Capitol Hill between rock and hard place

So, the World Bank has decided to shift goal posts and yank K60 billion from the 2018/19 National Budget that Finance, Economic Planning and Development Minister Goodall Gondwe had banked on and factored it into the fiscal plan.

Apparently, Gondwe had trusted the World Bank more than the European Union (EU) because, while he had incorporated the Bretton Wood institution’s general budget support pledge, the Minister had refused to bank on money from the EU.

He simply noted, duly, in his budget statement that the EU had promised to “disburse an unknown amount of budget support during the course of the 2018/19 fiscal year”, and stated that “this however, has not been included in this budget,” apparently because the European multilateral donor had let Gondwe down last time.

There is no question that by reneging on its commitment based on a conditionality that was not originally part of the negotiation, the Bank is punishing poor people for political reasons they are not party to.

Treasury seems to suggest that the World Bank was bullied by another donor into yanking the money as punishment for hiring Khato Civils to lay the infrastructure for pumping water from Salima along Lake Malawi into Lilongwe and surrounding districts.

Donors claim the contract was awarded without following procedures, but the government insists it did everything by the book and that the environmental and social impact assessment some stakeholders, including development partners, were clamouring for has been done and awaits final approval.

I get the sense that there is more to this Salima-Lilongwe water project than meets the eye, especially when the World Bank itself was keen to finance construction of a dam at Diamphwe where Lilongwe Water Board could tap water for its clientele. I want to believe the Bank means well, but in this particular matter I think they are conflicted.

On the other hand, the World Bank’s move shows that government cannot afford to try and make everybody happy.

They tried to pander to the International Monetary Fund (IMF) by asking for their approval for Capital Hill to provide a sovereign guarantee on the Salima-Lilongwe water project, which, frankly, Gondwe did not need to do and is not forthcoming anyway.

While the waiver is being awaited, government gets punished by the World Bank through the K60 billion cancellation of direct budgetary support. Talk about bad faith!

The Peter Mutharika administration must now decide whether it is worth delaying an important national project in the name of waiting for an IMF nod when it is already being flogged for it.

My take would be that Capitol Hill allows Khato Civils to proceed with the project to avert a water crisis in the capital, which will only worsen after next year if this dithering continues. What is worse is that government already bound itself to a contract with Khato, which could turn out to be expensive if authorities decide to cancel the deal to appease a goal-post shifting donor.

Because trust me, Khato Civils has already demonstrated that it is not the kind of company that will allow itself to be raped while lying helpless on the floor.

Government is certainly caught between a rock and a hard place.

Meanwhile, Gondwe and his Team at Treasury must find a way of filling the massive hole that the World Bank has left in the budget. I feel sorry for my former boss because I cannot see enough fiscal space for him to manoeuvre.

Already, more than half the national budget is committed to spending that cannot be postponed, let alone scaled down unless you want to disrupt the financial markets, sabotage the democratic process that people fought so hard for or retrench tens of civil servants in an election year, which would be catastrophic.

I see over K700 billion that is already locked up out of the K1.450 trillion budget. I see K392 billion is committed to wages and salaries and that is non-negotiable. There is K183 billion in interest payments that cannot be frozen.

You cannot tinker with the K80 billion allocated to pensions and gratuities unless you want civil unrest across the country. You cannot play around with the K31 billion allocated to elections or else you know who will organise demonstrations if these elections experience finding cuts to levels that affect the process.

And of course, icing the K20 billion earmarked for maize purchases would be suicidal to both the starving Malawians and those seeking their votes.

That leaves Gondwe, out of the K1.450 trillion total expenditure projection, with just around K750 billion—well K690 billion now that the World Bank has decided to clench its fist.

Even the K690 billion is misleading because of that amount, K242 billion is not really there as it will have to be borrowed. Instead, poor Gondwe has just about K448 billion to run the government!

Now get this, of the K448 billion, K407 billion has already been allocated to three sectors—Education (K166 billion), Agriculture (K151 billion), Health (K86 billion).

Thus, the tens of sectors remaining have about K40 billion remaining among them to survive for a year!

The struggle in Malawi and for Gondwe is real and the World Bank has just made it much harder.