy to set their own property tax rates. Malawi adopted the market value as basis for levying property tax. Valuation is undertaken by a valuer registered under the Land Economy Surveyors, Valuers, Estate Agents and Auctioneers Act. The central government properties are taxed at a discounted rate of 50% of the applicable tax rate.
GRANTS AND SUBSIDIES: In FY 2018-2019, national government transfers to local governments represented around 19% of net national revenues. In nominal terms, transfers to local governments have increased steadily over the past years, growing by almost 90% between 2014 and 2019, but have declined slightly as a percentage of net national revenues, which increased by almost 120% between these same dates.
The main financial transfers allocated to local governments are the following:
(i) General resource fund which is 5% of net national revenues. These are unconditional grants. The formula for allocation is 80% allocated based on population while the remaining 20% is distributed based on poverty indicators where poverty head count weighs 40%, infant mortality weighs 25%, illiteracy rates weigh 20% and access to safe water weighs 15%.
(ii) Sector grants (education at 9% of net national revenues; health at 15% of net national revenues). Other sectors receiving grants include roads, agriculture, environment, gender, water housing, youth and sports. These grants are not only earmarked for a specific sector but also for specific expenditure items. The sector allocation formulae in place are only for education, based on the population of the school going age per district and health, based on both population and health indicators.
(iii) Constituency development fund which is a conditional grant that finances small community-based investments/ projects.
(iv) Infrastructure development fund is a conditional grant which funds construction and rehabilitation of urban roads.
(v) Local development fund is an earmarked grant for specific projects. The allocation formula for the development grants is 50% allocated per capita while the remaining 50% is allocated based on agreed poverty indicators.
(vi) District development fund is a municipal development fund accessible only to rural districts. Its allocation is partly formula-based, with 30% equally distributed between districts and 70% allocated according to population and poverty indicators.
OTHER REVENUE: The central government plans to cede the following revenue sources to local governments: toll gates, casino and gambling fees, motor vehicle registration fees, fuel levy and industrial registration. These have up to now not been ceded to councils.
Subnational government fiscal rules and debt
ⓘ No detailed data available for this country
FISCAL RULES: The key laws governing preparation of budgets is the Constitution of the Republic of Malawi, the Public Finance Management Act, the Public Audit Act and the Local Government Act. Other regulations are the National Decentralisation Policy (NDP) 1998, the Development Planning System Handbook for District Assemblies 2001 and the Financial Reporting Guidelines for Local Authorities 2004.
Under the Local Government Act 1998, the accounts of the councils are submitted to the national Local Government Finance Committee (LGFC), in charge of conducting audits. The Committee receives estimates of revenue and all projected budgets of all local government authorities; supervises and audits accounts of local government authorities; makes recommendations related to the distribution of funds allocated to local government authorities. The Committee may vary the amount payable on a discretionary basis and according to economic, geographic and demographic variables. Before the start of each financial year, the Committee must prepare a consolidated budget and estimates for all local government authorities after consultation with the Treasury, to be presented by the minister for local government to the National Assembly.
All local governments are required by Section 51 of the Local Government Act to prepare and submit detailed estimates of their revenue and expenditure for each financial year to the LGFC. The Committee may either approve the estimates as submitted or disallow such estimates in whole or in part or refer such estimates back to the council for further consideration. Local governments are prohibited from incurring any expenditure not included in the approved estimates except with exceptional approval of the Committee. Any reallocation of sums contained in the approved estimates can only be done with the approval of the Committee. Grants from the national government to local governments are distributed only in accordance with the formula recommended by the LGFC and as approved by the National Assembly. The Committee has therefore been assigned extensive veto powers over local governments in matters of finance.
DEBT: Local governments can only borrow within Malawi, and such amounts, from such sources, in such manner, for such purposes and upon such conditions as the minister for local government, in consultation with the minister responsible for finance, may approve. Local governments do not engage in mid- or long-term borrowing. Their debt is essentially composed of creditors for goods and services.
The impact of the COVID-19 crisis on subnational government organisation and finance
TERRITORIAL MANAGEMENT OF THE CRISIS: The central government developed two national plans for the COVID-19 crisis. The first covered the period July 2020 to December 2020, the second June 2021 to June 2022. Based on the lessons learned from the first plan, the second plan defines a set of key strategic principles, objectives and interventions to build resilience to the pandemic and to anticipate and prepare for future public health emergencies.
The second plan was developed using a cluster system approach led by the Department of Disaster Management Affairs (DoDMA). There are nine operational clusters, namely: inter-cluster coordination, health, education, public communication, social protection and support, employment and labour protection, transport and logistics, security and enforcement, and local governance coordination.
Local governments were expected to ensure local alignment with the national COVID-19 response plan, through the review of district development plans and the integration of emergency response mechanisms. Their involvement in the implementation of the plan included (i) reviewing and updating cluster and council plans to align with the national strategy, (ii) supporting and monitoring the implementation of cluster and council COVID-19 response plans (iii); and ensuring collaboration/coordination across sectors.
EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: As part of the national COVID-19 response plan, the Local Governance Coordination Cluster led by the Ministry of Local Government and Rural Development in collaboration with all 35 councils aimed to provide policy and legislative guidance for preventive measures and timely and appropriate support to response activities in COVID-19 affected and at-risk districts.
