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.