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Recovery budget

Sosten Gwengwe’s budget of ‘hopes’, ‘aspirations’

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HOW THEY STAND—The allocations to major sectors in
the ending financial year against the forthcoming ones

By Taonga Sabola & William Kumwembe:

At exactly 13:58 Friday, new Finance Minister Sosten Gwengwe entered the Parliament Building in Lilongwe where for about 1 hour 38 minutes, he presented the K2.84 trillion 2022/23 National Budget.

This is the first budget under his tutelage but third of its kind by the Tonse Alliance-led administration.

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Clad in a black suit, white shirt and red neck-tie, the youthful Gwengwe attracted a standing ovation as he confidently walked into the august House carrying a black briefcase—a symbol of control over the country’s fiscal space— inscribed with the government’s emblem but written ‘The Budget’ below the emblem

At the onset, Gwengwe, claimed to have carried the “hopes and aspiration of many …” as he presented a financial plan which he said is aimed at facilitating the recovery process of Malawi’s ailing economy which has been subjected to myriad challenges including the Covid pandemic, weather-related shocks as well as glaring public expenditure and revenue mismatches.

The fiscal plan aspires to achieve fiscal consolidation, strengthen public debt management, ensure fiscal discipline and keep Malawi on track towards achieving the Malawi 2063 vision.

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The budget, which hinges on reducing public debt stock—seen at K5.5 trillion as at mid-2021—is viewed by experts as people-centric as it has been aligned to three priority areas of wealth creation, job creation and food security.

Deficit headache

But like its predecessor, and several other budgets before it, the next budget would be implemented in an environment characterised by a weak fiscal space, leading to yet another yawning deficit of K884.04 billion, an equivalent of 7.7 percent of Gross Domestic Product.

This should be Gwengwe’s primary source of headache as he still has to borrow about K653.98 billion domestically and K230.07 from foreign sources to make ends meet.

The ever-growing statutory obligations mean that of the K2.84 trillion, Gwengwe can only spend K1.647 trillion to better the lives of Malawians.

Of the K2.84 trillion, recurrent expenses have been pegged at K2.019 trillion, or 17.7 percent of GDP while development expenditure has been programmed at K820.67 billion, representing 7.2 percent of GDP.

The budget, which is K850 billion more than the nine-month K1.99 trillion-budget for 2021/22, also seeks to promote export diversification and import substitution through encouraging local manufacturing.

It has exposed the glaring shrinking fiscal space that Malawi continues to face with statutory obligations such as salaries and wages as well as interest repayment eating up a combined whooping K1.193 trillion.

Gwengwe was quick to note that the government intends to stabilise the debt creation processes and embark on a downward debt trajectory in the subsequent budgets.

Budget joys

The budget has seen the education sector getting a lion’s share at K462.24 billion, representing 4.1 percent of GDP and 16.3 percent of the total budget followed by Agriculture with K447.66 billion and health at K283.57 billion.

The highlight of the budget came when Gwengwe announced an increase in the Constituency Development Fund (CDF) from K50 million to K100 million, prompting a standing ovation from lawmakers from both sides of the House.

“A budget must be inclusive, a budget must be pro-poor and a budget must be developmental.

“A team from the Ministry of Finance and Economic Affairs, National Local Government Finance Committee, and Ministry of Local Government are working on quality and standardisation of the projects such that structures to be built under CDF will have the same design in all constituencies. One should be able to identify a CDF classroom block or a CDF health centre facility because they will look exactly the same across the country,” he said.

The budget has also removed VAT on cooking oil and tap water, a development Gwengwe said would help bring down the cost of the basic commodities.

On the Affordable Inputs Programme, Gwengwe said the initiative, which has been allocated K109 billion down from K141 billion, is going through some reforms to iron out the challenges that have so far been experienced.

He said the government also intends to upscale safety net programmes to better serve the rural population in the form of public works.

Tackling debt shackles

On Public Debt Management, Gwengwe said it will be at the centre of the 2022/2023 budget implementation.

He noted that the high level of external debt is also a matter of concern for this Government and particular attention will be paid to make our external debt sustainable.

“Government will maintain a policy of concessional borrowing; preferring grants and only under very exceptional circumstances contract non-concessional loans for high value investments. Government will engage its external creditors to restructure some of the loans,” Gwengwe said.

Economics Association of Malawi Executive Director Frank Chikuta described the budget as fair, saying it included many things that his association presented in the pre-budget meetings.

Chikuta said the budget has more realistic assumptions on economic growth and inflation.

Gwengwe’s budget is crafted on the assumption that in the next twelve months, Malawi would attain a GDP growth rate of 4.1 percent and 4.0 percent in 2023, an average inflation of 9.1 percent, a policy rate of 12.0 percent and tax refunds of 3.0 percent of total tax revenue collection.

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