At last some good news but….

Tom Sangala March 15, 2016

266 2 minutes read

There has been so much pessimism in Malawi that even the latest good news in the country is treated with pessimism. The fact that the kwacha has gained value against foreign currency is good news but since we have been used to bad news, it has become difficult to accept this good news. That is what happens when a nation stops believing. If it was not for the fuel price increases a few days ago, this should have had a significant downward impact on inflation trajectory.

It will take time for individuals to feel the benefits of the kwacha gain and most importantly this is bad news for the tobacco farmers who will once again find themselves getting fewer kwacha per dollar than the kwacha they paid for a dollar when purchasing inputs a few months ago. Perhaps that is why our honourable MPs were up in arms wanting an increase in their allowances. It is understandable that prices of things have gone up since the budget was passed last year and that things have been tough for most Malawians.

But prices have not gone up for MPs only; the MPs do not have special shops where they purchase their goods. The unfortunate part is that the majority of the citizens do not have the privilege and power to determine or approve their own allowances and salaries. So while our honourable members are thinking of their allowances they should not forget that those whom they represent in the august house also deserve an increase in their allowances and salaries. It would also be important to remind those in power that these allowances and salaries are paid from the taxes of the constituents. These poor constituents are also facing the same hardships and maybe much more since their average monthly income is way below what our MPs get.

The issue of taxes cannot be divorced from the interest rates debate. In the absence of donor funding, Malawi has no choice but to rely on the domestically raised resources. These domestic resources will only come from a structural change from relying on agricultural commodities with little value addition to manufacturing. Malawi needs to focus on manufacturing in sectors where it has a competitive advantage and clearly define those areas.

The current interest rates in are very prohibitive of any Malawian investor. Less investment means less revenue for the government and, therefore, less room for the Minister of Finance to increase MPs allowances. The best way for our MPs to increase their allowances is by debating and approving policies that will ensure that the economy is back on track. Both the executive and the legislature would do justice to the electorate with a little bit of soul searching. Government needs to feel the weak pulse of the industry and get a better appreciation of the challenges facing manufacturers. Only then can we develop sensible turnaround strategies.

Malawi needs a stable macroeconomic environment with low interest rates and low inflation coupled with a stable exchange rate regime. The current gains in the value of the kwacha are only a part of the general equation. Fiscal discipline (spending within our means and in the most productive sectors of the economy) will lead to a stable macroeconomic environment in which there are opportunities for businesses to thrive. When the businesses prosper the government will have more resources at its disposal for developmental expenditures and maybe then increasing allowances would not seem so insensitive to the plight of ordinary Malawians.

It is important to recognise that every time a person starts a business, the government gets on board as a compulsory beneficiary. Take as example an ordinary company which sells manufactured goods. Every time the company receives or pays money, the transaction generates income f o r the government. The government’s earnings come in various names and sizes like Value-Added Tax (VAT) on gross sales; tax on corporate income; income tax on employees’ salaries; and VAT on expenses like rent, supplies and other utilities. The government will still get something even if the company makes a loss. This is because the government will still collect taxes on the company’s gross sales and expenses, and income tax on the salaries paid to its employees.