Legislative Oversight of Public Debt (MW0009)

Brief Description of the Commitment

The commitment will create the much-sought opportunity for Parliamentarians to effectively address the problem of opaque public debt by enabling transparent meaningful scrutiny of loan Authorization Bills through committee public hearings. This is important because additional public debt should only be agreed with clear, transparent and measurable policy objectives that align with Malawi’s Vision 2063.

Problem Definition

1. What problem does the commitment aim to address? The commitment seeks to address the problem of opaque public debt i.e. non-transparent lending and borrowing that is done in such ways that the funds are not track-able and neither governments nor lenders can be held accountable for their financial decisions. International loans, authorized by Parliament have so far been opaque debt in the sense that Loan authorization Bills have always been treated as emergencies. The bills appear without adequate notice to MPs, pertinent details of the loans are not disclosed, the Budget and Finance committee is by-passed, debt sustainability is hardly debated, and the bills are enacted without scrutiny. Opaque debt has been the norm for decades and has affected Malawians in many ways including fueling corruption, shrinking future fiscal space and undermining the integrity of Parliament. However, there are serious public concerns with sub-optimal utilization of the loans and the erosion of fiscal space through debt servicing and repayments.

2. What are the causes of the problem? The root cause of the phenomenon of opaque debt, especially with respect to foreign loans, are the attitudes of the political executive which hold that loans are procured for developmental projects and that no parliamentarian in their sane mind would reject a loan authorization bill. Consequently, the parliamentary procedure is truncated and mostly rubber-stamps loan contracting proposals from the executive. This practice has come to be known as ‘the tradition’ and is used to quickly curtail debate on money bills which forestalls the necessary amount of transparency on Government’s international borrowing. On the other side, despite the availability of an enabling legal and legislative framework for Parliament’s scrutiny, Parliament has lacked the stamina to operationalize its mandate on scrutiny of loan bills and contribute to sustainable public debt management. The Executive dominates and subdues the National Assembly. The Bills are circulated without adequate information to the MPs especially on the conditions of the loan and the project to be implemented. There is asymmetric information between the loan negotiators (Ministry of Finance) and loan authorizers (Parliamentarians) as the latter only have the bill at their disposal with scanty information in the memorandum section to the Bill and in about six standard clauses that make the money bill.

Commitment Description

1. What has been done so far to solve the problem?

a. Since 2020, the Speaker of Parliament has required that all Bills, including loan authorization bills, should adhere to the 28 day rule on notice and that the standing order that allows to waive this rule should be used only with the agreement of leaders of other political parties in Parliament. The Speaker has also insisted on at least 7 day notice after publication of the money bill before it is introduced in the National Assembly. However, this has not been sufficiently effective. At best loan bills have been published for two days before being introduced in the Assembly and they are debated and passed in the shortest possible time;
b. Parliamentarians have raised the need for the Minister of Finance to share helpful information about the loans being sought but this too has not been accomplished except for the Minister to say a few things about the loan when introducing the Loan Authorization bill for debate and approval of Parliament.

2. What solution are you proposing? The proposed solution of mandatory referral of money bills to the Budget and Finance means that once a money (loan authorization) bill is published, the bill, like any others will stand referred to the Budget and Finance Committee. The Committee will scrutinize the loan in question and prepare a report for the National Assembly. The Committee will be furnished with supplementary information, for example, justification of proposed bills (alignment with policy goals), status of existing loans, information about the lender Committee scrutiny entails that the committee will deploy the powers given to it under the Public Finance Management Act (PFMA)19 and Standing Orders to call exercise oversight on government borrowing. Section 22(1) of the PFM provides as follows:

22.-(1) For purposes of exercising any responsibility under this Act, the Budget Committee --- a) May inquire into any Government financial matter. b) Shall have full access to Government records relating to revenue, expenditure and any other public resources which are relevant to an inquiry. c) May, by notice in writing, require any person having possession or control of any Government records relating to revenue, expenditure and other public resources, to deliver to the committee all or any record specified in the notice. In the absence of a mandatory referral of the money bills to the Budget and Finance Committee, the tradition of by-passing the committee on loan authorization bills will continue and the powers of oversight given to the committee will lie unused. The work of the committee is open to the public and maybe broadcast live. This process will increase transparency in government borrowing, generate public insights on debt management and sustainability and ascertain the absolute necessity for contracting any given loan. It will also publicize the loan and the corresponding project so that civil society actors and beneficiary communities can engage in social accountability initiatives to ensure optimal utilization of the resources borrowed through the loans in question.

3. What results do we want to achieve by implementing this commitment? The implementation of this commitment will help to achieve the following results: i. Removing opacity and enhancing transparency of government borrowing. ii. Members of Parliament will develop skills for assessing debt sustainability and viability of loans. iii. Ministry of Finance will become more accountable for its decisions to contract sovereign debt through loan authorization bills. iv. Over time, it will reduce the propensity of the political executive to borrow money as they will have to put up a robust case before the Budget Committee of Parliament.

Commitment Analysis

1. How will the commitment promote transparency? How will it help improve citizens’ access to information and data? How will it make the government more transparent to citizens? Committee proceedings will be open to the public and broadcast live. Government Officials will appear before the committee to explain things and answer questions under oath.

2. How will the commitment help foster accountability? How will it help public agencies become more accountable to the public? How will it facilitate citizens’ ability to learn how the implementation is progressing? How will it support transparent monitoring and evaluation systems? Public officers will account for their decision to borrow money

3. How will the commitment improve citizen participation in defining, implementing, and monitoring solutions? How will it proactively engage citizens and citizen groups? During committee hearings, citizens and groups of people and CSOs with competence on the subject will be able to engage the committee and make submissions that will influence recommendations of the committee for or against the loan in question. For approved loans, citizens will have accessed enough information about development projects being financed so they can monitor effectively and hold project delivers accountable.

Commitment Milestones

Panel of Chairpersons of Parliamentary Committees [Recommendation to the Business Committee on mandatory referrals to committee on Budget and Finance of all money Bills]

Business committee meeting [Decision of the Business Committee on mandatory referrals of money Bills to the budget committee]

Scrutiny of money bills, transparency and accountability on debt stock and utilization [Committee hearings; Parliamentary disclosures on debt, debt analytics, audit reports etc]

Capacity building for parliamentarians on debt data, analytics and management [Effective scrutiny of money bills; Effective oversight on debt dynamics and management]