Finance Minister Felix Mlusu stood before Parliament for close to two hours yesterday afternoon, begging Malawians in his capacity as Chancellor of the Exchequer, if he could, in the next nine months, spend K1.990 trillion through the 2021/22 National budget.
The budget portrays an attempt by the Tonse Alliance administration to walk on a tight rope by balancing between meeting campaign promises while facilitating economic recovery from pangs of the Covid-19 pandemic.
Second of its kind by the new administration, the financial plan has been coined as a balancing act, but with yet another yawning K718.3 billion deficit, representing 7.0 percent of the rebased Gross Domestic Product (GDP).
This would put Mlusu at an awkward position to continue looking up to potential domestic and foreign creditors-from where the Treasury plans to borrow K134.8 billion and K583.5 billion, respectively-to keep the national budget afloat.
It comes as the Tonse Alliance’s median budget, which runs till June 30, is equally seen to be off-balance with total expenditure projected at K2.335 trillion, while revenues and grants are projected at K1.523 trillion.
With domestic borrowing as a key source of funds to narrow the gap, the situation could still backfire if not well handled, as it poses threats of pushing the obligation to repay the loans plus interest to the future generation, while crowding out potential private sector borrowers from the debt market.
However, the budget is anchored on three key aspirations of achieving permanent food security, creation of jobs, and creating wealth for all Malawians as embedded in the recently launched Malawi 2063, a long-term national development blueprint which attempts to see Malawi becoming a middle-income economy.
Reacting in a statement, National Planning Commission Director General, Thomas Munthali, rated the budget as commendable saying it augers well with the Malawi 2063 Vision, but lamented low allocation to the development budget.
The development expenditure is programmed at K570.8 billion, representing 5.6 percent of the rebased GDP, which however, excludes the development expenditure that will be financed through the issuance of the long-term development bond, where some of the projects will be financed off-budget.
Crafted under the theme ‘an inclusively wealthy and self-reliant industrialised upper-middle-income nation’, Mlusu works on assumption that in the next nine months, Malawi would attain a GDP growth rate of 3.8
percent, an average inflation of 7.4 percent, a stable exchange rate of about K780 per dollar, a policy rate of 12.0 percent and tax refunds of 3.0 percent of total tax revenue collection.
But this would largely depend on input from the private sector, the main driver of the economy, where ironically, most players have been almost on their knees due to the Covid-19 pandemic.
But Mlusu’s magic wand towards revamping the industry is, by according them, various incentives through myriad tax policy measures.
To boost growth of small businesses and to reinvigorate the economy suffering from the effects of Covid pandemic, Mlusu announced the government’s intent to introducing a duty-free week for imports not exceeding $3,000 (about K2.3 million) while increasing the Comesa Simplified Trade Regime threshold from $2,000 to $3,000.
He announced that the government has also scrapped off import Value Added Tax (VAT) on raw materials for use in manufacturing of Medicaments, Pharmaceuticals and Medical Apparatus; and Raw materials for use in printing and publishing books, as well as the 10 percent import duty on soap noodles.
On income tax measures, the new budget would see two new Pay As You Earn (Paye) brackets of 25 percent for incomes between K100, 000 to K1.0 million per month and of 40 percent for incomes of more than K6.0 million per month.
Accordingly, the new monthly Paye schedule will be K0 to K100,000 at 0 percent; between K100,000 to K1.0 million at 25 percent; between K1.0 million to K3.0 million at 30 percent; between K3.0 million to K6.0 million at 35 percent; and from K6.0 million and above at 40 percent.
“This will promote distribution of wealth in the country and increase disposable income for all low income earners,” Mlusu said.
Rating the budget as a tough balancing act, Economics Association of Malawi President Lauryn Nyasulu said as the economic environment remains volatile, the financial plan’s implementation would still face challenges.
“But we have seen that the government has come up with measures that would be beneficial to the economy. The minister, in his statement, has laid out some clear incentives aimed at boosting manufacturing,” Nyasulu said.
Chancellor college-based economist, Ben Kalua, also hailed the budget, rating it as reasonable.