Same script, different cast on budget

Minister of Finance Felix Mlusu has apparently found himself in the same situation as several of his predecessors in as far as implementation of the national budget is concerned.

Consequently, when Parliament meets for the Mid-Year Budget Review Meeting tentatively scheduled from February 22, the minister will be expected to table a supplementary budget to make amends to his maiden fiscal plan that has gone off track during the first six months of implementation.

To many with an interest in the country’s fiscal plan, the derailment, as it were, does not come as a surprise. Many commentators, including this column, cautioned Mlusu against being over ambitious and to instead be realistic in making the assumptions.

If figures The Nation sourced from Treasury this week are anything to go by, Mlusu and the Tonse Alliance administration’s maiden budget is in turmoil with K340 billion in deficit in the first six months of implementing the K2.2 trillion 2020/21 National Budget. Ironically, despite the dwindling domestic revenue—the key financier of the fiscal plan—government’s spending exceeded the budget by a whopping K10 billion.

With an allocation of K523.7 billion, wages and salaries were the major beneficiaries of the budget followed by the education sector with K384.5 billion, interest payments projected at K376 billion and agriculture at K354.8 billion.

In the budget or ‘wish-list’, Mlusu projected domestic revenue at K1.2 trillion or 20.1 percent of the gross domestic product. However, one question the minister and his team failed to answer at the time was how the shrinking domestic revenue collection would balance with the spiralling expenditure needs. For the record, the budget had a yawning fiscal deficit of K754.8 billion—the highest ever in the history of Malawi in nominal terms.

 Naturally, the deficit was to be financed by K224.8 billion in foreign borrowing and K530.1 billion from the domestic market where obviously the private sector will be crowded out while pushing up interest rates.

The envisaged borrowing was to be over and above Malawi’s debt stock which stood at K4.1 trillion in June last year, an increase from K3.4 trillion in December 2019. From the debt stock, 57.3 percent represents domestic borrowing and is equivalent to 33 percent of the GDP.

For a country that in 2006 had 90 percent of its $3 billion foreign debt written off by international lenders, the current situation—15 years later—is very worrying and alarming. My heart bleeds to see that in just 14 years after Malawi had about $2.6 billion or 90 percent of its foreign debt written off under the Highly Indebted Poor Countries (Hipc) initiative, the country is drifting back to heavy indebtedness.

The cost of the high indebtedness is that interest charges for the debt hover in the region of 36.6 percent of the GDP or the country’s total wealth whose picture President Lazarus Chakwera vividly painted in his State of the Nation Address last September. “In other words, for every K100 we generate [as a country], K36.60 is used to pay interest on the debt that we have accumulated, excluding repayment of actual loan.”

Mlusu’s budget has fallen in the same situation where the fiscal plan is but ‘wish-list’ that does not help much towards achieving the desired goals and objectives. In the past five or so financial years, the country’s national budgets have all ended up being dismantled during the Mid-Year Budget Review.

It is normal to make adjustments, either downwards or upwards, during the Mid-Year Budget Review, but it is immoral when the trend becomes the norm. In the end, public service delivery suffers due to massive cuts in allocations.

If truth be told, resources have been the major constraint to budget implementation ever since donors withdrew their direct budget support in 2013 amid revelations of plunder of resources at Capital Hill called Cashgate.

Perhaps it is now time for the country to accept the reality that direct budget support is critical in budget implementation and re-engage the donors.

National budgets or the expenditure plan play a critical role in fostering economic prosperity and eradicating or reducing poverty. Through the national budgets, governments implement their development plans. This is the more reason budgets should be realistic and based on economic realities.

In revising the budget during the Mid-Year Budget Review, it will be critical to focus on economic growth, job creation, economic empowerment and social protection in the face of the Covid-19 pandemic.

To achieve realistic budgets, the Minister of Finance or indeed government should brace for hard choices and trade-offs as well as making credible revenue projections and sustainable expenditure.