In an admission rooted in pragmatism, Finance, Economic Planning and Development Minister Goodall Gondwe says Capital Hill misses general budgetary support (GBS).
Gondwe—speaking in an exclusive interview in Lilongwe on Monday—said GBS’s return would help to shore up public finances and spark the faltering economy.
In his 2016/17 National Budget, Gondwe projected that gross domestic product (GDP) would grow by 5.1 percent in the calendar year 2016.
But right within the first quarter of the new financial year, the International Monetary Fund (IMF) and the Economist Intelligence Unit (EIU) revised that estimate to around three percent, a figure that Capital Hill has now embraced.
Among factors for sluggish growth are weather-related weak agricultural output; frail spending in the economy—especially public sector investments—and shrinking business output as the cost and environment of doing business gets more hostile.
Weak private sector output has also hit government finances hard as the Malawi Revenue Authority (MRA) has struggled to collect taxes from the ‘engine of growth’, which is just sputtering away amid coughing bouts that hinder its productivity.
In the good old days, donors would fill that revenue gap through GBS; hence, Gondwe’s hope that development partners would return to the national budget to help stem a fiscal crisis that is making it harder for government to run, including funding social sectors such as health, education and agriculture while loosening up enough fiscal space to invest in public infrastructure, retiring chocking public debts and paying arrears to businesses so that they can have operating capital to remain alive, create jobs and pay taxes.
Gondwe said: “We miss budget support more than we [can admit]. It has had quite a large impact in the sense that it is not only budget support, but other grants [under other aid modalities other than GBS that were coming to government] are dwindling at a very fast rate. On the other hand, expenditures are becoming larger and larger.”
The Democratic Progressive Party (DPP) administration has in the past insisted that it can do without budgetary support on the recurrent side of expenditure and introduced a zero aid budget during the second Bingu wa Mutharika administration.
Traditionally, donors have contributed about 40 percent to the recurrent budget and roughly 87 percent to the development account.
In the 2016/17 National Budget, Gondwe had projected total revenue and grants at K965.2 billion, of which K190.4 billion would be grants from development partners. However, once again, he did not count on budgetary support in the current fiscal year.
Gondwe said he was positive that multilateral institutions such as the World Bank, the European Union (EU) and the African Development Bank (AfDB) would provide budgetary support of between US$110 million (K80 billion) and US$120 million (K88 billion) by March 2017 to support the current K1.2 trillion fiscal plan.
He said: “We are expecting this year the World Bank and the European Union to provide us with budget support. They have given us a lot of conditionalities and we are in the process of satisfying them. We are expecting $80 million from the World Bank and about $30 million from the EU.”
The minister admitted that last year, government did not meet the conditionalities as outlined by the multilateral donors.
The conditions remain visible progress in public finance management reforms, including incorporation of main government bank accounts in the Integrated Finance Management Information System (Ifmis), procurement of the Ifmis software itself, enforcement of the Public Finance Management Act and coordination of cash management, among other areas.
Said Gondwe: “We didn’t do well on conditionalities last year. This year we have, according to them [donors]. So, likely between December and March we should be able to get a combined [package]; it could be $110 to $120 million.”
But the World Bank and EU—in separate responses to e-mailed questionnaires yesterday—said discussions with government are still in progress as they observe implementation of the policy and institutional reforms, which form part of the conditionalities.
In an interview yesterday, World Bank country manager Laura Kullenberg said the Bretton Wood institution remains committed in principle to the use of budget support as a modality of development financing and the bank is hopeful this would be disbursed in this financial year.
She said: “We are still early in the process, but we are hopeful that budget support can be disbursed in this financial year.
“Once agreement on the policy and institutional reforms has been reached and they have been implemented, and with the approval of our senior management, then the World Bank can disburse budget support.”
Kullenberg said in the wake of two years of weather shocks, the bank is particularly looking at reforms in the agricultural sector that will help to build resilience and break the cycle of repeated food insecurity.
But she said the bank recognised that government has made progress in rebuilding its systems of public financial management and control since Cashgate.
“However, there is still much more that needs to be done in this process. We are committing to working alongside government in these efforts,” Kullenberg said.
On its part, the EU has said it would assess Malawi’s eligibility for budget support at the end of 2016 or early 2017.
“To this effect, a team of independent consultants will be recruited to verify progress against the eligibility criteria, including progress in public finance management.
“At this stage we do not want to pre-empt the outcome of this assessment,” James Dolan, head of political, press and information section at the EU Delegation in Malawi, said in a written response.
He added that the EU would continue to implement the current country programmes for Malawi for a total of 560 million euros and that in 2016 the union will be launching new programmes worth around 220 million euros.
So far, AfDB has remained the only development partner which was providing budgetary support to Malawi in the wake of the plunder of public resources in 2013.
Last year, AfDB provided $26 million (about K15 billion) sector budgetary support targeting provision of health and education services.
Gondwe said AfDB was also likely to come in towards the final quarter of the 2016/17 financial year.
Since late 2013—when Cashgate broke out—major donors froze budgetary support, citing Malawi’s leaking public finance management system as too compromised to entrust it with their resources.
While multilateral institutions have provided pockets of GBS, the bulk of official development assistance (ODA) has gone through the so-called off-budget mechanism—a modality that ignores government systems and sends money to non-State actors who implement programmes and projects.
But that modality is not without controversy as a recent Non-Government Organisation (NGO) Board study revealed that NGOs failed to account for 90 percent of aid in the 2015/16 financial year.
The NGOs, through their umbrella body Council for Non-Governmental Organisations (Congoma), have rejected the findings.
On Monday, Gondwe pointed out that measuring the impact of off-budget support has been difficult while alignment to national priorities as spelt out in the Malawi Growth and Development Strategy (MGDS) has remained elusive.