The World Bank has rescinded its pledge to disburse K60 billion in budgetary support to the Malawi Government, forcing Treasury to trim its planned expenditure this financial year.
Secretary to the Treasury Ben Botolo told the Budget and Finance Committee of Parliament in Lilongwe yesterday that the World Bank cited the controversies surrounding the Salima-Lilongwe Water Supply Project whose contract was allegedly granted without following procurement procedures.
He said to avoid going beyond the planned domestic borrowing for the 2018/19 fiscal year, the Ministry of Finance, Economic Planning and Development will be forced to reduce recurrent expenditure and pend certain projects to next financial year.
Botolo said the K60 billion budget support from the World Bank, which was expected in August, was not received because the bank’s executive board did not meet to discuss the proposal.
He said: “This is so because some of the country’s donors had raised some issues, including the government’s decision to proceed with the Salima-Lilongwe Water Supply Project. These donors have, therefore, pressured the World Bank not to proceed with the disbursement of the budget support.”
Botolo told the committee that the Ministry of Finance was taken unawares by the development because government had satisfied prior actions set by the World Bank to trigger the resumption of budget support disbursement by June 2018.
“The issues currently being raised by donors were not part of the set conditionalities for the budget support,” he said.
In the 2018/19, Treasury had projected revenue at K1.2 trillion with grants pegged at K209 billion.
The World Bank was expected to provide K60 billion in budgetary support of the K209 billion in grants while the European Union (EU) committed to disburse an amount which Minister of Finance, Economic Planning and Development Goodall Gondwe did not disclose after he was let down on a K50 billion which he expected.
When the committee queried the impact of non-disbursement of the K60 billion in the implementation and performance of the 2018/19 budget, Botolo said it would have a huge impact on the deficit levels. He said government would avoid domestic borrowing as much as possible.
“With this non-disbursement, some of the planned expenditure have to be scaled down. This has created unnecessary shocks in the budget, it’s a budgetary shock. We have to cut down the budget or find extra revenues to replace the K60 billion,” he said.
However, with the poor performance of domestic taxes in the last financial year and a projected 14 percent increase of collections, government might find it tough to cover up the gap created by the withholding of the K60 billion.
Botolo did confirm to the committee that expenditure would be cut, in particular other recurrent transactions and some development projects.
He said: “We may not implement all the projects and may cut down on other recurrent transactions to accommodate the loss of K60 billion. The impact on some of the programmes may be felt definitely. Others which we call flagship projects will continue.”
Botolo said flagship projects which Cabinet identified for completion will not be affected because they have dedicated funding.
Such projects include construction of coal-fired power plant at Kammwamba, the Songwe River Basin Development Programme, construction of a new water source from Likhubula River in Mulanje to Blantyre which is underway, construction of Mombera University in Mzimba and construction and refurbishment of science laboratories and libraries in community day secondary schools.
Other projects are the World Bank-funded Shire Valley Transformation Programme and the Mzimba Integrated Urban Water and Sanitation Project.
Salima-Lilongwe water project controversies
The identified contractor for the Salima-Lilongwe Water Project, Khato Civils, might have won the legal battles with various sections of society, including Malawi Law Society (MLS), but the effects of the controversies surrounding the contract are still being felt.
MLS challenged the legality of the process of awarding the contract to Khato Civils Ltd and lack of an Environmental Impact Assessment before project implementation, which has since been done.
The project is yet to begin because a funder has not been identified to date, but Botolo said negotiations are underway.
The non-disbursement of the K60 billion bewildered and angered members of the committee, with Alexander Kusamba Dzonzi demanding to know the particular donors who added the condition of the Lake Malawi Water Project.
He said: “Share with us who these donors are so we start screening them.”
Following the withholding of the K60 billion, the total outturn for the months of July and August amounted to K165.6 billion, K55 billion less than projected.
The good performance of the domestic revenue collection by Malawi Revenue Authority has propped up the revenue and grants in the first two months.
While total expenditure and net lending for July and August was pegged at K231 billion, Treasury spent about K208 billion because K20 billion for buying maize was not disbursed.
Botolo said this was because Agriculture Development and Marketing Corporation (Admarc) and National Food Reserve Agency were still using money disbursed in June, 2018 and would only receive the 2018/19 allocation once the resources were used and accounted for.
In the 2018/19 National Budget Statement, Gondwe projected the revenue and grants at K1.2 trillion which is 23.6 percent of gross domestic product (GDP) and domestic revenue has been set at K1.05 trillion or 19.7 percent of GDP.