Sunday, November 4, 2007

NATIONAL BUDGETS AND THEIR USES: A CASE OF MALAWI

Raj (1965) in his article, National Budgets and their Uses, argues that national budgets decision making process tries to “get solution that is economically satisfactory as well as politically acceptable”. This essay analyses this argument by critically reviewing Malawi’s economy trends during the Malawi Congress Party (MCP) era of Kamuzu Banda and United Democratic Front (UDF) era of Bakili Muluzi. The essay is divided into five parts. It will begin by giving a theoretical general overview of the concept of national budget. Thereafter, in the second section, the essay will provide Malawi’s economic history before independence which continued to shape the economic decisions that were made during MCP’s era. With this background, the third section looks at MCP’s era before doing the same with UDF’s era in the fourth part to see aspects that guided the national budget decisions. Lastly, the essay provides some concluding remarks which will validate Raj’s argument.

Before exploring Raj’s argument further, this section provides a theoretical overview of the concept, national budget. National budget is simply a statement of the income that is likely to be available to a country over a year (Raj, 1962). The sources from a national budget are expected to accrue the likely magnitude and composition of the total expenditure over time. It differs with any other budget as it relates to the entire country and not just to a constituent part of it (ibid). Raj (1965) also states that national budget “covers the income and expenditure of all the income receiving and spending units in a country. The national budget takes an overall view of the economic activity of a country and more particularly to determine whether there is a balance between the resources available for its use in a given year and the demand for them (ibid). National budgets help in detecting the possibility of imbalances developing in the economy and in working out ways of correcting them. National budget deficits lead to inflation and high interest rates among others (see Ndovi, 2000; Raj, 1965).

There are so many purposes of national budgets, but this essay just outlines the many ones. National budgets takes an overall view of the economic activity of a country (Raj, 1965). More particularly, it helps to determine whether there is a balance between the resources available for its use in a given year and the demand for them. National budgets also help to detect the possibility of imbalances developing in the national economy like inflationary pressures and unemployment, as well as working out ways of correcting them (ibid. see also Ndovi, 2000).

Additionally, Raj (1965) also outlines some implications in adopting national budgets. Firstly, he asserts that it should be possible for national budgets to estimate quantitatively, the main constituents of demand and supply of resources in the economy concerned. Furthermore, it has to have a certain statistical foundation i.e. data on expenditure and consumption requirements should ably be available. All in all, demand and supply provide theoretical basis of national budgeting. They guide use of resources allocated in the national budget without creating imbalances (see Raj, 1965). But above all, for budgets to be adopted by policy makers, it should address some political interests as well. This is because policy makers are politicians from different political backgrounds who would want their thematic areas addressed.

To have a thorough and analytical knowledge of the two eras, it is worthy to have a brief economic history of the country before attainment of independence. This is because any attempt to fully understand the current economic problems in Malawi, has to be situated within the overall history of the country’s economy not only from independence but also from colonial era. This will also assist with the realization that the potential economic avenues can be achieved if the economy is placed in the proper historical concepts (Harrigan, 2001).

Before independence, this section looks at the economy of Malawi through two stages, pre-colonial and colonial era. On the first hand, during colonial period, people focused much on pastoralism, hunting and gathering as well as exchange and slave trades (Tindall, 1967; Mulwafu, 2004). This era is characterized with trade in human beings (slave trade) as well as some other materials like jewels and agricultural products which were traded on domestic markets (see Mulwafu, 2004). In the late 1890s, Malawi, then Nyasaland, was declared the British Protectorate by the white Scottish settlers in fear of the Portuguese (ibid).

Declaration of Nyasaland as a British Protectorate marked the beginning of the colonial era. The establishment of colonial rule, as Mulwafu (2004) critically observes, “transformed an important element in the economy of Malawi”. A mark economy emerged from what was predominantly a subsistence economy. The colonial Commissioner, Sir Harry Johnson, decided that Nyasaland’s economic future laid in the hands of Europeans which could be achieved through agriculture. The future of the territory rested in the development of agriculture through the white settlers (Vail, 1984; Mulwafu, 2004). African participation was limited to the production of food crops and the sale of their labor to the European owned plantations. However, even though the peasant agriculture constituted a vital sector of colonial economy, it received little official encouragement. Only European farmers were favored in such that policies were put in place to support the European settlers (Vail, 1984; Mulwafu, 2004). They acquired large tracks of land and introduced hut tax on people who found themselves in the white settler’s lands (ibid). Those who were unable to pay the hut tax, offered labor in the form of thangata.

