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Cashgate negatively impacts economy—Goodall

Minister of Finance, Economic Planning and Development Goodall Gondwe has admitted that the 2013 Cashgate where K24 billion could not be accounted for has had a long-lasting impact on the country’s economy.

The minister, speaking in an exclusive interview yesterday, said Cashgate—the plunder of public resources at Capital Hill exposed in September 2013—has had a particular impact on government’s ability to balance between resources and expenditure.

Gondwe (L) brief Nation Publications Limited managing editor (C) and assistant bureau chief Suzgo Khunga
Gondwe (L) brief Nation Publications Limited managing editor (C) and assistant bureau chief Suzgo Khunga

Said Gondwe: “It takes a short time to spoil something and it becomes very difficult to put it together again. What we have [the economy status] is an amalgamation of a number of negative things that have happened. I don’t want to sound like a cry baby, but this Cashgate thing has had a larger impact than the public realises.”

Traditional development partners have withdrawn their direct budget support and Gondwe has admitted that he has previously downplayed the impact of such an action on grants and the overall budget.

While expenditure continues to go up, the government is feeling the effects of the absence of budgetary support and dwindling grants as indicated by the heavy borrowing of the 2014/15 financial year and incurring of arrears.

Donors provided about 40 percent support in the recurrent budget and about 80 percent in the development budget. In case of the development budget, donors rechannelled their assistance to Malawi through non-governmental organisations.

There is a sense of foreboding on projected grants from development partners which Gondwe had put at K190.4 billion, about 19.7 percent of the 2016/17 expected revenue.

In the same financial year, arrears were projected at K155 billion, but the minister said he has revised that figure to at least K170 billion taking into account the fluctuations of the local currency.

Gondwe said because of Cashgate, a number of genuine bills have not been paid, and some of these are contracts in dollars totalling 55 percent of the arrears and these are costing the government more than he initially thought.

He said: “These are costing us much more than we thought. The other thing is that we miss the budget support more than we say to the public. It has had quite a large impact in the sense that it is not only budget support, but other grants are dwindling at a very fast rate. On the other hand, expenditures are becoming larger and larger.

“The effects of this has been heavy borrowing as a government while ministries, departments and agencies continue to incur arrears, which could bring these up to more than projected in this financial year.”

Gondwe also admitted that the arrears are destabilising the economy and encouraging fraud.

Attempts by the government to reduce borrowing and rein in expenditure have spilled over to poor delivery of services with the excuse that there is no funding.

“Instead of paying for current services, we are paying for past services and the mismatch between required resources and required expenditure is such that it will have to involve you into borrowing. Now the more you borrow, the more you mess up your macroeconomics plus the fact that you encourage fraud when you incur arrears,” said Gondwe.

But while some ministries, departments and agencies are tightening the belts in the face of withdrawn budgetary support and poor revenues and grants through a hire freeze, freezing salary increments to parastatals and limited salary increase to lower grade civil servants, others such as Members of Parliament are able to enjoy increases to allowances and K5 million increase to the Constituency Development Fund.

Gondwe justified reasons for backtracking on certain expenditure plans and controls, some of which bordered on political survival as well as emotions, as going by the K50 000 reduction from the planned public university fee hike.

“Where do we get the money from? Well, the rule is we may not overspend but we cannot underspend. It means that we select soft expenditures and reduce them to make up for the amount required by the hard hitting votes,” he said.

The selection of these soft expenditures in turn affect public service provision such as health, education and agriculture but Gondwe argues that there will never be a time when there will be enough money but on the other hand there is a lot of waste in social services.

But Gondwe says Malawians should not lose hope and with the right conditions for the country, the economy will recover in time.

“The trouble is it has to be done now, as far as the public is concerned, but it may not be done now but we will do it because I have faith in the system, in my country. If the Tanzanians can do it, if Rwanda can do it, I don’t see any reasons why Malawians should not do it?” Gondwe said.

The shooting of former Ministry of Finance budget director Paul Mphwiyo outside the gate of his Area 43 residence in Lilongwe on the night of September 13 2013 is widely believed to have exposed revelations of the plunder of resources at Capital Hill. n

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