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Home Columns Cut the Chaff

Treasury could have done better

by Ephraim Munthali
23/06/2018
in Cut the Chaff
3 min read
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This week, the Ministry of Finance, Economic Planning and Development released a statement that was published as an advert in major dailies and was picked up by the main-stream media as a major news item.

The press release—among other things—announced a K50 billion cut to the proposed 2018/19 National Budget and how such a reduction would sex-up its books and please the International Monetary Fund (IMF) although that was not Treasury’s exact language but, in the end, that is what it all boiled down to.

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The slash—by my rough calculation—amounts to just over three percent of total expenditure from a proposed K1.5 trillion to around K1.45 trillion. According to the statement, the chop has pushed the overall budget deficit for the next fiscal year from 4.5 percent of gross domestic product (GDP) to 3.8 percent.

Apparently, the budget butchering has also helped to narrow the primary fiscal balance—consolidated government liabilities without taking into account interest payments—from -1.1 percent of GDP to -0.4 percent.

“The primary balance is the fiscal anchor of the current ECF [Extended Credit Facility] fiscal programme with the IMF,” says the statement. Well, I hope you get the picture now: Capital Hill is desperate to remain within the fund’s supported programme targets; hence, the move to cut spending.

In other words, the decision is not being inspired by the Peter Mutharika administration’s desire to live within the country’s means through frugal spending—and there lies the problem.

That is why I expected the Treasury statement to do better than the economic jargon they have thrown around just to confuse the masses, most of whom would not even grasp what the folks at Capital Hill are talking about.

What I expected the statement to do was to explain a number of things. For example, which sectors are going to suffer? Will sectors such as health, education, agriculture, water and sanitation get hurt while, for example, State House and the overall travel budget jumps wildly in the build-up to the 2019 Tripartite Elections?

Are productive sectors such as trade, tourism and private sector development in general going to be underfunded as a result of this? What projects that may have multiplier and accelerator effects on the economy are being pushed by the wayside while non-productive, but politically popular projects, get financing priority? How will all these to ‘where to cut or not to’ decisions impact on the country’s overall economic performance?

On the other hand, what criteria did Treasury use to decide where to slash and where to increase or leave the numbers intact? And when did Finance, Economic Planning and Development Minister Goodall Gondwe realise that he had over-budgeted anyway? Was it during general debate, committee of supply or at what stage exactly?

I am saying this because K50 billion is a lot of money to realise from the blues that it has to be removed from the budget. It means that affected Ministries, Departments and Agencies (MDAs) may have to do a lot of re-programming to fit into their slashed allocations, and that is a lot of work.

Furthermore, this statement should have been accompanied by a brief report on how the austerity measures that government announced in February this year during the mid-term budget review have helped.

How much savings has Capital Hill chalked since the spending restrictions kicked in? Otherwise, as far as I am concerned, if indeed there were savings made, they should have helped to bring down the budget deficit and maybe we would not need to cut as much as is the case now.

In outlining some of the measures; Gondwe said there would be cuts to the travel budget—such as chops to fuel allocations, sharply limiting the number of officials travelling business class and shrinking the number of people enjoying vehicle benefits.

He said these actions would help to reduce spending on travel by as much as 10 percent. In fact, the minister even said he could cut waste by as much as K30 billion. Was this achieved? What progress was made in this area?

Unless Treasury gets to account for what it promised Malawians in terms of shedding wasteful spending, exacting cuts for the sake of meeting IMF targets may only achieve one thing: making innocent people suffer more while depressing economic growth.

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