Several developments took place during the colonial era. These include among other things, creation of the estate sector, migration labor sector and development of peasant sector (Mulwafu, 2004). The economic structure during the colonial era were thus divided into three sectors. The first is estate/plantation sector which grew tea, coffee and tobacco among other cash crops. The second was African peasant sector which involved in production of maize, tobacco and ground nuts. This was growing in the lower Shire and was highly oppressed by the colonialists (Mulwafu, 2004). The last sector is the migration of labor. Labor migration developed in such that people emigrated to South Africa and other neighboring countries to seek employment. Recruitment to RSA remained an important economic aspects of Malawi (Mulwafu, 2004; Vail, 1984). Emigration, was in fact, a sort of brain drain of that time . Like any sort of brain drain, labor emigration resulted into labor crisis in the agricultural sector which led into agricultural crisis (Mulwafu, 2004). Labor crisis was, however, rescued by the Lomwe refugee immigrants from Mozambique in the 1900 (ibid). The Lomwe sustained the agricultural sector because they provided reliable and very cheap labor force in the form of thengata . From above, it can be inferred that the economic structure during the colonial era was divided into three categories. Agriculture remained the single most economic structure while no industrialization had taken place (Mulwafu, 2004). In summary, the colonial era developed three economic sectors; estate/plantation sector, labor migration and peasant sector. At the close of the colonial period, Malawian economy was still characterized by these three sector.

Since the above sectors seemed to remain the greatest economic sectors, when Dr. H. K. Banda’s government came into power, the sectors were adopted with some improvements. As a result, Malawi’s economy after independence, continued to be characterized by structural continuities from the colonial era (Vail, 1984; Mulwafu, 2004; Chirwa, 1996). But during the periods of transition from 1955 to 1964, just as Banda et al (1998) rightfully observe, high expectations were raised among the local masses for improvement of their living standards and peasant sector was highly encouraged. This was because the colonial era focused much on the whites planters on whom the economy seemed to rest (see Mulwafu, 2004).

Banda’s era of economic performance is usually divided into two periods. The period before 1979, and that after 1980. In the first period, with its new independence in 1964, the Banda regime initiated a set of new policies in pursuit of economic growth. The frame work which reflected Banda’s objectives can be categorized into five parts: vigorous pursuit of economic development, prioritization of agriculture, maintenance of a reliable exchange rate, suppression of trade unions and promotion of foreign as well as domestic investment; and delayed Africanization in the civil service (Roberts, 1970; Vail, 1984; Mulwafu, 2004; Kishindo, 1997). With these thematic areas of focus, Kishindo (1997) states that Government of Malawi (GoM) had sought to achieve rapid socio-economic development to justify political struggle. As a result, soon after coming into power, the government produced its first five year plan (1964-69). The plan set out four development foci area which are expansion of agriculture provision of internal communication, great expansion of facilities and stimulation of private sector of the economy by encouraging industrial development.

Almost all accounts of the country’s economy, as asserted earlier on in the essay, acknowledge the fact that Banda’s era can be divided into two phase. This section analyses the two periods of the economic state in Malawi from independence to Muluzi era. The first period of Banda (1964-1979) is identified as the phase of prosperity (Chinsinga, 2007; Harrigan, 2001; Chipeta, 1992; Mhone, 1992; Vail, 1984; Kalemba, 1997). All the country’s economic sectors registered significant growth rate and enjoyed relatively favorable balance of payment positions (Chinsinga, 2002). Savings as proportion of GDP rose from 0.3 % in 1964 to 19.7% in 1979 while industrial output expanded at the rate of 10% per annum. Economically, the country achieved a 7% annual growth rate (see Kishindo, 2002; Vail, 1984). Scholars observe that this impressive growth was achieved because of good agricultural performance in such that agriculture was prioritized. Decisions were made that the budgets allocated a good number of resources to the sector. The economy was predominantly agro-based with high priority placed on development of the sector (Harrigan, 2001). Chinsinga (2002) also adds that in this era there were a number of agrarian policies emerging and that policies in related economic spheres were deliberately designed to serve the agro-sector. National Budgets were thus adopted based on their priority to serve this sector in all aspects. It is in fact, not surprising that the two ten-year Statements of Development Policies clearly emphasized agriculture as a potential source of revenue that would eventually lead to financial autonomy in other sectors (Harrigan, 2001). From this explanation, national budgets were satisfactory because they address the political decisions to prioritize the agricultural sector.