Within this framework, local governments were called upon to undertake various activities to (i) strengthen local response capacity (e.g., training sessions for health workers, volunteers, etc.), (ii) control local transmission of COVID-19 (provision of PPEs for frontline staff), and (iii) enhance community engagement (public announcements, sensitisation of religious leaders, schools, youth clubs, etc.).
IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: No information available.
ECONOMIC AND SOCIAL STIMULUS PLANS: The national government instituted some fiscal and monetary measures to cushion Malawians from effects of the economic slowdown. These included reduction of fuel prices, waiving of fees and charges on electronic payments and money transfers, waiving of tourism levy to support the tourism industry and six-month voluntary tax compliance window to allow taxpayers with arrears to settle their tax obligations in instalments without penalty.
The government increased loan funds to Malawi Rural Development Fund (MARDEF) by MK 2 billion (~USD PPP 6.7 million) to support affected micro, small and medium-scale enterprises (MSMSEs). In addition, the Reserve Bank of Malawi (RBM) announced agreements with commercial banks and micro-finance institutions regarding a three-month moratorium on interest and principal repayments for all loans contracted by MSMEs.
At the end of 2021, the national government developed a Malawi COVID-19 Socio-Economic Recovery Plan (SERP) for 2021-2023. The SERP proposes the implementation of strategic interventions across five focus areas, namely: (i) building a resilient and sustainable health system; (ii) building a resilient and sustainable education system; (iii) building a resilient and sustainable social protection system; (iv) building a resilient economy and labour market; and (v) building an enabling macroeconomic policy environment. The total cost of implementing the SERP was estimated at MK 580.8 billion (~USD PPP 1.9 billion).
Bibliography
Socio-economic indicators |
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Source | Institution/Author |
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World development indicators | World Bank |
Link: https://data.worldbank.org/indicator/ | |
World population prospects | United Nations |
Link: https://population.un.org/wpp/ | |
Demographic and Social Statistics | United Nations |
Link: https://unstats.un.org/unsd/demographic-social/index.cshtml | |
Unemployment rate by sex and age | ILOSTAT |
Link: https://ilostat.ilo.org/data/ | |
Human Development Index (HDI) | United Nations Development programme; Human Development Reports |
Link: http://hdr.undp.org/en/content/human-development-index-hdi | |
2018 Malawi Population and Housing Census | National Statistics Office |
Link: http://populationmalawi.org/wp1/wp-content/uploads/2019/10/2018-Malawi-Population-and-Housing-Census-Main-Report-1.pdf | |
Statistical Yearbook 2020 | National Statistical office, Government of Malawi |
Link: http://www.nsomalawi.mw/ Link: http://www.nsomalawi.mw/images/stories/data_on_line/general/yearbook/2020_Malawi_Statistical_Yearbook.pdf |
Fiscal data |
|
Source | Institution/Author |
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Malawi Public Expenditure Review | World bank and Government of Malawi |
Link: https://documents1.worldbank.org/curated/en/639151623904018991/pdf/Malawi-Public-Expenditure-Review-2020-Strengthening-Expenditure-for-Human-Capital.pdf | |
FINANCIAL STATEMENT; Annual Public Debt Report | Ministry of Finance, Economic Planning and Development |
Link: https://www.cabri-sbo.org/uploads/bia/Malawi_2020_Formulation_External_BudgetFramework_MinFin_COMESASADC_English.pdf | |
SECOND AND THIRD REVIEWS UNDER THE THREEYEAR EXTENDED CREDIT FACILITY ARRANGEMENT | IMF Country Report |
Link: https://www.imf.org/en/Publications/CR/Issues/2019/12/06/Malawi-Second-and-Third-Reviews-Under-the-Three-Year-Extended-Credit-Facility-Arrangement-48858 | |
Consolidated Local Authorities Programme Based Budget (2018/19), Volume I | National Local Government Finance Committee (NLGFC), Ministry of Local Government and Rural Development |
Link: https://www.nlgfc.gov.mw/index.php/plushub/category/1-budget-finance | |
Details of Public Revenue | OECD Stats |
Link: https://stats.oecd.org/Index.aspx?DataSetCode=REVMWI |
Other sources of information |
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Source | Institution/Author | Year |
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THE LOCAL GOVERNMENT SYSTEM IN MALAWI | Commonwealth local government forum | 2018 |
Link: http://www.clgf.org.uk/default/assets/File/Country_profiles/Malawi.pdf | ||
Constitution of the republic of Malawi | Government of Malawi | 1994 |
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Guidebook on the Local Government System in Malawi | Ministry of Local Government and Rural Development | Revised October 2013 |
Link: https://www.resakss.org/sites/default/files/Malaw | ||
NATIONAL COVID-19 PREPAREDNESS AND RESPONSE STRATEGY AND PLAN JULY 2021-JUNE 2022 | The Republic of Malawi Department of Disaster Management Affairs | 2021 |
Link: https://reliefweb.int/report/malawi/national-covid-19-preparedness-and-response-strategy-plan-july-2021-june-2022 | ||
Malawi COVID-19 Socio-economic Recovery Plan 2021-2023 | Ministry of Economic Planning and Development and Public Sector Reforms | 2021 |
Link: https://reliefweb.int/sites/reliefweb.int/files/resources/malawi_serp_2021-2023.pdf |