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Home Columns Cut the Chaff

We need grosterity

by Johnny Kasalika
02/06/2012
in Cut the Chaff
4 min read
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I am reliably informed that Finance Minister Dr. Ken Lipenga is likely to present his first national budget, the 2012/13 fiscal plan, on June 22 2012. This budget will also be the first for President Joyce Banda’s People’s Party (PP) and will operationalise the numerous dreams she detailed in her first State of the Nation Address delivered in Parliament a few weeks ago.

The path to the dreams, as I wrote immediately after her speech, is not new because it was paved by her late predecessor Bingu wa Mutharika through the second generation Malawi Growth and Development Strategy (MGDSII) that Banda’s Cabinet has endorsed and which informed her address.

Of course, this planned date may change given the ongoing delicate negotiations for a new programme with the International Monetary Fund (IMF) that are key to attracting donors to support our budget with resources traditionally estimated to be around 40 percent of our spending needs. But my sources have never let me down, so I expect June 22 to be the big day for Banda and Lipenga.

These potential delays mean that by the beginning of the new financial year on July 1 2012, we are unlikely to have a budget in place.

Fortunately, the crafters of our document foresaw this and addressed it using Section 178 that deals with authorisation of expenditure in advance of appropriation.

It says: “The National Assembly may make provision under which, if it appears to the Minister responsible for Finance that the Appropriation Act of any financial year will not come into appropriation operation by the beginning of that financial year, he or she may authorise the withdrawal from the Consolidated Fund of moneys for the purpose of meeting expenditure necessary to carry on the services of the government until the expiration of four months from the beginning of that financial year or the coming into operation of the Appropriation Act, whichever is earlier…provided that provision for any moneys so withdrawn shall be included, under the appropriate heads, in the Appropriation Bill.”

The good thing is that there are precedents. During Mutharika’s first term in office (2004-2009), the Section 65-budget fight resulted in Parliament passing the national budget late and the then Finance Minister Goodall Gondwe resorted to Section 178 to keep the government machinery funded.

So, either way, there will not be much interruption that we have never experienced before or which could destabilise implementation of our economic programme.

What is important is the following question: Given the tattered nature of our public finances, the bedridden sickness of the ailing macroeconomy, the pain that firms and households are enduring, the prevailing political changes taking place and the voters’ expectations from the new administration, how will or should all this play out in the next budget?

This is a difficult question, but one that we must answer as a guiding torch to the way friends at Treasury will package our wish list that is politely called the budget.

I have listened to Lipenga’s tidbits or what I would call his blurred vision of the next budget. He has talked about this being a recovery budget. I interpret this to mean he will try to draw a budget that restores the high growth rates that were above six percent and which helped cut poverty from around 52 percent in 2005 to around 40 percent at the last publicised count.

For me, recovery means the budget will create value, encourage people to invest by levelling the playing field and ushering in a tax regime that attracts investors and individuals to innovate as well as invest in new products and technologies.

It also means generating jobs and heavy investments in public infrastructure, that is, both physical (such as roads and public buildings) and social (such as education and health service delivery).

But then the other day, Lipenga strongly hinted that this budget will be an austerity one. To me, this means tightening spending belts, sealing loopholes for expenditure waste and tax evasion. It could also involve slashing social services that are an investment into the future such as education, health, research and development. Austerity could also mean raising taxes to balance the books.

Each of these has advantages and disadvantages, depending on which school of economic thought one subscribes to. Most importantly, it also depends on the prevailing economic situation in a country.

So, by selling recovery with one corner of the mouth and austerity with the other corner, Lipenga was, in fact, saying our economic situation demands that we apply both tactics; that we need a balanced approach to solving our fiscal and economic problems; that such an approach should be a fusion of growth and austerity measures, which will give birth to a grosterity budget.

If I am not mistaken, it was that sharp Christine Lagarde, then French Minister for Economy, Industry and Employment, who coined this term. That lady lawyer is now the managing director of the IMF. And when she speaks, the world listens.

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