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| Business |
| Elections are a debt trap, analysts say |
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by
Ayam Maeresa, 27 August 2003
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17:23:27
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Economic analysts have said the tripartite general elections early next year are a debt trap that will blow out Finance Minister Friday Jumbe’s plans to cut spending.
Jumbe said on Tuesday government has chopped quarterly funding to 20 percent from 25 until the last two quarters of this financial year to use the money to pay for maturing domestic debts.
The minister also said there will be a tight squeeze on travelling allowances. Domestic debt, blamed for fuelling high interest rates soaring at above 45 percent, stands at about K45 billion.
But economic analysts, who say the debt will double with the pressures of elections, received the news with a pinch of salt, wondering how the minister intends to fight the high tide—in the absence of donor aid for budgetary support—posed by tripartite general elections in May next year.
“This is a good move on the part of the minister but he will face a lot of pressure from some accounts,” said Perks Ligoya, publicity secretary for Economics Association of Malawi (Ecama).
Ligoya said as long as the cutting knife is selective as has been the case in the past three years, the plan will not make any difference. Most importantly, he said, the minister should put his foot down and “spare no sacred cows”.
He said just like everywhere else in the world, election times tends to burst the budget and Malawi will not be an exceptional case. About K1.54 billion was put aside to fund elections in the budget.
Jumbe said ministries will get full funding when government gets back into the Poverty Reduction Growth Facility (PRGF) programme with the International Monetary Fund (IMF) later this year but Ligoya said that was not going to happen.
The fund suspended the programme two years ago after government failed to control its huge appetite for spending on non priority areas and dragged feet on key corruption issues.
“As of now I don’t think anybody should be optimistic of getting aid because the conditions are bad. So let’s not start planning on aid that might not come,” he said.
Economist Ostern Chulu said it is not possible for government to stop borrowing locally if the funds it borrows are used for financing its daily operations. He said borrowing is not bad, especially if it is for a public good.
Said Chulu: “All governments do borrow but what matters is the expenditure type.”
But Reserve Bank of Malawi (RBM) governor Elias Ngalande said in Limbe on Wednesday the IMF has assured the country of a programme in the next two months after a meeting by the fund’s board next month.
He said the country expects to get about $17 million as the first aid tranche that, he said, will go into foreign exchange reserves and also towards financing domestic debt.
“Even without a programme, there are some donors interested in elections and good governance who will always help fund such activities,” he said.
Ngalande said he has all the hope Jumbe’s pledge to reduce domestic borrowing will materialise because that will help bring down interest rates.
Another economist, who declined to be named, said government was trying to panel beat its image with the donors, who feel the domestic debt is getting out of hand.
“They have to be seen to be doing something but it will be tough,” he said.
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