Malawi will cut spending if donors reduce aid: minister

LILONGWE (Reuters) - Malawi is ready to cut its spending in order to sustain growth if foreign donors reduce crucial aid, Finance Minister Ken Kandodo said on Monday.

Britain's Department for International Development (DFID) said last week it was adjusting its programme in Malawi as part of a global review of bilateral aid.

"The forecast for the global economic recovery remains uncertain on account of huge budget deficits in major economies of the world and the expenditure cuts in these countries has the potential of upsetting the growth prospects of other countries including ours," Kandodo said.

"Should the 2010/11 financial year resource envelope fall short of our expectations, government will stand ready to make tough decisions and choices on spending cuts in order to sustain the good macroeconomic performances that we have managed to attain over the past five years or so," he told Reuters.

Malawi has in the last few years enjoyed a relative economic boom expanding the economy by an average of 7 percent over four years, bringing inflation to single digits and reducing interest rates from 15 percent to 13 percent.

Economic growth is now seen at 6.5 percent this year, down from earlier forecasts of 7.0 percent and expansion of about 8.7 percent in 2009.

The southern African country relies on foreign donors to fund about 40 percent of its budget, with Britain injecting 75 million pounds per annum.

Its contribution towards a seed and fertilizer subsidy programme has helped Malawi achieve five consecutive bumper harvests that have driven economic growth. Britain has also helped Malawi put over 250,000 AIDS patients on free antiretroviral treatment in the last five years.