The donors’ unanimous decision to kick away the direct aid dish that traditionally accounts for around 40 percent of the national budget just when national purse keeper Goodall Gondwe last week claimed he was reaching for it will inflict more pain on the economy and the poor, especially with the worsening food security outlook.
Coming on the back of Malawi Revenue Authority’s (MRA) below budget revenue collection, the donors’ firm rejection of Capital Hill’s fiscal transgressions further tightens the noose around an administration that London’s Economist’s Intelligence Unit warns faces social unrest as public service delivery plunges in tandem with a dwindling resource envelop.
With budget support still out of the picture and MRA set on its underperformance path, the budget deficit will widen further; and recourse to domestic borrowing being the likely survival strategy; raising fears of even higher interest rates and its resultant crowding out effects on businesses and consumers.
Government is already running one of the highest fiscal deficits in its history. In the 2015/16 National Budget, the budget gap is projected at seven percent of gross domestic product (GDP), much higher than the 5.4 percent ratio recorded in 2014/15.
According to the World Bank, by the end of the 2014/15 fiscal year, Capital Hill had borrowed four times the amount approved in the budget estimates.
And without direct aid, the economy could continue to bleed as public sector-driven spending and investment falls to near non-existent levels.
Already real GDP growth rate is projected to fall by 2.7 percentage points to three percent in 2015.
With agricultural output threatened by nationwide dry spells in 2016 and a botched-up Fisp, economic output could be further depressed, leaving the poor poorer.
With balance of payment support that donors provide gone, the kwacha is set to continue its slide, triggering an inflation spike, now at 25.4 percent, that food shortages are already piling pressure on-again exposing the poor to price volatilities they cannot cope with and leaving businesses with an unpredictable business environment they cannot plan their investments around.
While donors have insisted that their resources are still being applied in Malawi only that it is outside government systems, measuring the impact of such disbursement channels is difficult even as development partners say they spent a total of $926 million in the country in 2014 alone.
Only a national government has the capacity to track where that money went and what it achieved at national level, which would be a difficult exercise as Capital Hill continues to be by-passed.
It is because of some of these implications that University of Malawi’s Chancellor College economics professor Ben Kalua says Malawi cannot afford to lose direct budget support when the country is already in a mess.
He does not understand why government cannot follow simple rules the donors were asking for.
Worried Kalua: ‘‘A well-wisher is giving a chance for you [Malawi] to put your house in order, for example, making the Auditors General independent and to improve on public finance management and you are not adhering to this?’’
Finance Ministry spokesperson Nations Msowoya said the European Union report Weekend Nation was quoting was still a working document which is subject to further consultation between the government and the EU. He cautioned that quoting it may prejudice the discussion government was having with the EU.
Said Msowoya: ‘‘Having said that, let me update you on the progress that the government has made so far on PFM issues.
Government has appointed 20 controlling officers in line with PFM Act;
It has done reconciliations of cash book and the Reserve Bank;
It has established the directorate of internal audit to reinforce issues of internal control in ministries and departments;
It uses sanctions and punishments to would-be offenders once evidence of wrongdoing is there;
There is no encashment of any government cheques at bank counters;
It has commissioned a head count of civil servants which is currently underway to flush out ghost workers
Government is conducting training and orientation of senior government officers involved in management of public funds on an ongoing basis
There is institutionalisation of good public procurement practices in government through publication of all procurement results in the news papers and website;
Government continues to exercise fiscal discipline which has resulted in reduced domestic borrowing.
With regard to the extended credit facility, Msowoya was optimistic that the next International Monetary Fund (IMF) mission would assess Malawi positively considering what government has achieved.