PARLIAMENT PASSES BUDGET; INCREASES FERTILIZER

UNCLAS LILONGWE 000606 SIPDIS STATE FOR AF/S STATE FOR BRUCE NEULING STATE FOR EB/IFD/OMA FRANCES CHISHOLM STATE FOR EB/IFD/ODF LINDA SPECHT STATE FOR ACOTA TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA/BEN CUSHMAN TREASURY FOR OTA/BOB WARFIELD JOHANNESBURG FOR FCS MCC FOR KEVIN SABA E.O. 12958: N/A TAGS: EAID ECON EFIN PGOV MI BUD FIN SUBJECT: PARLIAMENT PASSES BUDGET; INCREASES FERTILIZER SUBSIDY REF: A. REF: A. LILONGWE 00508 ¶B. B. LILONGWE 00540 ¶C. C. LILONGWE 00555 ¶D. D. LILONGWE 00577 ¶1. Parliament passed the 2005/06 budget on July 15th, after amending it to include a larger and universal fertilizer subsidy. Government met opposition demands by increasing the fertilizer subsidy by 2.6 billion Kwatcha ($21.4 million US). They did so by cutting a number of ministry budgets, while increasing the overall budget by 677 million Kwatcha ($5.5 million US),or 0.57 percent. This will increase debt as a percent of GDP from just under 1 percent to 1.2 percent. ¶2. The increase in the overall budget pushes the debt over the 1 percent mark called for by the IMF. However, without a working majority in Parliament, this was a compromise that government was forced to make. ¶3. One casualty of the budget compromise seems to be local elections, which had already been pushed back almost a year to May 2006. To make room for the increased fertilizer subsidy the Electoral Commission's budget was cut by just over 900 million Kwatcha ($7.5 million US). Government says local elections will be pushed back till July of 06, if funding is approved in next year's budget. Even if funding is approved next year, July seems to be very optimistic and would give at best one month lead time. This means city managers and regional civil servants will run local affairs for at least another year. ¶4. Comment: Post does not expect the increase in the budget to seriously affect a new IMF agreement, which will hopefully be concluded by early August. The IMF agreement is crucial to Malawi's future development, and will put the country on track for joining HIPC and receiving debt relief hopefully sometime next year. ¶5. For all purposes, this seems to be a different Parliament than the one that had been bogged down with infighting before the Speaker's death (Reftel Lilongwe 00555). Previously unruly MPs are now relatively quiet, and are showing signs that they are willing to work together. Some of this could be contributed to the government's willingness to compromise on the fertilizer subsidy. However the death of the Speaker seems to have brought focus, if only temporarily, to the House. End Comment. LEWELLEN