Economist warns of post-election hard times

An economist has cautioned of hard economic times after the elections, predicting that the new government would struggle in resource mobilisation for the budget.

The expert, a professor of economics at Chancellor College, has also predicted that the local currency may depreciate massively after the general elections assuming budget support would still be withheld.

The country is expected to go to polls on May 20 and soon after the new parliament will be expected to approve the 2014/15 national budget.

Speaking in an interview on Monday, Chancellor College economics professor Ben Kaluwa said that the delay by donors to release budget support will lead to a dire situation as the country cannot turn to foreign borrowing due to its poor foreign credit.

Donors have withheld over $150 million (over K60 billion) budgetary support to Malawi since the country was engulfed in Cashgate late last year, in which over K13 billion of public funds were feared to have been looted from government coughers by civil servants, businesspersons and politicians.

But Kaluwa said the situation [withholding of budget support] is expected to lead to the depreciation of the kwacha once the tobacco season is over and the country might suffer from the absence of the donor funds injection.

“Foreign borrowing is a very difficult avenue, almost a closed avenue. We can’t sustain it and at the moment nobody is going to rend us the money, our poor foreign credit position is very poor,” said Kaluwa.

He added: “This means we will rely on local borrowing but at the same time, we need funding for our imports; it’s a dire situation. The kwacha is currently appreciating but will depreciate in the medium term.”

He said while a zero-deficit budget might be mooted, there is a likelihood that the budget will be a zero aid budget with more pressure placed on revenue collectors to enforce taxation compliance.

However, Kaluwa advised the government to bring in stringent measures to deal with the situation, urging for expenditure cuts and prudence.

“Expenditure prudence is key. There is an argument that we have been very reckless in the past,” added Kaluwa.

As reported by Business News in March, despite the Common Approach to Budget Support (Cabs) still holding on to $150 million in budget support, preparations for the 2014/15 budget are at an advanced stage with expenditure and net lending in the 2014/15 fiscal framework expected to be at K693 million.

The total development expenditure is pegged at K181 billion— a figure is K52.7 billion higher than the K640.3 billion revised budget as of December 2013, government further announced.

Ministry of Finance assistant director in the Debt and Aid Division Betty Ngoma, further said: “The 2014/15 budget framework assumes no government budget support and we feel there is need for continued public finance management systems for development partners to return to using country systems [UCS].”