Ntata: Economic reforms to transform Malawi

Any close and honest analysis of the late president Bingu waMutharika’s vision for Malawi comes to one evident conclusion. BinguwaMutharika’s major preoccupation for Malawi was food security. This was to be achieved through the Farm Input Subsidy Program (FISP) and the Green Belt initiative.

Of course his ancillary ambition was to improve the country’s competitiveness in international trade through the Shire-Zambezi Waterway, and to some extent, stimulate small to medium scale project based lending by establishing a development bank. His fondest dream, that of food security was attained and sustained for a few years. The other aspects of his vision, however, never saw the light of day.

When Bingu wa Mutharika died in 2012, his popularity was at its lowest point. Bingu left a leadership legacy that has attracted all the negative adjectives one can give a leader: intolerant, autocratic, arrogant, and corrupt, to mention a few. Despite this, I still consider the Late President BinguWaMutharika to be a visionary, and the most decisive President of our democratic dispensation. Bingu had a clear economic agenda and constantly thought about ways of attaining it. Sometimes the method let him down, but that is inevitable even to geniuses.

If one were asked about President Joyce Banda’s vision, it would still largely include food security as pursued by Bingu – FISP – and a new addition of free and decent housing for the underprivileged-something not too surprising coming from a president who considers herself a serious philanthropist. On the economic front, Joyce Banda did not pretend to know too much so she quickly consulted economic experts that were opposed to Bingu’s policies. When she understood what needed to be done, she just reversed Bingu’s decisions and implemented the ones that he did not want to implement.

Some of Banda’s most important decisions were the initial large devaluation of the Kwacha and the leverage given to allow it to respond to market forces more freely, and the implementation of automaticity of fuel pricing which allows for an upward or downward adjustment of the In Bond Landed Cost (IBLC) as dictated by either international price changes or by exchange rate fluctuations, or both with five percent as a trigger band in both directions. These decisions were important in normalizing fuel supplies to the country and correcting a weak external positionby allowing a more rapid accumulation of international reserves.

Joyce Banda was voted out of office in the heavily disputed May 2014 elections and I will not offer any debate on that issue here because that’s not the focus of this article.

With just an addition of community technical colleges, President Peter Mutharika’s vision is not difficult to decode. The young Mutharika’s idea for Malawi simply inherits his brother’s FISP vision and merely replaces Joyce Banda’s Mudzi Transformation Trust with what he has called the“decent and affordable housing project” under the Ministry of Lands. The idea is that the change of name will create the illusion of difference. I am sure we all know, however, that they have the same objectives and the same delivery mode.

THE PROBLEM

Judging from Malawi’s currenteconomic situation, it is inevitable to conclude that Peter Mutharika has taken Malawi to lower economic depths than it has ever been, and must takes the first spot inasfar as killing the country’s hopes of economic revival are concerned. Like all others before him, Mutharika puts the blame on his predecessor for leaving empty coffers and causing the suspension of budget support by Malawi’s cooperating partners. The only trump card he has, it seems, is to order arrests, at times politically motivated, of presumed big fish in cashgate with the hope that donors would return with budget support. As we all know, that particular strategy has not exactly worked because Mutharika is yet to tackle the dazzling K577 billion casghate under the watch of his late brother, a government he was part and parcel of.

Many commentators, such as the Civil Society, Oppositions leaders and leading private sector playershave already noticed that Mutharika is struggling to lead the nation, describing his leadership as clueless in as far as plans to jump-start the economy are concerned.

Nevertheless, as I listen to what the opposition parties and other critics have to offer, it is impossible to figure out what alternative plan they have for the country. The reason is simple. They do not have one. It is easy to criticize; but to suggest a way forward and to advance alternative proposals takes a different kind of criticism.

Listening to much of the rhetoric, I have come to the conclusionthat if most of the so-called critics were to get into government now, their priority would be to pursue the K577 billion cashgate that happened under DPP rule and arrest those they merely believe should be connected to the looting. Their only reasoning seems to be that once we show the western world that we are pursuing corrupt elements in past regimes, economic aid and budget support will return and the Malawian economy will suddenly get back on track. My fellow Malawians, if you hear any leader, or would be leader sound like that just know that they are themselves as clueless as Peter Mutharika.

When you listen to these self-made economic experts and commentators, the very people who are supposed to have the right ideas, the level of cluelessness actually becomes more frightening. Almost all of them know the long list of the economic problems the country is facing and they are happy to rewrite the same list every day. When it comes to providing alternative remedy, you hear statements like “the country needs a long term vision”, and “Capital Hill needs to come up with a stimulus package”, There are others that even say that “perhaps the country needs to embark on quantitative easing.”

