Britain said it had frozen new aid to Malawi pending a review of its ties with the southern African country after the mutual expulsion of diplomats in April.
“The UK is reviewing its relations with Malawi, including DFID’s aid programme. New aid commitments are on hold while this review takes place,” the Department of International Development (DfID), Britain’s aid arm, said in a statement.
Malawi is heavily dependent on foreign aid, with donor funding accounting for more than 40 percent of the government’s receipts. Former colonial master Britain is Malawi’s single largest bilateral donor, Reuters reports.
However, relations have nosedived since Lilongwe’s expulsion of Britain’s ambassador last month for referring to President Bingu wa Mutharika in a leaked diplomatic cable as “autocratic and intolerant of criticism”.
Britain responded by expelling Malawi’s acting ambassador to London.
Finance Minister Ken Kandodo is due to present his budget to parliament in the next few weeks and could find it hard to explain away the funding gaps.
Last month, the United States approved a $350 million grant for Malawi’s dilapidated electricity network that had been delayed because of concerns about a law preventing gay marriages and another that lets the government ban newspapers.
The DfID statement also said International Development Secretary Andrew Mitchell had written to Mutharika to express his concerns about corruption and government accountability.
Landlocked Malawi has enjoyed an economic boom in the last five years with the economy expanding at an average of seven percent a year and inflation falling to single digits.
However, a donor squeeze and question marks over the future of tobacco exports, which account for 70 percent of foreign exchange earnings, could hit growth and put the currency, the kwacha, under pressure.