The Economics Association of Malawi (Ecama) and the Centre for Social Concern (CfSC) have expressed worry at the failure by the government to manage debt in the provisional budget.
A statement released by Ecama indicates that as end of March 2020, total debt stock was estimated at around K3, 649.1 billion, equivalent to 61.0 percent of the country’s Gross Domestic Products (GDP).
Domestic debt was recorded at K2, 044.6 billion representing 56 percent of total debt which is also equivalent to 34 percent of GDP and higher than the maximum domestic debt threshold of 20.0 percent of GDP.
It further says foreign debt stood at K1, 604.4 billion representing 44 percent of total debt, representing 27 percent of GDP which is slightly below maximum foreign debt threshold of 30 percent of GDP.
“This outturn implies that Malawi continues to be at risk of debt stress, especially on the domestic market. The financial year 2019/20 borrowing is projected at K161.2 billion and projected to increase to K269.5 billion in the current financial year.
“If savings can be made, they will go a long way in improving the lives of Malawians. More importantly, the budget will be implemented amidst Covid-19 pandemic economic impacts. However, the budget seems silent on provisions for managing Covid-19 and safeguarding people’s welfare due to this,” reads the statement in part.
A separate statement issued by CfSC urges the government to consider reducing unnecessary expenditure such as reducing presidential motor convoy and to put stringent measures to reduce both domestic and external borrowing.
It further calls on the government to consider revising the new tax free band and the minimum wage to respond to the current cost of living which averaged K194,000 in the past 12 months.
“There is a lot of discrimination due to provision of low minimum wage that was set by government. A lot of Malawians are wallowing in abject poverty due to provision of low minimum wage. CfSC is pleading with the government to review the free tax band every year based on the increased cost of living,” reads the report in part.
CfSC Program Officer Economic Governance, Bernard Mphepo, added that the decision by government to subsidise 3.5 million people is not the type of universal subsidy people were expecting.
“Experience with farm Input Subsidy resulted in more poor people not able to access the cheap fertiliser. We fear that this might result in wasting of resources since the intended benefiaries and outcomes might not be achieved with this targeted approach. The targeted approach will lead to increased inequality since it is prone to abuse as it was with FISP program. We therefore recommend universal subsidy to support majority poor Malawians,” Mphepo said.
On Tuesday last week the new Finance Minister, Felix Mlusu, presented a K722 billion provisional budget in which the Tonse Alliance government was seen implementing some of its campaign promises including raising the Pay As You Earn tax-free threshold to K100,000 from K45,000 per month.
The government has reduced the price of a 50-kilogramme bag of fertiliser from an average of K21,000 to K4,495 which will benefit the country’s 3.5 million smallholder farmers.
It also increased the youth loans under the Malawi Enterprise Development Fund from the current K15 billion to K40 billion and the amount will eventually be increased to K75 billion.