Blantyre - Foreign donors on Tuesday decided to maintain a freeze on a $150m aid package imposed onMalawi in the wake of a high-level corruption scandal last year.
The donors from Africa, Europe and various international organisations met to review their earlier decision and agreed that "challenges in public finance management continue to be serious", said the chief of the European Union mission to Malawi, Alexander Baum.
International donors, who provide 40% of Malawi's budget, froze vital aid worth around $150m last year after it emerged that millions of dollars of had been siphoned from government coffers.
"More action is required to tighten the system to avoid continuous leakages," said Baum.
In February, a report by British auditors - commissioned by President Joyce Banda - showed that $30m had been stolen within a period of six months last year.
The so-called Cashgate scandal and the suspension of foreign aid are perhaps the biggest threat to Banda's hope of holding onto power in 20 May general elections.
The scandal implicated senior ministers, forcing Banda to sack her entire cabinet.
Sixty-eight civil servants - including many in Banda's People's Party - and businesspeople are already on trial charged with graft.
"We recognise that a lot has been done in the past months, but the payment system still remains very weak," said Baum.
Government blamed the theft on loopholes in the payment system introduced under the previous administration.