Recounting 2013 fiscal mess
The cashgate and its ripple effects, including the withholding of aid, may be 2013 worst fiscal disaster, but surely it is not the only one worth talking about.
In 2013, Malawi’s fiscal policy—a framework that spells government expenditure against revenues—was marked by a promise to cut expenditure and maintain zero domestic borrowing and thus support the other policy arm, a tight monetary policy.
But during the year, as government expenditures rose while revenues, especially grants declined or were at least delayed, government run a widening fiscal deficit and, was at times, forced to borrow heavily from the domestic market.
Due to the delayed grants’ disbursements, at least according to Ministry of Finance spokesperson Nations Msowoya, early this year government proposed changes to some of the International Monetary Fund (IMF) Extended Credit Facility (ECF) conditions, specifically to increase borrowing from the domestic market.
Under the conditions, government proposed an increase in the performance criteria for end-March 2013 and end-September 2013 by, among other things, raising the ceiling on the central government’s net domestic borrowing.
Available figures indicate that between January and May 2013, government borrowed over K50 billion through Treasury Bills (T-Bills) which authorities said was to finance government operations due to the delayed donor disbursements.
The heavy appetite for borrowing did not spare the financial market of negative effects. It choked the market which prompted interest rates to rise to over 50 percent as T-Bills rates rose from about 25 percent in January to 43 percent in March, way above bank deposit rates.
But the delayed disbursements in grants did not deter Malawi from donor reliance, at least based on the current budget.
The 2013/14 budget put donor grants at about 40 percent up from 31.5 percent the year before.
In the budget, the government again maintained its fiscal anchor of no net domestic financing whose spirit is to prompt private sector credit and growth. It, however, projected that the 2013/14 fiscal balance—the difference between government expenditures and revenues—would be K34.8 billion.
But according to Reserve Bank of Malawi (RBM) figures, in July 2013 government fiscal balance worsened by 168 percent to a deficit of K15.8 billion from a K23.1 billion surplus in June due to late donor inflows.
The RBM report indicated that government expenditures in July increased by 54.5 percent to K56.4 billion arising from both recurrent and development budget lines.
And the following month, Malawi’s fiscal deficit worsened to K40.4 billion, prompting government to borrow heavily from both bank and non-bank sectors.
Msowoya blamed the increasing deficit to an increase in government expenditure.
In August 2013, total government expenditures increased by 28.9 percent to K72.3 billion following another monthly increase of 44.7 percent in July 2013.
But as expenditures rose and fiscal deficits widened, Capital Hill financial mismanagement, infamously dubbed cashgate surfaced.
The scandal which was largely blamed on loopholes of the Integrated Financial Management Information System (Ifmis) revealed the siphoning and misallocation of billions of taxpayers’ money, which were otherwise supposed to benefit the poor. The scandal is actually blamed for raising government expenditures by 40 percent between July and September.
Reacting to the scandal, on November 7, Malawi’s major donors under the Common Approach to Budget Support (Cabs) announced the withholding of $150 million (about K60 billion). Earlier, the International Monetary Fund (IMF) had announced the suspension of aid over the same concerns.
And as businesses feared that the aid freeze would worsen the forex lean period, prompt kwacha fall and trigger a rise in interest rates, the RBM announced it would implement a tight 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.
Looking back at 2013, fiscal slippages including the cashgate and the aid freeze, some experts have said that should be a wake-up call to all Malawians.
My advice to the nation of Malawi is that on the next general election do something amazing. Whoever wins, must opt to form a government of national unity. It is extremely important that Malawi must redefine its national goals, rewrite the constitution to ensure rogue leaders are dealt with promptly while they are still in the office not posthumously once they leave the office. Hindsight is 20-20 vision. You have had experience with democracy and you have seen weaknesses in your systems. It is time to take stock and learn from experience to redefine the constitution. The constitution must unequivocally put checks and controls on the executive powers, provide oversight of govt financial systems and it must reflect the will of the people. The constitution must allow for continuity of long tem development projects of national interests such as major development initiatives ports, airports, rail, universities etc and other frameworks. It must provide an already made solution for handling govt malfunction.
A government of national unity will for once bring all Malawian representatives from Nsanje, Dowa to Chitipa to the table to devise a charter for growth for country. Party politics in my assessment has left Malawi as a nation divided and very vulnerable to exploitative forces. Politicians are promising transformation and yet when you dig deep on how they would effect transformation, their answer is agriculture. For million of years Malawi has been an agricultural economy and no development has happened so what is this new brain wave idea with agriculture? As a professional I can tell Malawians that agriculture is not the holly grail of development you are searching for.
A government of national unit must honestly evaluate and agree on how campaigns in Malawi must be funded. Every donor knows that successive govt in Malawi steal from the public resources to fund campaigns according to IMF. This is deplorable but when you look at it is a real life challenge; campaigns are expensive and they must be financed if democracy in Malawi will prosper. Unfortunately, currently that gives advantages to the incumbent so the problem must be addressed by a united govt in a fairly and equitable way.
A govt of national unity must develop a national industrial and economic development plan. There are certain critical industries that Malawi must acquire to trigger and industrial revolution to create wealth. These are long are ambitious and long term so all parties must jointly sign up to them such they subsequently come to power they will continue to nurture these national development plans. Mineral are not to be exported but to be processed in Malawi to create jobs. Malawi imports petroleum and yet you have coal that can industrially transformed into diesel and petrol through the fischer-tropsh process. Malawi has uranium that can be converted into a cheap national electricity supply by splitting the atom right there in Malawi – creating thousands of jobs. Malawi is endowed with bauxite that must be mined and processed into aluminium for drinking cans, shipping containers and structures. These are major sources of employment and economic growth that only a govt of national unity can endeavour to tackle, together as a nation.
Finally, a govt of national unity must address financial and monetary policy that will support national economic growth, job creation, and price stability. They are all wrongly oriented thereby retarding real economic growth. If I might slot in my personal pet wish is that the govt of national unity must register into law banning tribalism and regionalism that is tearing the country apart for no national benefit whatsoever! Every Malawians child must be accorded equal opportunity to fulfil their natural God given potential regardless of which district they are born in!