Budget: The devil is in the detail

Predictably, members of Parliament (MPs) on both sides of the National Assembly on Friday unanimously cheered after passing the K1.45 trillion 2018/19 National Budget.

They had all the reason to celebrate because-besides giving Treasury the mandate to raise and spend money in the new fiscal year rolling out this July 1 through the passing of the Appropriation Act—they personally benefitted after dramatically forcing the government to increase their salaries, allowances and development funding for their respective areas.

The passing of the budget came days after Treasury announced the chopping of K50 billion from initial estimates.

The ‘Campaign Budget’, as it were, is now in place. Come July 1, ahead of the May 2019 Tripartite Elections, the number of beneficiaries from the Farm Input Subsidy Programme (Fisp) will almost double. Remember the contradictions where Treasury said the beneficiaries will be one million from 900 000 while Ministry of Agriculture, Irrigation and Water Development officials said the actual figures showed 1.4 million?

Through the budget, roughly about 5 000 youths aged between 18 and 30 are expected to benefit from the newly-created Youth Internship Programme. Then another 10 000 youths are expected to have K5 billion at their disposal for tree planting and care programmes while traditional leaders will smile all the way to the bank after getting a 100 percent rise in honoraria.

It is an ambitious expenditure plan largely banking on domestic tax collections from Malawi Revenue Authority (MRA) and non-tax revenue too. Donors’ contribution, though, remains doubtful until there are improvements in public finance management.

Domestic debt is projected to rise by 473.6 percent as government plans to borrow about K176.1 billion compared to K30.7 billion in the revised 2017/18 National Budget expiring this June 30.

This is where the problems start. Whereas borrowing in itself is not bad, as long as it is for worthwhile investments, the same poses a threat to the private sector which is touted as the engine of economic growth through increased cost of borrowing.

I have always felt that the Malawi Government can do without most of the borrowing if it wholeheartedly reduced wastage and leakages in the expenditure chain. We have been there before. The sad reality is that stated expenditure control measures are rarely followed to the letter. They seem to only exist on paper.

If the private sector is stifled, growth will be suffocated and companies will scale down production. This will in the end see the companies making lower than projected revenues and paying less taxes. Some of them may also trim the numbers of staff, thereby reducing pay as you earn (Paye) tax line.

In his Budget Statement when he tabled the fiscal plan, Minister of Finance, Economic Planning and Development Goodall Gondwe said he believed the budget would stimulate growth and address concerns relating to the rising cost of living in the country. But the just passed budget is more consumption based and has fallen short of addressing critical issues, including investment in the energy sector where unreliable power supply has stalled production, thereby stunting economic growth.

In national budgets, governments outline their expenditure plans and how they plan to raise revenue in a given financial year.

Funding is critical to achieving proposed objectives in a budget. Malawi’s national budgets have been financed from three sources of tax revenue, non-tax revenue (fees and levies) and external sources, mostly grants from development partners as well as loans.

But since revelations of Cashgate—the plunder of resources at Capital Hill exposed in September 2013—donors froze their aid taps on the recurrent budget where they contributed about 40 percent whereas in the development budget they opted to channel their resources through international non-governmental organisations. They have cited poor public finance management as the reason for their reluctance to entrust their respective public funds with the Malawi Government.

In the 2018/19 National Budget, there is still overdependence on the same old thin milk cow: the formal sector. Widening the tax base remains mere rhetoric with no action on the ground.

The minister summed it well in the Budget Statement: “My statement, therefore, will not be an all embracing plan of what is planned to be done and policies for the entirety of the economy. An annual budget is an account of what the government intends to do in a given year and does not pretend to cover all elements of what should be done in the country.”

Parliament has passed the budget, yes. But the budget is not money. It is a plan. The devil lies in the detail. What will matter is how the budget will be financed to ensure critical areas such as health, education, agriculture and safety nets are funded.