A fake indicator of fiscal integrity

Ideally, this should have been wonderful news, something to applaud government for. But I can’t. It comes at too high a price not just to public services, but the economy as a whole.

Too many people are suffering too much because of a public expenditure squeeze at the hands of an administration that thinks too much about its own importance but too little about the effects its actions have on Malawians.

Last week, the influential British economic think-tank, the Economist Intelligence Unit (EIU), projected that Malawi would achieve a budget deficit of 1.2 percent of gross domestic product (GDP) in the 2011/12 fiscal year.

In its monthly economic report for December 2011, EIU also said overall, the deficit is forecast to peak at 2.2 percent of GDP in 2013/14, before moderating to 1.3 percent in 2015/16.

But before some overzealous folks at the Ministry of Finance and Development Planning as well as some misinformed characters that may have missed civics classes in school at the Ministry of Information and Civic Education start brainwashing people with cheap political points based on these deficit numbers, the figures are actually bad for this fragile economy and the leadership.

From a glance, one may be tempted to conclude that the low deficit figures are the epitome of government frugality. Well, they are not. These numbers are a misleading indicator of government’s fiscal integrity as it were. In fact, they mask a spectacular fiscal failure on the part of government.

The only reason the deficits are expected to be so low is that the half-baked zero-deficit budget, which apparently boasts a deficit—albeit a small one—has forced government to drastically cut back on public expenditure not because authorities think it is the smart thing to do, but because they have no choice, having failed to raise as much revenue as it projected at this point in time.

So, what has government done? It has either suspended or cancelled implementation of certain budgeted activities.

But this self-inflicted reduction in spending may produce nice deficit figures for the International Monetary Fund (IMF), but the fact is that it has also injected negative demand shocks into the Malawi economy, tipping it towards recession and below target tax and non-tax revenue.

The lower than expected revenues have in turn forced authorities to impose more revenue measures such as higher Road Traffic-inflicted vehicle registration fees and exaggerated import taxes for such items as vehicles by the Malawi Revenue Authority (MRA).

These measures, slapped on people during a downturn, are self-defeating because they have ended up sinking aggregate demand further. Just look around you, how many people are still importing second hand vehicles that used to bring so much tax to the fiscus?

Also, the volatility of government spending that the zero-deficit budget has brought and the aggressive tax regime introduced to anchor it, have disrupted the country’s business cycles, sharply lowered our economic growth rates and sent more Malawians tumbling into extreme poverty as they run out of work or income generating activities and as inflation ravages their little earnings.

Government investment in both physical and social infrastructure has gone into a coma during the current fiscal year. Numerous infrastructure projects such as roads have been abandoned nationwide.

The Nsanje World Inland Port, once a priority is being vandalised and left to rot away with no hope of further progress—a national dream whose techni-colour images are fading fast. Education facilities, health establishments, bridges and other infrastructure are falling apart.

The social architecture is in a shambles. Drugs in public hospitals are as scarce as fuel. Teaching and learning materials are nowhere near schools. The list goes on.

So, no, I am not impressed with the low budget deficits when government reneges on its budgeted promises; when projects and programmes prioritised in the Malawi Growth and Development Strategy (MGDS) are casually being thrown out, allowing computer spreadsheets to generate sexy deficit ratios.

These negative developments will take time to correct because the wound is too deep and the minders allowed infections into the economy that have damaged vital parts.

It is clear that the zero-deficit budget is harming the long-term health of the economy in a big way. Thus, it is critical that when Members of Parliament (MPs) converge in Lilongwe in a couple of weeks for the traditional Mid-Term Budget Review, I want them to do their job for once: review the budget.

The MPs should not allow the ruling elite to bully them with sexed up numbers that display a fake sense of fiscal integrity or paint rosy pictures that are far removed from reality.

It is called providing checks and balances, which, in my book, is the key performance indicator of the Third Estate—Parliament.