Sosten Gwengwe outlines government’s fiscal plan
By Taonga Sabola & Deogratias Mmana:
At exactly 14:05pm Thursday, Finance Minister Sosten Gwengwe started asking Malawians to allow him to use K3.87 trillion of their hard-earned money to run government operations in the 2023-24 financial year.
The 2023-24 financial plan— titled ‘Sacrificing Today for A Better Tomorrow: Regaining Macroeconomic Stability and Growth through Collective Responsibility for Our Shared Future’— can best be described as an aggressive budget as Gwengwe has carefully attempted to strike a delicate balance of keeping the wheels of the economy running by exploring other revenue streams without necessarily overburdening the poorest of the poor Malawians.
Of the total expenditure, Gwengwe has allocated K2.98 trillion, or 76.9 percent of the total budget, towards recurrent expenditures while K896.21 billion, or 23.1 percent of the total budget, will go towards development expenditure.
With total revenue estimated at K2.55 trillion, the national budget faces a deficit of K1.32 trillion, which is 8.7 percent of gross domestic product (GDP), but a marked improvement of 0.01 percent from last year’s 8.8 percent likely outturn.
“Government continues to ensure that the fiscal deficit is minimised to the [best] extent possible. This deficit will be financed through foreign borrowing, amounting to K288.78 billion, and domestic borrowing, amounting to K1.19 trillion,” Gwengwe said.
The budget has seen the minister giving the Malawi Revenue Authority a mountainous task of raising K2.13 trillion in tax revenue, with non-tax revenue projected at K114.34 billion.
Gwengwe has estimated grants at K311.5 billion, comprising K299.07 billion from international organisations and K12.43 billion from foreign governments in form of dedicated and project grants.
Statutory obligations such as interest on public debt, coupled with wages and salaries, continue to eat up much fiscal space, taking up a total of K1.811 trillion, or half of the budget, with wages and salaries pegged at K897 billion.
Among the winners in the budget are traditional leaders, who have seen their honoraria being hiked by 100 percent.
In addition, paramount chiefs will be allowed to import a motor vehicle duty free.
Other winners in the budget are civil servants who will see their perks going up by eight percent.
In addition, government has approved the introduction of transport allowance to all civil servants effective April 2023 and a provision of K39.1billion has been made for this purpose.
According to Gwengwe, government is also considering another special allowance for civil servants.
Also on the winners’ list are high salary earners, as they have seen the 40 percent tax bracket being removed.
In the budget, Education and Skills Development has received the lion’s share of K603.36 billion, or15.6 percent of the total budget.
According to Gwengwe, the funds will cater for wages and salaries, routine operations for primary and secondary schools, technical and community colleges and public universities as well as development projects in this sector.
Education is followed by Agriculture, Water Development and Climate Change, with an allocation of K455.10 billion, or 11.8 percent of the total budget.
The resources will cater for wages and salaries; operations including Affordable Inputs Programme; transfer to the National Food Reserve Agency for rehabilitation of Limbe warehouse, which is in dilapidated state; maintenance of grain silos; recapitalisation of the Agricultural Development and Marketing Corporation; development projects in the ministries of Agriculture, Forestry and Natural Resources, and Water and Sanitation.
AIP has been allocated K117 billion in the budget, down from K140 billion used in the last financial year.
The health sector has been allocated K330.18 billion in 2023-24 fiscal year while Transport and ICT Infrastructure sector has been given K246.29 billion, or 6.4 percent of the total budget.
What do commentators say?
When contacted for comment Thursday, International Monetary Fund (IMF) Resident Representative Farai Gwenhamo said the fund will have to read carefully the numbers and measures announced in the draft budget in the context of IMF engagements with the authorities.
“For now, what I can say is that it is encouraging that the budget underscored the need to prioritise and make public spending efficient, step up domestic resource mobilisation and leverage Ifmis to safeguard public financial resources.
“All these [measures] are important to reverse unsustainable government borrowing and set the foundation for a stable macroeconomic environment conducive for economic growth and positive socio-economic outcomes,” Gwenhamo said.
On its part, the Economics Association of Malawi hailed Gwengwe for applying realistic assumptions, in terms of economic growth, inflation and policy rate.
Ecama Executive Director Frank Chikuta was, however, quick to bemoan the high budget deficit in the financial plan.
“Another area of concern is allocations. The minister has allocated more resources towards recurrent expenditures, at about 76 percent, and the development budget is getting little, which is not in line with the Malawi 2063 and MIP-1,” Chikuta said.
Institute of Chartered Accountants in Malawi President Moffat Ngalande hailed Gwengwe for removing the 40 percent tax bracket on Pay As You Earn.
Ngalande also hailed moves to revamp State owned enterprises to make them more profitable.
However, opposition Democratic Progressive Party spokesperson on finance Ralph Jooma described the budget as the worst ever because it is not providing measures to create wealth but is, instead, defeating wealth creation efforts.
He said the budget is failing to address the challenges that cripple the economy including electricity
Further he said there is nothing tangible that the government will do to improve the forex situation.
“Although they are saying they are going to control exports from the warehouse, they are not mentioning exports. We do not see how they are going to improve the forex supply situation,” Jooma said.
According to Jooma, the government is duplicating efforts to create wealth.
For example, he said, giving a salary increment to civil servants and allocating K117 billion to AIP, which largely depends on donor support by about 50 percent, is ignoring the rural masses.
“If no donor supports the AIP, beneficiaries will drop by 50 percent. Our people will suffer,” he said.
Implementation is a challenge—EU
European Union Ambassador to Malawi Rune Skinnebach welcomed the budget statement’s theme, which dwells on sacrificing today for a better tomorrow.
He urged the government to make tough decisions and implement them.
“Implementation is a real challenge,” Skinnebach said.
He also said the EU is in discussions with the government to resume budgetary support.
He said the EU has given the government the parameters needed to be complied with before resuming the support.
Country director for Edukans and board chairperson for Civil Society Education Coalition Limbani Nsapato said although the education sector has been allocated the lion’s share of the budget, as has been the case in recent years, the allocation fails to meet the six percent of GDP and is less than 20 percent of the national budget, which is the minimum for low-income countries like Malawi, as recommended by United Nations Educational Scientific and Cultural Organisation, to achieve Sustainable Development Goal (SDG) number four.
SDG four ensures inclusive and equitable quality education and promotes lifelong learning opportunities for all.
Nsapato further said the K603.3 billion is K247 billion less than an estimated average of K850 billion contained in the National Education Sector Investment Plan for the 2023 and 2024.