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The reality of the zero-aid budget in Malawi

24 September 2014
By Blessings Chinsinga.
The new government of Malawi that was ushered into power following the 20 May  2014 elections started its tenure facing an ultimatum from donors: restore fiscal integrity or forget about the resumption of budgetary support that makes up as much as 40% of the total budget.
Donors suspended budgetary support to the tune of US$ 150 million following the revelation of massive looting of public funds to the tune of US$ 100 million by syndicates involving civil servants, politicians and businessmen.
This unprecedented looting has been christened “cashgate“. It involved making massive dubious payments to suppliers that often did not provide any goods or services. The popular expectation was that the new government would quickly address donors’ concerns about cashgate in order to restore their confidence in the public financial management systems, but this has not happened.
The critical question is: why is the government of Peter Mutharika not moving with speed on cashgate even as it holds the key to the restoration of budgetary support? Instead, his government has opted for the “zero-aid budget” as a strategy to cope with the withdrawal of donor support.
The zero-aid budget is pegged at MK742 billion, with a deficit of about MK 107 billion. It is therefore projected that the national revenue authority will rake in about MK 535 billion. While the 2014/15 budget has desisted from raising taxes, it does not explain how the deficit will be financed, apart from saying that the government will continue engaging with donors, and should they decide to support it, a supplementary budget will be prepared accordingly.
This is not the first time that Malawi experiments with an innovative budgetary framework. In the 2011/12 fiscal year, late president Bingu wa Mutharika, brother to the current President, rolled out the so-called zero-deficit budget. Likewise, the zero-deficit budget was minted in response to donors’ withdrawal of budgetary support, prompted by a worrisome economic management and governance track record. The consequences were disastrous: Malawi was headed for almost complete political, economic and social meltdown.
The zero-aid budget has allocated decent sums to security institutions as well as the Anti-Corruption Bureau (ACB). The ACB has enjoyed a 167% increase in its vote, which might at least be indicative of the government’s commitment to get to the bottom of cashgate. This is, however, a huge paradox because the ACB’s Director has been redeployed to the Supreme Court and a replacement is yet to be made almost three months later, while it is well known that the successful prosecution of corruption cases is dependent on the ACB Director being in post.
This is not a good sign. We are very unlikely to see the government actively pursuing the cashgate scandal to its logical conclusion in order to get a clean bill of health to stimulate the resumption of budgetary support. There are strong perceptions that cashgate is the invention of the President’s party when it was in power under the leadership of his brother between 2005 and 2012.
Anecdotal evidence seems to support these perceptions. The late President Mutharika’s estate swelled from MK 150 million to MK 61 billion during this period. There is an audit query for that period that suggests that about MK 93 billion was not properly accounted for. More importantly, according to the Baker Tilly preliminary audit report about the cashgate scandal, the late President Mutharika’s government instituted reforms that created a favourable atmosphere for gross abuse of public financial resources.
These reforms, among others, included removing the ceiling on cheque amounts that government ministries and departments could present for encashment at commercial banks. A consortium of banks where government’s accounts are held were advised not to refer back any government cheque, even when there was no money: they simply had to be honoured.
Given this background, any unguarded prosecution of the cashgate scandal could potentially implicate some of the big shots in the current government. In this regard, the zero-aid budget is very much a strategic ploy to avoid donor accountability, rather than a commitment to graduate from excessive donor dependence after 50 years of independence, as it has been claimed in some circles.
In a much broader context, the experiences of the zero-deficit and zero-aid budgets raise a fundamental question about the underlying nature of the country’s political settlement. The critical issue in this regard relates to how individuals or parties get power and how they attempt to maintain once they get it.
In the absence of a viable private sector and regulatory framework for political finance, the state coffers become a primary target for those in power to play the political game that has invariably led to the entrenchment of corruption in the public sector and the primacy of patronage politics.
There is no doubt that Malawi needs to graduate from excessive donor dependence after 50 years of independence, but this cannot be achieved through knee-jerk experiments with bizarre, self-reliant budgetary frameworks minted to protect the political elite’s prerogative to dip into the public coffers as they please and largely for selfish ends.
 
Blessings Chinsinga is Associate Professor in the Department of Political and Administrative Studies at Chancellor College, University of Malawi, where he also serves as Deputy Director for the Centre for Social Research.
Watch Blessings discuss the Malawian political settlement and ESID’s research in the country: