Date: Wed, 10 Sep 2014 22:48:54 +0200
Malawi tightens budget strings to placate foreign aid donors
Corruption fallout forces president to devise zero-aid budget, but deficit
looms with no tax rises and ministers demanding pay hike
* Jimmy Kainja <http://www.theguardian.com/profile/jimmy-kainja> in
Lilongwe
* Wednesday 10 September 2014 13.02 BST
*
<http://www.theguardian.com/global-development/2014/sep/10/malawi-budget-for
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The Malawi government has presented its budget for the next financial year,
which has been designed to regain donor confidence and encourage political
stability at home.
It is President Peter Mutharika’s first budget since
<http://www.theguardian.com/world/2014/may/31/peter-mutharika-declared-malaw
i-president-elect> coming to power in May, after his victory over Joyce
Banda. Mutharika needs to win back the confidence of donors, who are
withholding 40% of budgetary support following
<http://www.theguardian.com/world/2013/oct/11/malawi-president-sacks-cabinet
-corruption-scandal-banda> allegations of corruption and systematic looting
of state resources by senior civil servants and politicians.
The budget has been called “zero-aid”, and it has a 107bn kwacha (£167m)
deficit. So far, the government has not explained how it will cover the
deficit. Curiously, the government has not raised taxes, as many
commentators predicted. This could be a way of encouraging stability, by not
burdening Malawians with increased taxes during a time of economic
turbulence.
But Billy Mayaya, a local human rights activist, says that although as a
concept a zero-aid budget is good, this one is not well thought through.
“Therefore, the outlook looks pretty gloomy,” he says.
It is not the first time Malawi has had to do without some budget support.
During the 2011-12 fiscal year, under President Bingu wa Mutharika (the
current president’s older brother)
<http://www.theguardian.com/global-development/poverty-matters/2011/may/25/m
alawi-aid-freeze-could-harm-dfid-good-work> donors withdrew budgetary
support because of poor governance and the then president’s increasing
autocracy. He resorted to a “zero-deficit” budget in defiance of the donor
community, implying Malawi could do well enough on its own. The principle
this time is not very different, except that the government is not
pretending it can do without donor support.
The zero-deficit budget led to fuel shortages, erratic power supplies and
the scarcity of commodities such as sugar. This was largely caused by lack
of foreign exchange to import goods and raw materials. Aid was resumed under
Banda’s presidency, after Bingu wa Mutharika’s sudden death in April 2012.
There are fears that shortages could occur again. Rex Chikoko, a news
analyst with the Nation newspaper, says the budget has failed to address the
basic needs of ordinary Malawians. He is also worried about the huge
deficit, saying the government has failed to explain how it will be
addressed.
“[The government has] failed to enlighten Malawians where the extra money is
going to come from. The government envisages that MRA [a revenue collector]
will collect about MWK535bn in revenue. With no prospects of aid the budget
was pegged at MWK729bn. There is a huge deficit,” says Chikoko.
The government has avoided the seemingly straightforward route of raising
taxes for political reasons.
<http://www.theguardian.com/global-development/2014/may/30/malawi-failed-dec
lared-election-winner> Mutharika still needs to win over the majority of
Malawians – 64% did not vote for him. But Chikoko thinks the government may
eventually have to raise taxes, increase fees for government services, and
resort to local borrowing to plug the deficit. The finance minister, Goodall
Gondwe, said in his presentation that the government may present
supplementary budgets where necessary. These budgets could provide the
government with an opportunity to raise taxes and fees, as Chikoko predicts.
Most local economists however have described the budget as “prudent”, but
have warned about fiscal discipline. Economist Thomas Munthali told the
Nation that the budget was “prudent because of the assumption of a lack of
donor support, the exchange rate and the pledges on economic reforms”. He
said the restoration of fiscal discipline was a key issue.
Mathews Chikaonda, a former finance minister and now chief executive officer
of the country’s largest conglomerate, Press Corporation Limited, shared
Munthali’s sentiments in an interview with the same paper.
Managing fiscal discipline will be a tricky issue for the government. Three
months into the office, Mutharika’s cabinet ministers have already demanded
a 600% pay increase, which the president has so far turned down. The
ministers’ attitude is contemptible, not only because of the financial
turbulence Malawi is going through but also because the majority of
<http://www.unicef.org/infobycountry/malawi_statistics.html> Malawians live
bellow the poverty line and service delivery remains very poor.
For the ministers, these demands are “normal” because of the lavish
lifestyles successive administrations have offered. It is what Blessings
Chinsinga, political economist at Chancellor College, University of Malawi,
calls “incentive culture”. Financial gains are what incentivise people into
politics, not willingness to serve their country. To ensure the fiscal
discipline that the zero-aid budget demands, Mutharika needs to keep the
“incentive culture” in check.
MDG : Malawi president Peter MutharikaPresident Peter Mutharika needs to
convince donors to release the budgetary support they are withholding.
Photograph: Gianluigi Guercia/AFP/Getty Images
(image/jpeg attachment: image001.jpg)