Economist says not surprised by MGDS II failure

 

Ben Kaluwa, economics professor at University of Malawi’s Chancellor College, said yesterday there was no way the country could have achieved the targets set in the MGDS II with the kind of erratic funding that characterised it.

Speaking in an interview, Kaluwa noted that financing for nine key priority areas—agriculture and food security, energy, industrial development, mining, and tourism, transport infrastructure and Nsanje World Inland Port, education, science and technology, public health, sanitation, malaria and HIV and Aids management, integrated rural development, Green Belt Irrigation and water development, child development, youth development and empowerment and climate change, natural resources and environmental management—has been problematic over the implementation period of MGDS II.

Kaluwa: We need realistic assumptions

He said: “There is need to come up with realistic assumptions when developing national development plans such as MGDS. Funding should also be commensurate with the assumption envisaged, but it would seem there was a mismatch between the assumptions and funding.”

MGDS II also suffered because revenues were overestimated, expenditure underestimated and government resorted to borrowing from the local banking sector to make up the revenue numbers, according to the review report.

Inconsistencies of budgeting strategy also made MGDS II’s implementation harder.

For example, the 2011/12 budget, which was the first under MGDS II, was anchored on zero-deficit budget assumption in which government was aiming at balancing its budget.

This was after the former regime of president Bingu wa Mutharika picked a fight with the donors, which resulted in the withdrawal of budget support.

Budget support used to make up 40 percent of recurrent budget and 80 percent of development budget.

The following budget in 2012/13 termed recovery, aimed to realign the economy to its fundamentals, and it came with a number of reforms, which sought to decontrol prices, reduce the level of subsidy built into fuel and electricity pricing and allow for full pass through.

“In 2013/14 government sought to anchor its budget on zero-net domestic borrowing fiscal rule, restricting government from borrowing from local financial markets,” reads the report.

It was during the same fiscal year that the budget was also beset by loss of huge amount of public funds through the so-called Cashgate—the looting of public funds at Capital Hill.

This meant that with narrow fiscal space and donor suspension of budget support due to corruption, the zero net domestic borrowing financial rules failed, and government departments spent in advance and eventually built up huge arrears. In the 2014/15 fiscal year, the zero aid budget flopped because the fiscal framework included anticipated grants.

Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa yesterday said there is need to decisively move towards investing in shared understanding of what is best for a Malawian, emphasising that productivity, efficient utilisation and engagement of available factors of production are key to any meaningful and real growth.

He said: “Without it we are as good as doomed in as far as economic growth expectations are concerned. Priority sectors should always come first above all else. Our public expenditure should reflect the priority public investments priorities, geared at enhancing productivity across the major drivers of the economy, spurring competitiveness and result-based performance orientation at all levels; with full accountability and merit-based performance assessment ring-fencing the targeted and expected development results.”

Kubalasa stressed that the economic structural transformation song has been sang for too long without the accompanying much-needed sustained action.

“Malawi also needs to strategically move towards harnessing this potential, by among others easing up on the ‘too much politicking’ which is always at the expense of good economic and quality public service delivery. We need to have champions in place, the motivation towards performance improvement,” he said.

The implementation of MGDS was also affected by the price-wage spiral and recurrent public expenditure dominated by wages increases and stagnation of allocation for goods and service.

As a response to the 49 percent devaluation of the kwacha in May 2012 and the subsequent price increases, Malawi witnessed a spate of strikes in the public service.

“At best wages were adjusted to match the inflation rate but at worst wage increases were indexed to currency depreciation. As a result, for the first time in Malawi’s history, due to 45 percent wage increase in 2014, expenditure on wages and salaries exceeded payment for goods and services,” reads the report.

It adds that fiscal management was undermined by growth in subsidies and public transfers which exerted further pressure on public expenditures.

Foreign aid mobilisation and management were less than effective, especially in bringing in budget support. Under MGDS II foreign grant and aid were planned to reduce from 7.9 percent of GDP to 2.8 percent.

But in reality aid declined because of different reasons and dynamics, particularly due to bad political governance and misrule, and subsequently due to poor public finance and economic management manifested in the Cashgate scandal.

 

The positives

Despite the downsides, there are some positives such as progress towards achievement of some of the targets relating to the 2015 MDGs.

The report says the country registered remarkable progress in the national response to HIV and Aids as evidenced through the decline in the number of new HIV infections and decline in Aids related deaths. Malawi’s rapid and successful antiretroviral therapy (ARV) scale up has critically influenced the HIV epidemic reducing mortality, morbidity and transmission. Malawi achieved and surpassed the MDG target on provision of safe drinking water.

However, there remain large segments of the population in need of safe drinking water nation-wide, it said.

The report says the relevance of gender responsive laws and policies is gradually being appreciated in emerging frameworks, for example in transport, mining and energy.

Contraceptive prevalence rate has increased from 42 percent in 2010 to 58.7 percent in 2014, thus closing in on the MDG target of 60 percent. Despite remaining high, maternal mortality rates declined from 675 deaths/100 000 live births in 2010 to 574 deaths/100 000 live births in 2014.

Among the key recommendations in the report is the need for stronger linkages between the next national growth and development strategy and the National Vision 2020, in view of the apparent disconnect between the MGDS II and the national vision.

The strong linkage, says the report, is critical for broad-based ownership, improved accountability, monitoring and evaluation and sustainability. n

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