Budget should be in line with realities

So, Minister of Finance, Economic Planning and Development Goodall Gondwe is asking Parliament to approve an extra K32 billion (US$71million) in the Mid-term Budget Review.

If approved, this will increase the zero-aid based 2014/15 National Budget from K748 billion (US$1.7 billion) approved by Parliament last September to K780 billion(US$1.7)

The Minister of Finance’s request for additional resources in the budget should be looked at in the context of the fact that the initial financial plan had a K107 billion deficit. The deficit stood at K78 billion as of December 2014, according to Reserve Bank of Malawi (RBM).

In his Mid-term Budget Review Statement presented in Parliament last Friday, good ol’ Goodall said the K32 billion would be raised from various sources, including K13 billion through pledged additional grants, K8 billion in excess tax revenue from existing approved taxes and K10 billion to be borrowed locally.

From the statement, it is clear that implementation of the zero-aid budget faced setbacks, including under-collection of domestic resources and grants, during the first six months of the financial year.

Traditionally, Malawi has been budgeting its annual expenditures taking into account contributions from its development partners who put in about 40 percent on the recurrent budget and 80 percent in the development budget.

However, this year, the budget was based on a zero-aid concept after donors or development partners withheld their budgetary support in October 2013 in protest against the plunder of public resources at Capital Hill widely known as Cashgate.

For the record, planning our expenditures on local resources is not a bad idea altogether. It is the way to go, especially for a country that has clocked over 50 years of independence and needs financial/economic independence.

However, it is unfortunate that we seem to be forced to implement or experiment on such concepts towards economic independence. Going forward, we need, as a country, to have a short to medium term plan to facilitate our graduation to economic independence. We can say, for example, that in five years’ time our dependence on donors, especially on the recurrent budget, should be reduced to 10 or 15 percent and match that with action on the ground.

Back to the substantive issues raised by good ol’ Goodall in his Mid-term Budget Review Statement. I have problems with some of the proposals the minister is making regarding revenue sources for the budget in the last half of the financial year.

For instance, the question of borrowing an extra K10 billion locally should surely send shivers down the spines of many Malawians. This will increase pressure on interest rates.

Due to excessive government borrowing over the years (the debt stood at K100 billion-plus sometime back), the interest rates are already on the higher side, literally pushing out the private sector from the market. Currently, the lending rates hover around 40 percent, some of the highest in the world.

There is also no concrete evidence from donors that the grants will be made available this time around after failing to do the same in the first half. Of course, the African Development Bank (AfDB) has hinted at the possibility of resuming budget support in April or thereabouts, but that is just one of the rare cases. In fact, it is a pledge. There have been several others before. Even if the supportt comes in, will that not be too late?

Public tax collector the Malawi Revenue Authority (MRA) just met their projections. Low domestic tax collections are also a reflection of poor performance of businesses who are finding the going tough in the economy. Many have scaled down operations, what has been done to improve the situation and have such enterprises perform to their optimum and pay more taxes?

What I see from the minister’s statement is a government basing its financial plan on “hope”. You do not run a government based on hope, but the realities on the ground. It is important for government to widen sources of domestic revenues besides improving the performance of the Public Finance Management tools to regain the confidence of development partners. These are sure options to balance our budgets.