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Malawi tightens budget strings to placate foreign aid donors
Corruption fallout forces president to devise zero-aid budget, but deficit looms with no tax rises and ministers demanding pay hike
President Peter Mutharika needs to convince donors to release the budgetary support they are withholding. Photograph: Gianluigi Guercia/AFP/Getty Images
The Malawi government has presented its budget for the next financial year, which has been designed to regain donor confidence and encourage political stability at home.
It is President Peter Mutharikas first budget since coming to power in May, after his victory over Joyce Banda. Mutharika needs to win back the confidence of donors, who are withholding 40% of budgetary support following allegations of corruption and systematic looting of state resources by senior civil servants and politicians.
The budget has been called zero-aid, and it has a 107bn kwacha (£167m) deficit. So far, the government has not explained how it will cover the deficit. Curiously, the government has not raised taxes, as many commentators predicted. This could be a way of encouraging stability, by not burdening Malawians with increased taxes during a time of economic turbulence.
But Billy Mayaya, a local human rights activist, says that although as a concept a zero-aid budget is good, this one is not well thought through. Therefore, the outlook looks pretty gloomy, he says.
It is not the first time Malawi has had to do without some budget support. During the 2011-12 fiscal year, under President Bingu wa Mutharika (the current presidents older brother) donors withdrew budgetary support because of poor governance and the then presidents increasing autocracy. He resorted to a zero-deficit budget in defiance of the donor community, implying Malawi could do well enough on its own. The principle this time is not very different, except that the government is not pretending it can do without donor support.
The zero-deficit budget led to fuel shortages, erratic power supplies and the scarcity of commodities such as sugar. This was largely caused by lack of foreign exchange to import goods and raw materials. Aid was resumed under Bandas presidency, after Bingu wa Mutharikas sudden death in April 2012.
There are fears that shortages could occur again. Rex Chikoko, a news analyst with the Nation newspaper, says the budget has failed to address the basic needs of ordinary Malawians. He is also worried about the huge deficit, saying the government has failed to explain how it will be addressed.
[The government has] failed to enlighten Malawians where the extra money is going to come from. The government envisages that MRA [a revenue collector] will collect about MWK535bn in revenue. With no prospects of aid the budget was pegged at MWK729bn. There is a huge deficit, says Chikoko.
The government has avoided the seemingly straightforward route of raising taxes for political reasons. Mutharika still needs to win over the majority of Malawians 64% did not vote for him. But Chikoko thinks the government may eventually have to raise taxes, increase fees for government services, and resort to local borrowing to plug the deficit. The finance minister, Goodall Gondwe, said in his presentation that the government may present supplementary budgets where necessary. These budgets could provide the government with an opportunity to raise taxes and fees, as Chikoko predicts.
Most local economists however have described the budget as prudent, but have warned about fiscal discipline. Economist Thomas Munthali told the Nation that the budget was prudent because of the assumption of a lack of donor support, the exchange rate and the pledges on economic reforms. He said the restoration of fiscal discipline was a key issue.
Mathews Chikaonda, a former finance minister and now chief executive officer of the countrys largest conglomerate, Press Corporation Limited, shared Munthalis sentiments in an interview with the same paper.
Managing fiscal discipline will be a tricky issue for the government. Three months into the office, Mutharikas cabinet ministers have already demanded a 600% pay increase, which the president has so far turned down. The ministers attitude is contemptible, not only because of the financial turbulence Malawi is going through but also because the majority of Malawians live bellow the poverty line and service delivery remains very poor.
For the ministers, these demands are normal because of the lavish lifestyles successive administrations have offered. It is what Blessings Chinsinga, political economist at Chancellor College, University of Malawi, calls incentive culture. Financial gains are what incentivise people into politics, not willingness to serve their country. To ensure the fiscal discipline that the zero-aid budget demands, Mutharika needs to keep the incentive culture in check.
