Cashgate pushes spending by 40%
The cashgate scandal is partially responsible for a 40 percent increase in government expenditure, consequently widening the fiscal deficit as revenues fell by 13 percent in the third quarter.
The Reserve Bank of Malawi (RBM) Third Quarter (Q3) Financial and Economic Review released this week has noted that government expenditure increased by 40.3 percent to K172.9 billion and attributes the rise to fraud.
The report notes that during the quarter, government deficit rose to K49.2 billion in contrast to a surplus of K19 billion and K10.9 billion in the preceding quarter and in the corresponding quarter of 2012, respectively.
According to the report, the increase was recorded in recurrent expenditures whereas development expenditures recorded a decline.
“Recurrent expenditures increased by 52.8 percent to K149.3 billion from K97.7 billion registered in the preceding quarter. This outcome was partly explained by fraudulent transactions, popularly known as cash-gate, that were undertaken during the quarter,” reads the report in part.
On September 7, Malawi’s major donors under the banner of the Common Approach to Budget Support (Cabs) announced the withholding of $150 million (K60 billion), due to financial mismanagement.
Ministry of Finance recently said it over-borrowed domestically in the quarter by K58.7 billion between July 1 and September 30 this year.
Secretary to the Treasury Newby Kumwembe was recently quoted in The Nation admitting that the implementation of the 2013/14 budget during the quarter was characterised by high domestic borrowing and the cashgate scandal.
He said the main contributors to the over-borrowing were spending on domestic interest arrears and domestically financed development projects.
The RBM report noted that interest payments increased by 139.7 percent to K33.1 billion due to increased domestic debt stock.
It adds that expenditure on goods and services recorded an increase of 44.7 percent to K80.7 billion partly on account of preparations for the May 2014 Tripartite Elections and the fraud while wages and salaries rose by 26.4 percent to K35.5 billion as government was clearing arrears following previous upward revisions of wages and salaries.
In the wake of the cashgate scandal and donor aid freeze, experts and analysts have warned that government may borrow heavily to bridge the fiscal gap.
The RBM recently announced that it would tighten its monetary policy to address challenges due to delayed disbursements by the country’s major donors through the use of open market operations, bank rate, and foreign exchange operations.
Malawi govt must not only jail these people. Reclaim this MK2b with interest. The govt must collect any asset that belong to culprits and the cash back in govt coffers. Don’t trust the white foreign fraud investigator. They are here for no good news. They closing holes to cover up for their milk cow and puppet.
Trus western government at your own peril. These are the countries reap where they did not plant. Go home white people. You have plundered enough
My interest here is not on cash-gate. There are enough experts discussing that topic especially those close to the action. I am interested only in the long- term strategic direction of Malawi economic growth, job creation and price stability.
I read repeatedly about how RBM is adopting “tight monetary policy.” I am curious to know its exact meaning in terms of what actions are being taken on the ground. To many people tight money policy just means “they are being careful with their money as people do with budgets i.e. they are spending it carefully. To avoid confusion, it does not refer to being careful, prudent nor does it have reference to cash-gate. It refers to whether RBM is following an expansionary policy or contractionary monetary policy that has bearing on economic growth, job creation, inflation, and exchange rates. My inquiry is, in its pursuit of the “tight monetary policy” how is RBM employing monetary policy tools of a) increasing or reducing reserve requirements for the banks b) increasing or decreasing interest rate by fiat c) increasing or reducing monetary base?
The reason I ask is that in light of aid freeze and growing inflation, it is easy to panic and start shrinking monetary base (I am not referring to total money supply here) through OMO. Monetary base is the high-powered money that really drives the money multiplier effect in banking.It affects lending to companies for investment, economic growth, and job creation. As for the inflation bit, it is stylised fact that M2 (not M3) is co-integrated with inflation as such using M3 in monetary policy will never effectively control inflation. Is Malawi using M2 or M3 for inflation control…for those in the know please help?