Malawi has been robbed between $2.26 billion (about K1.6 trillion) and $7.32 billion (about K5.3 trillion) in past 10 years due to illicit financial outflows, according to the Washington DC-based Global Financial Integrity (GFI).
While trade cash flowing into Malawi during the same period, is pegged at $1.36 billion (about K1 trillion) and $2.11 billion (about K1.5 trillion), according to GFI’s program manager and acting communications director Christine Clough.
“Malawi’s illicit outflows are pegged at between 7 to 24 percent of total trade while inflows can be understood as being at the level of 4 to 7percent of total trade for 2005-2014,” she said.
This means that in 10 years the country has lost more than the 2017/2018 national budget pegged at K1.3 trillion presented last Friday in Parliament.
Although the country is losing a mammoth amount to illicit financial flows (IFFs), it remains saddled with a huge fiscal pressure due to an extremely constrained resource environment its budget is always operating in.
Malawi Economic Justice Network (Mejn) director Dalitso Kubalasa explained that for instance, the wage bill along with interest repayments on debt have continued taking up almost everything it has to spare far outweighing the goods and services Malawi is supposed to provide to its people.
He said that is why all efforts to advocate for additional resources for public social services going forward, should always bear cognizance of the smallness of the public resource envelop, the limitations in resource mobilization, and the opportunity costs of providing such additional resources.
“Against this backdrop is the rationale why Mejn’s previous and subsequent recommendations continue being directed towards identification of efficiency enhancement mechanisms in resource allocation and utilization, including plugging and recovering such mammoth losses to illicit financial flows highlighted,” said Kubalasa.
As Kubalasa puts it, with such huge loopholes sealed it will be easier with less fiscal pressure to allow for all efforts to be made to continue addressing further declines in development budgetary allocations for the social sector in view of the continued need for public sector investments in the sector.
According to Clough, trade misinvoicing is by far the largest component of Malawi’s illicit flows that GFI measured in its estimates.
She said to curb trade misinvoicing the customs authority in the country must incorporate a system for measuring misinvoicing risks in its current transaction approval process, before it releases shipments of goods for import or export.
“GFI has developed a cloud-based system to help with this, called GFTrade (TM). GFTrade includes the latest trade data published by the US, Japan, and 28 EU [European Union] countries to show the typical range of values for particular goods between particular trading partners.
“For example, agriculture is very important to Malawi’s economy—[so] are traders declaring honest values of exports of things like raw tobacco and dried legumes? And what about imports of key inputs for the agriculture sector, such as fertilizers and machinery?” she queried.
Clough further explained that exchanging relevant tax information with other jurisdictions and ending the abuse of anonymous companies doing business and moving money in and out of Malawi are key to curbing illicit flows, trade-based and otherwise.
“GFI has partnered with several leading financial transparency groups in Africa to develop an “Accelerated Illicit Financial Flows (IFF) Agenda” for Africa, which includes these and other more specific policy steps that the Government of Malawi can take to start curbing IFFs,” she said.