Budget problems much bigger than advertised

Finance, Economic Planning and Development Minister Goodall Gondwe’s 2017/2018 Budget Statement was full of promise on Malawi’s fiscal outlook, but things have turned out so badly that the fiscal chief’s problems are much larger than advertised.

The financial outturn also speaks volumes about the competences of Gondwe’s team at Treasury when it comes to revenue modeling in the context of tax base and revenue forecasting because, honestly, how could they have been so wrong and embarrass Gondwe so much?

Read how upbeat Gondwe was in his budget statement to Parliament: “The attention of the House is called to two significant budgetary projected occurrences; the first is that after a long time, Malawi is expected to generate enough domestic revenue that could exceed recurrent expenditure by close to K32 billion. This is an objective that has been sought for since the 2009/2010 zero deficit budget when the desired objective was to balance recurrent expenditure with domestic resources.”

Well, Gondwe has ended up with a domestic revenue shortfall of around K38 billion owing to the gross underperformance of the Malawi Revenue Authority (MRA).

That mismatch is also forcing Gondwe to cut spending by around K30 billion—just over two percent of the K1.3 trillion total expenditure for the current financial year. And I suspect that the revenue shortfall the Treasury boss is sweating over is in current prices, not in real terms, which was already projected to be flat during the fiscal calendar.

According to the budget, domestic revenue was budgeted to increase by 17 percent in nominal terms and remain at the same level in real terms.

With such MRA failure, revenue collection has not just missed by near a fifth of the projected figures, but must be worse in real terms. That spells more trouble for Gondwe.

On the expenditure side, there is another spectacular policy failure that could only come because of miscalculation.

Here is what Gondwe said in his budget statement last year: “As frequently demanded by this House, the increased recurrent expenditure is lower than the increase in development expenditure, which is also more than 25 percent of total budget, a threshold for deciding whether the budget is a development budget or a consumption one. These are significant achievements and it is hoped that future budgets can build on this success.” Well, they may not—not on this fiscal year anyway.

As things stand now, Gondwe is expected to revise downwards the development budget and only prioritise about 25 projects that will be completed by June this year, including those wholly funded by donors, while the rest will be pended.

Of course, as The Nation observed on Thursday, “this project scale-back runs parallel to the expansive infrastructure development blitz that President Peter Mutharika has launched over the past few weeks without clarity on how they will be funded.”

Indeed, even the International Monetary Fund (IMF) Malawi mission Chief Pritha Mitra on Thursday urged government to, among other things, foster revenue growth while spending wisely and focusing on priority areas in social and infrastructure development.

The latter is crucial to stimulating economic growth, which the fund said could this year expand by a six to seven percent rate.

Both Gondwe and the IMF are worried about the budget deficit, which they acknowledge is growing sharply. This is why I do not believe that the planned K30 billion cut to the budget—a mere 2.3 percent reduction—goes far enough to narrow the gap.

I am not encouraging reckless slashes to the budget. Rather, I am saying that there are—apart from travel-related wasteful spending—several areas government can make savings on.

For example, instead of rewarding inefficient and ineffective programmes such as the Cement and Malata Subsidy with billions in increments, this initiative should have been suspended all together because it  has little bearing on the larger economy other than securing some votes for the ruling Democratic Progressive Party (DPP), enriching the governing elites’ cronies through contracts and fattening the bank accounts of civil servants involved in the initiative.

Authorities should also crack down more on the waste, fraud and abuse littered across government ministries, departments and agencies (MDAs).

Capital Hill must also look into unreconcilled transactions that are a hideout for thieves in government and the administration should never repeat bad bailouts such as the K45 billion forked out to the Agriculture Development and Marketing Corporation (Admarc).

The cost overruns in infrastructure projects continue to waste taxpayers’ money and, therefore, authorities must work on that.

Perhaps the most crippling source of government waste along the Public Finance and Economic Management chain is procurement: Inflated prices, faulty bid evaluations and contract award decisions are costing government too much.

Therefore, the whole public procurement system must be overhauled if this country is ever going to have resources to develop and sharply cut poverty.

And so when Gondwe tables the revised budget—which must have been done yesterday well after this column went to print—members of Parliament should push for these reforms and resource saving measures.

Legislators should, of course, demand more tough measures of arresting waste, cut the deficit and invest in our people.

 

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