Business Unpacked

Realities of a zero-donor supported budget

I recall listening to the State-of-the-Nation Address by former president the late Bingu wa Mutharika in May 2011 when he announced that Malawi would adopt a zero-deficit budget (ZDB). That meant that government would entirely finance its recurrent expenditure using locally generated resources, nothing from donors or cooperating partners.

Hitherto, donors were financing at least 30 percent of Malawi’s recurrent budget and 80 percent of the development budget of which the 20 percent is locally funded, mostly in kind. In the recurrent budget, local taxpayers foot the remaining bill.

Today, nearly two years after President Joyce Banda’s administration quietly abandoned Mutharika’s ZDB, government is apparently reverting to ZDB albeit under a different tag altogether of government budget support (GBS). Essentially, the Ministry of Finance (MoF) says the budget framework is premised on the basis that there will be no budget support from donors or development partners.

Malawi’s major donors under the Common Approach to Budget Support (Cabs) suspended budget support worth $150 million (over K60 billion) last November in protest over the plunder of public funds at Capital Hill through dubious payments in what has been christened Capital Hill Cashgate.

Ideally, for a country clocking 50 years of independence on July 6 this year, moving towards a national budget financed by local resources should be refreshing and encouraging as that would demonstrate we are coming of age. That we are, as a nation, able to generate and manage our finances and not depending on taxpayers in “rich” countries to be paying salaries and other expenses in our public service.

However, the sad reality is that such initiatives or steps are being undertaken out of frustration, after the donors have withheld their purse. During Mutharika’s time, donors had suspended budget support as they have done this time around. Sadly, decisions made out of frustration have rarely borne positive results. Remember the “cook-up” of revenue figures when the ZDB was first implemented? The forex and fuel shortages also had negative consequences on economic growth.

When all is said and done, implementing a successful ZDB or GBS is possible with financial discipline and restructuring of some of our expenditure lines. For example, why should a country with 24 ministries have 65 principal secretaries? Why should we have such a big Cabinet? In fact, some of the ministries can easily be combined and help government cut on costs.

Fiscal prudence in making a locally funded budget work should also mean no borrowing to fill the gaps. Government should learn to spend within its means or to cut its cloth according to its body size if the ZDB or GBS is to work without eroding the gains made on the macroeconomic front.

In a nutshell, ZDB is the same as the government-supported budget. Not a bad idea altogether, but it requires perfect planning not reactionary implementation. The country needs to move gradually from, say, the current 40 percent of donor support to 30 percent, then 20 percent and eventually zero percent. It is possible with political will and fiscal discipline.

The other day we were told that 30 percent of resources allocated in the budget are stolen. If all loopholes were sealed, it should be possible to spend within our means.

I am sceptical about the zero-donor support budget, as I was with ZDB, because it does not mean government will stop borrowing locally. This excessive borrowing has implications such as crowding out the private sector and the increasing interest rates resulting in high cost of borrowing; hence, we will be back to square one. In the end, there will be no problem solved.

Talking about the government budget, much as I appreciate the principle of continuity, with elections to put in office a new government scheduled for May 20 and the government financial year starting on July 1, I was thinking aloud on whether it is not premature to be planning a zero-donor supported budget. What if a new party makes it and has different priorities altogether?

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One Comment

  1. It may be safely assumed that the suggested figure of thirty percent, or thereabouts, that is purported to be pilfered in various degrees of sophistication is a constant. And inasmuch as thirty percent of the ZDB will still get pilfered, the country is nowhere ahead on the economic road. There are many challenges the next government (NOT PP) will need to address, like wastage or profligacy. But the most important challenge is to root out the culture of theft, or the simple mindedness of believing in an entitlement that “it’s my turn now” (nthawi yanga nane tidye minofu). Bribery is also now de rigeur: if a civil servant is not taking part in this custom, he/she is ostracized. We are indeed beyond the slippery slope, already, ladies and gentlemen. Only the experienced politicians who thrive under stress, will succeed in the next government enterprise. The others need not apply for the job! It’s not going to be a picnic!

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