Open Society Initiative for Southern Africa (Johannesburg)
Theresa Kaswala
28 November 2011
analysis
For the first time since independence, Malawi has implemented something called a Zero Deficit Budget (ZDB). In a nutshell, ZDB means that instead of receiving the usual 40 percent of its annual budget from donors, government would cover this amount by sourcing funds from elsewhere – namely through the introduction of exorbitant taxes on products. But given the severe economic challenges that Malawi is facing, it does not require an economist to conclude that ZDB has definitely failed to deliver any kind of benefit and has instead further impoverished Malawians.
Some of the fears that were raised when the idea was first mooted have now been vindicated as most of the assumptions that underpinned the ZDB are not materialising.
The introduction of an exorbitant tax on a variety of products, including basic goods like flour and meat, has hiked the price of many commodities dramatically, further squeezing the limited buying power of most tax payers, who already see a substantial portion of their meagre salaries deducted through the ‘Pay As You Earn’ tax every month.
The situation has not been helped by other factors, such as the acute shortages of forex due to lack of donor support and low tobacco earnings, which has had a multiplier effect since manufacturers are unable to import raw materials, and chronic shortages of fuel, leading to dwindling economic activities and higher transportation costs.
And what makes it worse is that most of Malawi’s economic woes are man-made as opposed to being driven by regional or global market forces because they directly or indirectly stem from the arrogance of the executive and the bad decisions taken by the ruling party leadership.
For example, in relation to tobacco, the Malawi government decided to deport bosses of tobacco-buying companies and in retaliation, the tobacco bosses have been buying the leaf at miserably low prices, forcing farmers to try and sell their tobacco across the border.
Whether it is all a direct result of the deportation fiasco, official figures from the Tobacco Control Commission indicate that Malawi’s tobacco earnings, which provide 60 percent of the country’s export revenue, have slumped by a catastrophic amount – plunging from US$356 million last year to just US$158 million this year.
Another aspect of the man-made economic mess has been the sour diplomatic relations with donor countries. President Bingu wa Mutharika kicked out the British High Commissioner after the leak of a diplomatic cable in which the UK envoy described Malawi’s leader as intolerant of criticism.
Needless to say, this dealt a severe blow to relations between the two countries – relations that will take a long time to mend even though wa Mutharika has since rescinded his expulsion order.
But other major donors such as Germany and the United States have also been disappointed by the government’s increasingly anti-democratic activities and blatant abuse of human rights, particularly the attacks on opposition figures and civil society activists, which culminated in the shooting of 20 innocent civilians during the July 20 anti-government demonstrations.
The massive Millennium Challenge Corporation assistance programme from the US is currently on hold because of this worrying trend, while other governments are considering their options. Germany, in particular, was very disappointed with failure to conduct local government polls this year and to postpone them (by presidential decree) until 2014 – a decision that undermines democracy and hampers local development and accountability.
The World Bank has also said that it is concerned by the overt threats to press freedom and what it terms the ‘shrinking political space’, which is a reference to the intolerance of the current leadership and the increasingly brutal way that the authorities are cracking down on dissenting voices.
I guess some people will look at this and say – well the government was right to push for ZDB before the donors pulled the 40 percent rug out from under Malawi’s feet.
And others will say that it is good for Malawi – in the long run at least – to end its aid dependency. But the fact is that the ZDB has delivered nothing but pain, nothing but greater poverty for ordinary Malawians.
The exorbitant tax increase on many goods coupled with higher transport costs means that Malawians have even less money in their pockets. Even civil servants are now struggling to afford their basic needs. While private companies are being forced to retrench employees because of the impact of the lack of forex and fuel.
Which leaves the question on so many people’s lips – will the government stick to ZDB or will it realise the pain it is causing and seek additional donor support, which will almost certainly come with good governance strings attached?
AllAfrica – All the Time
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