Budget revision fate next week

Malawi is expected to decide next week Friday whether to revise its national budget after the conclusion of the International Monetary Fund (IMF) mission currently in the country, it has been established.

Ministry of Finance spokesperson Nations Msowoya, responding to an e-mailed questionnaire on Monday, noted that government is engaged with the IMF in discussions regarding the recent Capital Hill cash-gate and the suspension of budget support by the country’s major donors under the Common Approach to Budgetary Support (Cabs).

Cabs comprises the United Kingdom (UK), Norway, Germany, the African Development Bank (AfDB), the European Union (EU) and the World Bank with the International Monetary Fund (IMF) and the United Nations Development Programme (UNDP) participating as private observers.

Cabs donors last Thursday announced the suspension of budgetary support to Malawi amounting to $150 million (about K60 billion) for October to December 2013 due to financial mismanagement that has rocked the Capital Hill.

Earlier, IMF decided to delay the approval of $20 million (K8 billion) under the three-year Extended Credit Facility (ECF) whereas Norway announced the withholding of $24 million (K9.8 billion) budgetary support for the same reasons.

Donors contribute about 40 percent of the total grants and revenues to the Malawi’s national budget.

However, the donors have recommended that the government revises the 2013/14 budget to take into consideration the aid freeze of which the ministry argues it will only be determined after the IMF assessment.

Said Msowoya: “You will recall that we have an IMF mission currently in Malawi. Apart from understanding the genesis of the cash-gate, the IMF will discuss with the government the potential impact of the donor aid freeze, particularly budget support. The extent of the fiscal adjustment will be known at the end of the IMF mission which will be on November 22 2013.”

The ministry could not, however, say whether the changes will be made promptly or will await the midterm review.

In the wake of the freeze, the business community has been calling for coping mechanism including the rationing of foreign exchange and the postponement of non-critical budget expenditures.

However, before the aid freeze, government was already struggling to match its expenditures and revenues. In August, fiscal deficit worsened to K40.4 billion (US$101 million) from a deficit K15 billion (US$37.5 million) in the previous month, prompting government to borrow heavily from both bank and non-bank sectors, according to Reserve Bank of Malawi figures.

The 2013/14 budget projects fiscal balance at K34.8 billion, and notes that  the deficit will be wholly financed by foreign borrowing amounting to K42 billion which will further finance domestic debt repayment of K7.2 billion.