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