Corruption fallout forces president to devise zero-aid budget, but deficit looms with no tax rises and ministers demanding pay hike
- Jimmy Kainja in Lilongwe
- theguardian.com,
- Wednesday 10 September 2014 13.02 BST
President Peter Mutharika needs to convince donors to release the budgetary support they are withholding. Photograph: Gianluigi Guercia/AFP/Getty Images
The Malawi government has presented its budget for the next financial year, which has been designed to regain donor confidence and encourage political stability at home.
It is President Peter Mutharikas first budget since coming to power in May, after his victory over Joyce Banda. Mutharika needs to win back the confidence of donors, who are withholding 40% of budgetary support following allegations of corruption and systematic looting of state resources by senior civil servants and politicians.
The budget has been called zero-aid, and it has a 107bn kwacha (£167m) deficit. So far, the government has not explained how it will cover the deficit. Curiously, the government has not raised taxes, as many commentators predicted. This could be a way of encouraging stability, by not burdening Malawians with increased taxes during a time of economic turbulence.
But Billy Mayaya, a local human rights activist, says that although as a concept a zero-aid budget is good, this one is not well thought through. Therefore, the outlook looks pretty gloomy, he says.
It is not the first time Malawi has had to do without some budget support. During the 2011-12 fiscal year, under President Bingu wa Mutharika (the current presidents older brother) donors withdrew budgetary support because of poor governance and the then presidents increasing autocracy. He resorted to a zero-deficit budget in defiance of the donor community, implying Malawi could do well enough on its own. The principle this time is not very different, except that the government is not pretending it can do without donor support.
The zero-deficit budget led to fuel shortages, erratic power supplies and the scarcity of commodities such as sugar. This was largely caused by lack of foreign exchange to import goods and raw materials. Aid was resumed under Bandas presidency, after Bingu wa Mutharikas sudden death in April 2012.
There are fears that shortages could occur again. Rex Chikoko, a news analyst with the Nation newspaper, says the budget has failed to address the basic needs of ordinary Malawians. He is also worried about the huge deficit, saying the government has failed to explain how it will be addressed.
[The government has] failed to enlighten Malawians where the extra money is going to come from. The government envisages that MRA [a revenue collector] will collect about MWK535bn in revenue. With no prospects of aid the budget was pegged at MWK729bn. There is a huge deficit, says Chikoko.
The government has avoided the seemingly straightforward route of raising taxes for political reasons. Mutharika still needs to win over the majority of Malawians 64% did not vote for him. But Chikoko thinks the government may eventually have to raise taxes, increase fees for government services, and resort to local borrowing to plug the deficit. The finance minister, Goodall Gondwe, said in his presentation that the government may present supplementary budgets where necessary. These budgets could provide the government with an opportunity to raise taxes and fees, as Chikoko predicts.
Most local economists however have described the budget as prudent, but have warned about fiscal discipline. Economist Thomas Munthali told the Nation that the budget was prudent because of the assumption of a lack of donor support, the exchange rate and the pledges on economic reforms. He said the restoration of fiscal discipline was a key issue.
Mathews Chikaonda, a former finance minister and now chief executive officer of the countrys largest conglomerate, Press Corporation Limited, shared Munthalis sentiments in an interview with the same paper.
Managing fiscal discipline will be a tricky issue for the government. Three months into the office, Mutharikas cabinet ministers have already demanded a 600% pay increase, which the president has so far turned down. The ministers attitude is contemptible, not only because of the financial turbulence Malawi is going through but also because the majority of Malawians live bellow the poverty line and service delivery remains very poor.
For the ministers, these demands are normal because of the lavish lifestyles successive administrations have offered. It is what Blessings Chinsinga, political economist at Chancellor College, University of Malawi, calls incentive culture. Financial gains are what incentivise people into politics, not willingness to serve their country. To ensure the fiscal discipline that the zero-aid budget demands, Mutharika needs to keep the incentive culture in check.
