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Economy in trouble

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Minister of Finance, Economic Planning and Development, Goodall Gondwe, Friday presented a mid-year budget statement which revealed that the economy remains in serious trouble, with expenditure far outweighing revenue.

But analysts have said Capital Hill needs to be extra serious with the way it manages its expenditure to ensure that it tallies with available resources.

Among other things, Gondwe revealed that tax collection body, the Malawi Revenue Authority (MRA) under-collected by K38.1 billion, with non-tax revenue under-collecting by K7.8 billion, resulting in a total under-collection of K45.9 billion in the last six months of 2017.

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The revenue underperformance was, evidently, among others, fuelled by weak performance of the country’s major tax contributor, the private sector, as they spent most of their time without electricity.

The fiscal crisis, according to Gondwe, was compounded by a K45.2 billion bailout Capital Hill made to state-owned grain trader, Admarc on loans it had with commercial banks. Gondwe also said there was an unbudgeted for K5 billion wage over expenditure by the Malawi Police Service and Malawi Defence Force.

The local Chancellor of the Exchequer prayed that going forward, a number of measures would have to be implemented to eliminate power outages. He, therefore, said tax collection will be normalized in the second half of 2017/18 and yield roughly K70 billion, more than what was collected in the first half of the year.

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He also banked on an anticipated K60 billion budget support from the World Bank in the course of the second half of the year, which he said would help bring back the budget on track.

In a desperate attempt to contain expenditure growth, Gondwe said Capital Hill will implement some cuts on some budget lines, in addition to increasing borrowing on the domestic front.

Among other budget cuts, Gondwe said Capital Hill will implement a reduction of 10 to

20 percent of fuel allowances across the board.

“This should also help to reduce Malawi’s overall demand for fuel. A deep cut in the number of personnel that are now provided, unofficially, with motor vehicles. The

Government will not pay for the maintenance of such motor vehicles.

“Business class travel could be curtailed and a limited number will use it, as has been done in our neighbouring countries.

In general, these measures merely supplement the fact that responsible controlling officers in response to the cuts in travel budgetary lines will reduce the number of official missions in response to the cuts that have been made to their votes,” he said. Overall, Gondwe said the budget has been slightly reduced by K9.3 billion (or 0.7 percent of GDP) from the previous K1,297.2 trillion.

He noted that total revenues and grants are expected to increase by K2.6 billion from K1,127.7 billion to K1,130.3 billion.

“In terms of overall budget, after these budgetary adjustments, it will be seen that the budget deficit is programmed to improve from K195.6 billion down to (K183.6 billion). The domestic borrowing will move a minimal figure from K27.8 billion to K33.7 billion,”

Gondwe said.

Reacting to the budget, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Chief Executive Officer, Chancellor Kaferapanjira, said Gondwe’s statement does not bring confidence to the private sector.

Kaferapanjira said the finance minister failed to convince Malawians as to what tangible measures government will implement to get the budget back on track.

Malawi Economic Justice Network (Mejn) Executive Director, Dalitso Kubalasa, said though he was yet to go into details of the measures government would put in place to get the budget back on track, one thing that was clear is that government was still in trouble.

“The minister’s statement did not give many details of how we will walk out of the current mess but one thing for sure is that the economy is still in trouble,” Kubalasa said.

Chancellor College Economics professor, Ben Kalua, said although budget cuts are inevitable, Capital Hill should ensure that they do not hurt the poor.

“The budget cut should not affect poor people who need it most, unless there is good will to cut State capture that uses most of the budget” Kalua said.

According to Action Aid Tax Monitoring Department, domestic tax collection was officially projected at K900 billion in 2017/18 and so far, K412 Billion was delivered.

This was slightly lower when compared to the mid-year out turn for domestic revenue in 2016/2017 which came to K400 billion.

Gondwe also took some time to dispel suggestions that government has an appetite for domestic borrowing.

“This indictment about the so called appetite for domestic borrowing overlooks the fact that this government’s annual domestic borrowing has steeply declined from K94 billion in 2014/15 to K37 billion in 2016/17 and to a planned figure of K28 billion in 2017/18. Surely, these figures do not reflect a Government that has an appetite for domestic borrowing.

“After all, the rise in domestic borrowing was due to Cashgate created problems, including the donors’ withdrawal of budgetary support that reduced available resources to the budget by 10 percentage points. If the country was to continue with an acceptable level of social welfare, recourse to domestic borrowing was necessary to plug the whole. However, through yearly budgetary adjustments, this is being reduced aggressively as demonstrated by the data,” Gondwe said.

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