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Home Columns Cut the Chaff

DPP’s Kabambe just loves to cookbooks

by Ephraim Munthali
09/10/2021
in Cut the Chaff
5 min read
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At the twilight of the first Democratic Progressive Party (DPP)-led government, the Bingu wa Mutharika administration engaged in a revenue embellishment scandal in 2011/2012 that a fiscal year later rocked Malawi’s public finance management system.

The scam only came to light after Bingu’s death and a new government led by then estranged Vice-President turned president Joyce Banda took over.

Bingu—shunned by donors because of his dictatorial tendencies, wastage of public money, corruption and general decay in political governance—dreamed up what he called the zero-deficit budget (ZDB) strategy.

This was his response to the ultimatum that donors had issued to him: either restore fiscal integrity and improve on governance or forget about budgetary support that at the time contributed around 40 percent to the national budget.

But instead of improving the public finance management system and his governance track record to win back donor confidence, Bingu gave development partners a middle finger and came up with his idea of financial independence for the country.

“Mr. Speaker, Sir,” he said in Parliament in his statement opening the 2011/12 Budget Meeting, “Malawi is presenting a zero-deficit budget this coming financial year.”

In other words, he said, “our current expenditure will be financed entirely from our own resources.” Donors called his bluff and clung to their money.

The result was an economic meltdown as government revenue plummeted; social upheaval became the order of the day and political chaos ruled. The climax was the shortage of foreign currency, fuel and drug stock outs.

But Bingu, never one to admit failure, was desperate to show that his ZDB plan was working, especially that his government was raising tonnes of money from domestic revenue mobilization efforts.

Thus, Bingu-appointed budget Dalitso Kabambe ordered the Malawi Revenue Authority (MRA) to borrow K15 billion from local commercial banks and dress it up as government tax revenue to impress the international community, including the International Monetary Fund (IMF) that Malawi was doing superbly well in raising money on its own to finance its recurrent side of the national budget.

The Minister of Finance at the time, Ken Lipenga, went ahead to lie to Parliament and the whole country that the lopsided zero-deficit budget was working as shown by above target tax revenue figures that we all discovered later was money borrowed from local commercial banks.

You have to fast forward to the Peter Mutharika administration. Like his brother, donors told APM that his public finance and economic management record stinks and either had to change course or not get budgetary support.

APM looked to his dead sibling for inspiration and came up with ‘zero-aid budget’ to show he can run this country without donor money. I suspect he knew this strategy would need a brilliant cook to spice up numbers at the Reserve Bank of Malawi (RBM). So, lo and behold, he appointed, yes, Dalitso Kabambe as Governor of the central bank.

Under Kabambe’s watch—the Malawi Government engaged in “misreporting” of some targets under the IMF-supported Extended Credit Facility (ECF).

Briefing journalists in Lilongwe this week at the end of his mission in Malawi, IMF director of African Department Abebe Aemro Selassie said the Fund was “seriously” concerned about a misreporting case about some of the targets during the implementation of the cancelled ECF under the DPP regime.

Apparently, the previous administration misreported on several occasions on gross reserve assets (GRA) and net international reserves (NIR) for the period between 2018 and 2019.

Both GRA and NIR are managed by the central bank under the leadership of the Governor. To understand why the IMF is so pissed, you need to appreciate what GRA and NIR are.

According to the fund, reserve assets consist of financial instruments available to the central bank for financing or absorbing an imbalance of payments or for regulating the size of such imbalances.

RBM can use reserve assets, for example, to preserve confidence, to satisfy domestic legal requirements, or to serve as collateral for borrowing abroad. Most critically, reserve assets determine some important aspects of the relationship between the IMF and member countries, including what quota a country is allocated and can be basis for a country’s eligibility to draw on its reserve tranche and to use Fund credit.

In other words, the fake numbers on reserve assets hoodwinked IMF into allowing Malawi to tap into funds and enjoy certain liberties the country was not qualified for. The fictitious accounts on international reserves—which are referred to as “those external assets that are readily available to  and controlled by monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate, and for other related purposes (such as maintaining  confidence in the currency and the economy,  and serving as a basis for foreign  borrowing”—actually dismantle the DPP’s argument that they were good at maintaining a healthy import cover and keeping the kwacha stable.

In short, APM and Kabambe faked reserves figures to instill fake confidence into the economy and gave the Malawi kwacha fake strength. Now that the makeup is off, the kwacha has been exposed for what it really has been: a wrinkled currency that can barely stand on its own because of DPP, APM and the kingpin of cookery corner—Kabambe who, incidentally, wants to be Malawi’s President one day.

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