PROBLEMS OF CASH BUDGETING AND MOVING TOWARDS TRANSPARENT CASH ALLOCATION

BACKGROUND –Liberalization of the economy –High fiscal deficit largely financed by domestic borrowing –High inflation, interest rate and unstable exchange rate –Ministries' operating accounts managed by the Central Bank –Use of Local Purchase Order by Ministries –High dependency on donor resources

Background Cont.. –Low disbursement rate by cooperating partners –Public finances governed by the finance and audit act (1969)

Perceived solutions Introduction of MTEF –Purpose of the MTEF Aggregate fiscal discipline Resources allocated to strategic priorities Value for money in service delivery

Expectations from MTEF: –Limit budget deficit to manageable levels –Introduction of cash budget –Prioritisation of activities –Transferring of operating accounts from Central Bank to Commercial Banks –Enhanced the budget approval process by involving cabinet ministers and other stakeholders

Reforms to support MTEF Discontinuation of the use of LPO Closure of deposit accounts Introduction of Credit Ceiling Authority and Commitment Control System Formation of a cash allocation committee Conduct pre-budget consultations Improved budget classification Introduction of appropriation in Aid

Budget performance with MTEF Positive attributes: –Reduced number of accounts and ease reconciliation –Reduced government borrowing –Increased comprehensiveness of the budget –Improved prioritisation of activities within ministries Negative attributes –Huge expenditure overruns due extra budgetary activities –Increased borrowing due to low disbursement from donors –Increased activities implemented outside the budget due to budgetary ceilings

Further reforms Review of the legal framework creation of Malawi Revenue Authority Appointment of chief financial analyst Introduction of IFMIS Introduction of the automated cash management system Review of the first phase of MTEF

MTEF II characteristics Political Effective management of MTEF II Predictability of funding Consistent and affordable policies Comprehensiveness Accountability