US embassy cable - 05LILONGWE606

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, Agriculture 
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