Cut the Chaff

Tonse must recast maiden budget

The realities of governing have caught up with President Lazarus Chakwera and his Tonse Alliance partners, including Vice President Saulos Chilima. You have to hand it to them though—they are really trying to show that they are men of their words. Even the theme of their maiden budget is ‘Living the Promise.’

Despite reality hitting them that some of the stuff they were promising during the campaign cannot be done without causing dangerous fiscal imbalances; they are proceeding on this fiscal suicide mission.

They are piling up fiscal deficits much faster than Bakili Muluzi and Bingu wa Mutharika combined and, as far as I can see, will rely heavily on domestic borrowing to fill the budget gap amid a crushing debt overhang so great Malawi will find it nearly impossible to borrow more externally even for financial feasible projects.

Finance Minister Felix Mlusu himself said in his budget statement that the K4.1 trillion public debt stock has sharply diminished the country’s debt carrying capacity. What that means is, if at all Malawi has a window to borrow externally—including concessionary loans from multilateral lenders such as World Bank and African Development Bank—the amounts will be so small that they will have little impact.

The low threshold are a result of the high risk category Malawi now finds itself in and its tiny fiscal space within which it can raise money to service debts.

Talking about fiscal space, I will have you know that 91.7 percent of domestic revenue comprising taxes, levies and fees that various ministries, departments and agencies collect and channel to Account Number One, is already spoken for this year.

It goes straight to “statutory expenditures in form of wages; pension and gratuities; and public debt payments that cannot be deferred, reduced or cut in the event of revenue shortfall”.

Please pause and think about that. Only 8.3 percent of our own resources estimated at K1.435 trillion are remaining for programmes across all sectors. For avoidance of doubt, we are only remaining with K119 billion and it has all been snapped up by the Affordable Input programme (AIP)!

Oh, wait, it’s not even enough for AIP since that pet will cost us K160 billion—meaning that we will need to borrow K41 billion more just to fund one programme whose cost benefit analysis no one has seen!

And so to fund the rest of the initiatives and normal government operations whose total expenditure is K2.1 trillion against its own resources of K1.4 trillion, government will have to look for K700 billion from somewhere, anywhere.

Now, ideally donors would come in handy. In fact, Mlusu expects K255 billion from them. But most donors wait for signals from the International Monetary Fund (IMF) to disburse and the fund only provides the signal if you have a programme with them. Malawi does not at the moment, having cancelled it “on account of changes in policy by the new Administration”.

I bet that one of the issues is that the fund saw the madness of a broke tiny country not just emptying everything it is left with on one programme—AIP—but also getting katapila to top up and reach K160 billion at the expense of critical essentials such as medicine, schools, water and sanitation—all sent to the back of the queue for a politically popular programme.

So, I guess the fund walked away, hoping that Chakwera and Chilima would come to their senses next year.

As things stand, the alternative is closing the deficit by borrowing, but, as I said earlier, Malawi has no capacity to borrow from cheaper options, which is externally, because of its tiny debt servicing room due its existing huge debt levels.

That leaves domestic borrowing, in which the cash-starved government will grab most of the money the private sector needs to sustain operations, expand and create jobs, especially in the very urban areas that overwhelmingly voted for Tonse.

By the way, the very rural voter they want to please with the cheap fertiliser and seeds will soon realise that they got a raw deal when they cannot access safe drinking water or be treated at a nearby health centre due to lack of medical drugs and equipment.

The bottom line is that the National Assembly must force the Tonse Administration to recast this budget, otherwise the country must brace for a fiscal disaster that could further cripple the economy and worsen poverty.

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