The second period of Dr Banda run from 1980 to 1993. During this period, almost every sector experienced tremendous decline hence the macro-economic trends began falling apart quite sharply from 1980 (Chinsinga, 2002; Chipeta, 2004; Harrigan, 2001; Chipeta, 1992; Chinsinga, 2007). Growth rate in this period ultimately became negative from GDP of 0.4 % in 1980 to an average of about –5..2% in 1981(ibid). This was partial because the policies formulated like the national budgets were made to address a mono-culture of economy which is agriculture (ibid). During the same period, Banda’s government made a deadly decision which still affects the economy of the country up to this time. In a bid to the lost economic glory, Malawi since 1981, adopted the Structural Adjustment Programs by the World Bank and the IMF (Chinsinga, 2002). This follows that national budgets were changed to prioritize the thematic areas in SAPs. The SAPs, according to several reviews have led to heavy economical and social burdens to this era (see Tsoka, 2004; Chinsinga, 2002; Harrigan, 2001).

All in all, politics played a very important role in the economic outcome of Banda’s government. Since Banda was authoritarian, economic decisions like adoption of the national budgets were to agree to Banda’s decision. He even said it that he was responsible for every decision made in the country [whether economic or not] (see Lwanda, 1993). As a result national budgets were developed to address economic problems that were in line with his political ideologies and choices. This is what guided adoption of national budgets. Anything that opposed his decisions was not to be adopted . Economic decisions were politically centralized. Economic decisions made were thus meant to be politically impressive. This follows that when the political decisions were impressive, the national budgeting allocation yielded effective results. From this, Lwanda (1993) rightfully affirms that Banda followed what is called individualism.

Banda’s one party era ended in 1994, when Malawians voted for multiparty democracy during the 1993 referendum. In 1994, Malawi voted a democratic government of Bakili Muluzi. After the ousting of Banda’s one party regime, there has been a remarkable structural shift from Agriculture to commerce as the desired hub of economic growth and development (Chinsinga, 2002). The country’s economic policy stimulated entrepreneurship. However, this decision was hit by privatization policy under the SAPs which was adopted by Banda in the 1980s. It can rightly be argued therefore that Muluzi’s economic problems were some inherited at democratization in 1994. These continued to shape the nature and direction of the country’s economy. Malawi’s economic performance was thus a product of political history.

Furthermore, during the Muluzi era, the operative development philosophy of Muluzi’s administration since was the Poverty Alleviation Program. Its underlying vision was every Malawian should have access to basic necessities in order to develop and exploit their potential to lead a productive dignified and creative life through social, economic and political empowerment (Tsoka, 2004). The political decisions resulted into a dramatic increase in the allocation of resources towards the social sectors in the fiscal year 1994/95. However, with the decision to adopt the SAPs subsidies were removed. This resulted into the increment of agricultural inputs to rise, hence less production. The national budgets, when adopted ,made sure it was reducing the allocation to social and subsidy programs (see Nthara, 2003). This, plus other forms of SAPs adopted during the one party era and continued implemented in the Banda era, resulted into poor economic performance (ibid; see also Hajat, 2007). However, Muluzi’s era, when adopting the budget, there were heavily in favor of the ruling UDF party. There are also cases where Muluzi was criticized of buying opposition MPs to make national budgets politically satisfactory.

Harrigan (2001) observe that Muluzi’s government clearly distinguished itself from the previous regime by placing poverty reduction at the center of policy formulation. However, in the era, the country had a struggle to isolate the budget from political pressures (ibid). Muluzi’s political choices of membership to strategies were heavily in favor of the ruling UDF party. The dominance dictated the directional of the proceedings and content of the national budget (ibid). this follows that, like in the Banda’s era before it, the political agenda was not ruled out in national budgets. Budgets were supposed to address some aspects of political interests apart from the usual economic interests that budget aim to address.

In all the eras, there was great attachment of between politics and budgeting on the one hand and performance on the other. as from this essay, it is imperative to argue that Raj’s argument that national budget tries to get a decision that is both politically and economically satisfactory. Chinsinga (2007) rightly asserts that policy making [like budgets] depends very much on the rules, norms and procedures of the country’s particular political system. There was no separation in all the eras between decisions for the parties and those for economy of the nation. When policy makers adopt budgets, it means they have reached a consensus that the budgets are politically satisfactory apart from the economic aspects the budgets intend to address. Just like parliamentary democratic nations, debates on budgets in parliament intend to make sure that, apart from the economic aspects to be addressed, some politically interests are also addressed (Raj, 1965).

In conclusion, this essay has tried to analyze Raj’s argument that national budgets need to be both economically and satisfactory. The essay has taken a stand that this argument is valid, based on some cases given in the essay. It has shown that since Banda’s era was authoritarian, all economic decisions including national budgets were supposed to agree to his ideas. Thus, national budgets were adopted by the MCP MPs following this trend. During Muluzi’s era, the essay also indicates that debates that were done in parliament were to make sure that economical and political aspects were balanced up.
























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1 comment:

Wanthaza Mduduzi said...

Where is the second part?