Implementing the national austerity drive in Malawi
By Rhodrick Junaid Kalumpha
In her maiden State of the Nation Address on 18th May 2012 President Joyce Banda, stated that as a first priority, her government is going to “launch a national austerity drive” by cutting government expenditure through a number of on-going measures. This is a very interesting policy that needs to be analyzed thoroughly as it can unlock a great potential that has been lacking in the Malawi's economy since the dawn of multiparty democracy.
Under the austerity economic policy, the Government will aim at reducing the projected budget deficit of MK59.7billion which according to the president, was mainly financed through borrowing from the Reserve Bank of Malawi. However, austerity can also be achieved through increases in government revenues primarily via tax rises. Unfortunately, Malawians are already overtaxed, thus cutting back on government spending is the only option through which the austerity policy can be implemented.
By their nature of cutting government spending on public services and or increasing taxes, austerity measures are usually not popular with the general public. People loathe them the world over and they have been known to bring down elected governments.
[HINT! This is not democracy at work. And it has no record of economic success. The people don't want it and it doesn't work - why implement it? It is something much more sinister. - MrK]
Recent example is that of former President of France, Mr Nicolas Sarkozy who was voted out of office after only one term with austerity measures as one of the causes. Fortunately, with the abysmal state of our economy coupled with underperforming statutory corporations’ management living largesse, everyone would agree that we need to bring in the spanners to tighten our economic belts.
Another disparagement of austerity is that it asphyxiates the much needed economic growth. When the rating agency Standard & Poor’s (one of the three big credit rating agencies in the world) downgraded France and other Eurozone countries’ credit rating, it stated that "austerity alone risks becoming self-defeating, since domestic demand falls in line with consumers" rising concerns about job security and disposable incomes and eroding national tax revenues. Thus austerity can become counterproductive to the very objectives it is supposed to achieve. Under austerity, domestic demand usually declines as the public feel the pinch of the government spending cuts. The private sector is also usually not spared as business falters and confidence falls since Government is the single largest spender in an economy.
Unfortunately, with the sorry state of our economy, austerity measures are not inevitable.
[Ever consider that it was austerity that caused the present state of the economy, and of course retaliation against the government by the IMF/World Bank/Donors for not implementing austerity and, for instance, supporting farmers with a fertilizer subsidy, as well as extending a business loan to the Government of Zimbabwe, a country that supposedly is 'not under economic sanctions'? - MrK]
We must cut back on unnecessary government spending and trim the perks of executive management of our statutory corporations. The President stated that among other issues to be looked at will include the size of her convoy, overseas travel and the contentious issue of the presidential jet. She clearly stated that the Minister of Finance will announce more of these measures in detail when the budget is presented. Malawians will be waiting with bated breaths to see what else will receive the chop. Hopefully, the measures will include forbidding of construction of car parking lots at MK54million or swimming pools at MK40million by statutory corporations through dodgy contracts.
[That's not 'government spending', that is corruption. - MrK]
The measures should also forbid the practice of statutory corporations CEOs attendance at the Airport every time the president is travelling or coming back. Not only are we spending money on such useless protocols, we are also losing productivity as valuable management time is lost.
One former CEO of MIPA, once lamented that he never used to attend these airport pageantries so much so that it angered the ruling elites in the UDF regime. He was eventually sacked of course this being one of the many reasons. We wish Malawi had many CEOs of such caliber. In addition, hefty entertainment and personal allowances of statutory corporations’ management must be reduced.
There is no need to pay Executives allowances just for attending a meeting in a city where their office is not located. This is absurd to say the least since it is part of their jobs. Some corporations even buy food items for their top managers, pay their cooks, have allowances for dogs, their spouses are allocated company cars and kids are chauffer-driven to schools and parties. This is ridiculous and callous to millions of Malawians who struggle everyday just to get by.
Furthermore, our embassies need to be revamped to achieve efficiency. The practice of sending people willy-nilly to embassies just to stamp receipts as “PAID” as their job description while paying them hefty salaries must be scrapped. There is also massive duplication of roles in our embassies. For instance, the Tourism Attaché can equally handle the public relations portfolio, equally, the Trade attaché can handle investments, hence no need to send four individuals for these roles which need only two. It is also important to curb the excessive lodging allowances that the staffs are paid in such embassies. For instance, it is a sheer waste of public resources to pay circa USD5000 per month for accommodation and bills for a junior “diplomat” whose only job is to stamp receipts as “PAID”.
This must be curbed immediately. An alternative is for our embassies to employ local staffs who are far much more cost-effective than bringing someone from home just because they are politically connected or the Government want to get rid of them from the system due to some well known scandal. This calls for immediate audits of our embassies to flush out both individuals who don’t deserve to be there and also cut back on excessive expenditure.
Last but not least, the ferrying of school teachers, students and civil servants to Government functions must be forbidden. Why do we need to have teachers and civil servants at Government functions that are not related to their roles? One would understand if the function is related to the role of the civil servant or the teacher or the student. Even in that case, we don’t need the entire department or the whole schoolto be there, just the key officers would be enough. We lose both productivity and money with such unnecessary pageantries. Therefore, it is imperative that spending be targeted at boosting economic growth.
However, in our case, it is also question of how savings are made and the above are some of the ways that we could attain savings. The list is too long to exhaust here. As Olli Rehn, the European Union’s commissioner for economic and monetary affairs once asserted, fiscal consolidation, while necessary, must be done in a growth-friendly and differentiated way, in order to strike a balance between necessary fiscal consolidation and concerns for growth.
Fortunately in Malawi’s case, most of our excesses will not affect growth in any way, thus we can cut back as much as we can and perhaps reduce the budget deficit by almost half in the next 18 months. The time to do this is now and we must not procrastinate as our economy is bleeding heavily. Austerity must be the part of the concoction with only core services such as health, education, defense and agriculture ring-fenced from such measures.