Back to the drawing board on budget

National budgets or expenditure plans play a critical role in fostering economic prosperity and eradicating or reducing poverty in a country. It is mostly through such financial plans that governments worldwide implement their development plans.

The key to successful implementation of development strategies such as Malawi2063 lies in how much government, through Parliament, prioritises roll out by way of provision of funds.

Back in September 2020, Minister of Finance Felix Mlusu presented in Parliament a full K2.2 trillion 2020/21 National Budget. It was a maiden national fiscal plan for both the minister and the Tonse Alliance administration led by President Lazarus Chakwera.

Being a maiden budget, coming months after the alliance’s triumph in the court-sanctioned fresh presidential election on June 23 and indeed after the minister had presented a four-month provisional budget covering July to October, Malawians were eager to see how the new administration would prioritise some of its captivating campaign promises.

From the budget, one could see the pressure the Minister of Finance was under to have the rebranded Affordable Inputs Programme (AIP), the Tonse Alliance administration’s flagship campaign promise to sell a 50 kilogramme bag of fertiliser at K4 595. This alone was allocated a whopping K160 billion to benefit 4.2 million farming households compared to an average K35 billion spent on its forerunner, the Farm Inputs Subsidy Programme (Fisp), which had 900 000 beneficiaries.

In a Ministerial Statement delivered in Parliament this week, Minister of Agriculture Lobin Lowe said government spent K140.2 billion on AIP from the initial K160.2 billion allocation. He said the reduction in the cost followed the flushing out of ghost beneficiaries from the initial 4.2 million down to 3.7 million farming households. By February 20 when the programme officially closed, 3.4 million farmers had redeemed their inputs.

Tomorrow, Mlusu is widely expected to go back to the drawing board by tabling a supplementary budget to make adjustments to his maiden fiscal plan that has gone off track during the first six months of implementation.

The derailment did not come as a surprise as many commentators, including this column, cautioned Mlusu against being over ambitious, but to instead face the realities in making the assumptions.

If figures The Nation sourced from Treasury earlier this year are anything to go by, the budget is in turmoil with K340 billion in deficit in the first six months of implementation. Ironically, despite the dwindling domestic revenue—the key financier of the fiscal plan—government’s spending exceeded the budget by a whopping K10 billion.

With an allocation of K523.7 billion, wages and salaries were the major beneficiaries of the budget followed by the education sector with K384.5 billion, interest payments projected at K376 billion and agriculture at K354.8 billion.

In Mlusu’s budget or ‘wish-list’, domestic revenue is projected at K1.2 trillion or 20.1 percent of the gross domestic product. But one question the minister and his team did not answer at the time was how the shrinking domestic revenue collection would balance with the spiralling expenditure needs. For the record, the budget had a yawning fiscal deficit of K754.8 billion—the highest ever in the history of Malawi in nominal terms.

Naturally, the deficit was to be financed by K224.8 billion in foreign borrowing and K530.1 billion from the domestic market where obviously the private sector will be crowded out while pushing up interest rates.

The envisaged borrowing was to be over and above Malawi’s debt stock which stood at K4.1 trillion in June last year, an increase from K3.4 trillion in December 2019. From the debt stock, 57.3 percent represents domestic borrowing and is equivalent to 33 percent of the GDP.

For a country that in 2006 had 90 percent of its $3 billion foreign debt written off by international lenders, the current situation—15 years later—is very worrying and alarming. My heart bleeds to see that in just 14 years after Malawi had about $2.6 billion or 90 percent of its foreign debt written off under the Highly Indebted Poor Countries (Hipc) initiative, the country is drifting back to heavy indebtedness.

Six months later, Mlusu has found himself in the same situation as his predecessors who had to dismantle their budgets during the Mid-Year Budget Review, at least in the past six years.

While adjustments to the financial plan are normal, especially during the Mid-Year Budget Review, it is immoral and smacks of ‘cheating’ when the trend becomes the norm. The danger with such massive adjustments is that it is public service delivery that often suffers massive cuts in allocations.

In formulating national budgets, it is important to face the realities of our economy. It is clear that direct budget support, suspended in 2013 due to concerns over public finance management, was critical in budget implementation. It would, therefore, be important to re-engage the donors.

During the Mid-Year Budget Review, my plea to members of Parliament led by the Budget and Finance Committee of Parliament is that they should focus on economic growth, job creation, economic empowerment and social protection in the face of the Covid-19 pandemic.

Tough choices and trade-offs as well as making credible revenue projections and sustainable expenditure should guide the review process.