Budget in hard times

Finance Minister Simplex Chithyola Banda this afternoon faces one of his hardest tests when he presents the mid-year budget statement to Parliament.

Hardest because the statement comes at a time authorities have made several promises to cushion Malawians from the impacts of the recent 44 percent devaluation of the Kwacha.

Of interest would be how the finance minister intends to compensate civil servants, who are demanding a 44 percent pay rise in the wake of the devaluation.

If the wage demands are granted wholesale, it could see the government wage bill jumping from K897 billion as at March this year to around K1.29 trillion.

Jobless young Malawians will be interested in hearing from Chithyola Banda as to when government will start the labour exports for 5,000 youths and to which destinations so that they could start preparing for that.

Again, Malawians will be interested in seeing where authorities will get the K27.7 billion to assist 184,920 households affected by Tropical Cyclone Freddy, who are scheduled to receive K50,000 per household for three months.

The 105,000 urban poor households will also be interested in hearing about their K150,000 packages amounting to K15.7 billion being incorporated in the budget.

But Chithyola Banda’s task will be even tougher because the International Monetary Fund (IMF) will be watching to see whether authorities are willing to stay the course of the new Extended Credit Facility (ECF) Programme granted last week.

In other words, Chithyola Banda cannot afford to be a Father Christmas as the mid-year budget will set the tone of what Malawians should expect for the 48 months of the ECF.

On the other hand, despite the 44 percent devaluation, which has left many Malawians with almost nothing, the minister has to ensure that Account Number One continues to collect significant amounts to keep the wheels of the economy moving.

Otherwise, failure to do so would mean borrowing even more.

As European Union (EU) Ambassador Rune Skinnebach put it last week, the ECF attainment will mean both good news and bad news for Malawi.

“Good news because Malawi will begin to restructure its economy to become more sustainable to live up to the expectations indicated in Malawi 2063, but also to know the criteria of an economy; an economy that should be self-sustainable, that should embrace private initiatives that should foster the development of the country.

“It is a project which we can do our utmost or we will do our utmost to support. We will try to cushion the negative effects of the devaluation by front-loading as much as we can, hopefully around €60 million,” Skinnebach said.

He also said the granting of the ECF would allow the EU and other development partners, such as the World Bank, to sit down and consider providing budget support to Malawi.

The EU envoy further said the ECF had come at a price.

“It is like medicine. It does not taste well, but you need to swallow it to get better. Of course, prices of commodities such as fertiliser will be affected.

“It will be painful, but I think it is necessary. We will do all we can to cushion [Malawians] from the effects of these through our social cash transfer,” Skinnebach said.

In an interview yesterday, Chithyola Banda said granting of the ECF does not mean that government should turn into a Father Christmas but that it signifies the beginning of economic reforms that will propel “the quickest economic recovery”.

He said Malawians should, therefore, bear in mind that sacrifice is important until the country achieves economic stability.

The minister further said authorities will strike a balance to control expenditure by analysing budget lines to make cuts where need be and add where the need is important.

He also said authorities will focus on providing cushioning measures to lessen the economic burden caused by the devaluation.

“[We will provide] safety nets through social protection interventions like social cash transfers. But also with support from our partners like the World Bank, we will focus on importing maize to ease hunger.

“We will focus on revising the wages and salaries, more especially in our subsequent budgets, to bridge the gap of buying power which has been caused by the devaluation,” Chithyola Banda said.

He added that, more importantly, authorities will focus on measures of growing the economy by diversifying economic activities through exploring non-revenue sources that will give the country extra income to inject into the economy.

“We are looking at carbon trading and climate smart funding through nature swaps, cannabis biomass, mining discounted projects, where we are going to quantify mineral deposits and monetise them and develop diaspora programmes that provide incentives to lure the diaspora community to invest back home,” the minister said.

Chithyola Banda added that authorities are looking at easing the pressure on small and medium enterprises (SMEs) by discussing with lenders to provide moratoria so that the SMEs have “breathing space” to recover from the economic pressure.

In her reaction to the devaluation, Malawi Economic Justice Network Executive Director Bertha Phiri recently pointed out that the development would have an impact on the budget.