The 2015/16 Financial Year Budget has attracted mixed reactions with some experts praising the government’s resolve to reduce borrowing while the Economic Association of Malawi (Ecama) has described the budget as non-transformative.
The K901.6 billion budget will have K763.5 billion in total revenue and grants, representing a deficit of over K138.1 billion with marginal tax revenue increase not substantial enough to finance huge expenditure obligations lined up.
The World Bank Country Manager Laura Kullenberg said the bank will have to look at the budget to understand investments alignments but was quick to urge the government to ensure fiscal discipline.
“The budget gives government no enough space to manoeuvre but we are looking forward to have disciplined execution and ensure value for money,” said Kullenburg.
The budget is K100.9 billion more than last year’s but is lower in real value by 2.2 percentage points- projecting recurrent expenditure at K674.6 billion, while development expenditure is at K224 billion.
The IMF Country Director, Geoffrey Oestreicher agreed that there is no enough fiscal space but commended the government for framing the budget in line with revenue situation.
“Notably in the budget the government indicates that it will reduce domestic borrowing and that has to be commendable in
line with recommended levels,” said Oestreicher.
The zero-aid budget constitutes statutory expenditure at K424.3 billion (about 47 percent).
“These are expenditures which the government is legally prohibited from postponing each year, and are mostly dominated by Presidential emoluments, Pensions and debt servicing costs,” said Gondwe.
Tax revenues are projected to marginally rise from K581 billion to K592.4 billion, but this is offset by the widening fiscal deficit.
Domestic borrowing is projected at K25 billion and this compares favourably with last year’s K36.8 billion to the delight of the IMF.
Among the substantial expenditures that weigh down the budget include the matured treasury bills payment of K50 billion, new pension scheme cost of K51.5 billion and the reduced Farm Input Subsidy at K40 billion.
Key ministry allocations show that Ministry of Agriculture, Irrigation and Water Development claims the lions share at K133.7 billion, Education Science and Technology at K109.8 billion while Health Ministry has an allocation of K77.4 billion.
Ecama president Henry Kachaje said in an interview that the budget presentation was a carefree constructed statement that was non-committal to reforms.
“The budget statement is falling short of presenting a transformational agenda that probably most people have been hoping to get,” said Kachaje, citing low development expenditure.
Some expenditures in the budget also include a civil service wage bill increase to K228.7 billion, from K198 billion, grass root development by local councils allocation of K30 billion, K10 billion for drugs, K6.5 billion for city roads and K3 billion for students loans as the minister announced abolishment of allowances to university students.
The Finance Minister, however, said that the European Union and World Bank may provide budgetary support which, if disbursed, will be used to procure more vehicles for the Police.
Institute of Chartered Accountants in Malawi (Icam) president Chiwemi Chihana said there are no tough measures in the budget, saying Gondwe has avoided inflicting more pain on Malawians who are already struggling economically.
“It is clearly a distressed budget but surpringly, there isn’t much that has been introduced in the tax policy. The government has clearly avoided milking the already thin cow,” said Chihana.
Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa described the budget as a tight rope and was surprised that Gondwe had fallen short of announcing reforms in the Farm Input Subsidy Programme.
“Looking at the situation with the budget, I was expecting some substantive measures on the Fisp which is a big drain on budgetary resources,” said Kubalasa.
Innovations for Poverty Action (IPA) country director Thomas Munthali said the budget statement clearly shows that the government is struggling to find its feet to finance the budget donor support.
He said Gondwe was not clear on where resources to finance the budget would come from as he has generally reduced taxes instead of increasing them to increase revenue collection.
“Government will definitely struggle with the budget this year,” predicted Munthali.
Consumers Association of Malawi (Cama) executive director, John Kapito, said the budget was not inspiring and has just succeeded in creating fear among Malawians on the prospects of the economy.
“There is nothing joyous in the budget. There is nothing to make Malawi self sustaining,” said Kapito.
He faulted Gondwe for increasing taxes on basic needs such as text messaging and internet while reducing duty on luxurious vehicles.
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