THE SOLUTIONS IN A NUTSHELL

TheREFORM TO TRANSFORM MOVEMENTthat we are rolling out in the country has identified public sector solvency as the main problem that government needs to address in its budget. In pursuit of that objective, key considerations should be whether the budget is able to create the necessary fiscal space without further compromising macroeconomic stability.

Since fiscal space is the gap between the current level of projected expenditure and the maximum level of expenditures that we can undertake without impairing solvency, any budget allocation decision should factor both balance sheet solvency considerations and fiscal deficit with their short-term impact on aggregate demand. Given that we are in a cyclical downturn, we must identify and undertake high return-hence solvency enhancing expenditure. I will demystify this highly technical jargon very soon.

Given our past record of public financial management and policy credibility amidst a highly credit constrained government, skepticism is abound on Malawi’s ability to create fiscal space. That is normal. However, we need to assess the available options. In order of priority, our assessment indicates that they include

(1)identifying areas of rationalization and generation of fiscal savings through improved expenditure efficiency and elimination of wastage,

(2) raising revenues from both tax and non-tax sources through base broadening and tax administration measures and design of appropriate incentive-compatible schemes, and

(3) assessing the sustainability of our debt to consider whether we are severely credit constrained or not.

When people are getting angry over a bloated delegation to New York, for instance, it is because we have just missed a chance of realizing fiscal savings that can be put to more productive use. Given the estimated tax effort level, there would be uncertainty as to whether there can be any significant improvements in tax revenue collections.

Our considered view is that with a proper incentive-compatible framework, tax revenues can be enhanced and with vigilant checks and balances, more non-tax revenue can find its way into the public purse. We thus challenge that it is possible through these options to release at least five percent of our GDP into the fiscal space.

In calibrating fiscal targets, we must remember that a fiscal deficit is not necessarily a bad thing provided that it does not create additional new debt without corresponding solvency enhancing targeted spending and therefore placing a further burden on our debt service obligations.

In relation to GDP, the government wage bill poses serious sustainability challenges going forward and will ultimately have a negative impact on any solvency corrective measures that we will undertake if not addressed decisively. There are no short cuts and almost every option we choose will have a social cost. Though painful, however,these are difficult decisions that are absolutely necessary and must be taken boldly. To put it bluntly, there will be need to downsize in the medium term and these efforts must begin in earnest.

mproving public sector solvency will involve huge sacrifices that will have to be made by everybody. If we still expect excellent health services without paying some modest user fees to at least defray costs at the margin, then we are living in dreamland. If we expect world-class education services and standards without some minimum cost to beneficiaries, then we should forget about any possible turnaround for the country’s economy.

Even our infrastructure development projects must first be thoroughly scrutinized instead of being pushed on the basis of political expediency. Right now we have to ask ourselves difficult questions as to whether building houses for the under-privileged is something we can afford now and whether that expenditure enhances solvency immediately. We have to ask whether we can continue with FISP at current subsidized levels or raise the level of contribution by beneficiaries to somewhere around fifty percent and use the savings on targeted high return expenditures that will further enhance public sector solvency. We have to ask ourselves honestly whether community colleges are a development priority.

CONCLUSION

During the mid-year budget review session of Parliament, if Finance Minister GoodallGondwe does not tell us that he is trying to create fiscal space and the means of doing so, just know that cluelessness has become a self-fulfilling prophesy and that the country is indeed doomed. If Gondwe does not tell us exactly how much fiscal space he will create and the priority areas of spending, government mediocrity would have been epitomized. If he cannot create fiscal space of at least ten percent of GDP, then we are available to offer our expertise and assistance.

Fellow Malawians, as a people, we need to think outside the box and REFORM TO TRANSFORM. If we must appreciate and sing praises for begging leaders, and our hearts cannot aspire for much more than the life of a beggar nation, then we must ask ourselves why we fought for independence at all.With the REFORM TO TRANSFORM initiative, we’re talking about an idea that changes the way we think, including how we all think that begging and running a country on foreign aid deserves applause and appreciation. We do not subscribe to that kind of slave mentality, and the Spirit of REFORM TO TRANSFORM aims to make Malawi self reliant, not jumping up and down because our Presidents know how to beg.

Follow and Subscribe Nyasa TV :

Sharing is caring!