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The agony of financing the K1.13 trillion budget

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Finance Minister Goodall Gondwe on Friday, May 27 presented a whooping K1.13 billion national budget for year financial year 2016/17.

The new financial plan has seen expenditures significantly jumping from the revised K907 billion in the 2015/2016 budget to K1.13 billion.

The increase has sent shock waves among Malawians as it comes at a time when the resource envelope continues to face an avalanche of challenges in the aftermath of the cashgate scandal of October 2013.

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The monstrous K1.13 billion budget is also scaring as it is coming at a time when government’s cashcow, the Malawi Revenue Authority (MRA) continues to struggle, failing to raise lesser targets as has been the case in the 2014/15 and 2015/2016 fiscal years.

The horrific K1.13 billion also comes at a time when industry is on its knees, riddled by a number of challenges such as high costs of borrowing, high inflation, falling kwacha and shrinking business opportunities.

According to Gondwe, total revenue and grants are estimated at K965.2 billion or 22.2 percent of nominal GDP of which K708.8billion will be tax revenue, K66 billion will be non-tax revenue, while K190.4 billion will be grants.

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The development means that the 2016/17 national budget has a deficit of around K165 billion.

But is the 2016/17 revenue projection realistic considering the current operating environment?

In its weekly economic commentary last week, Alliance Capital Limited pointed out that the budget is optimistic but is more likely to exert pressure on domestic resources.

“The IMF’s optimistic tax revenue collection projection which is higher than MRA’s projection puts a risk of higher domestic financing in the event of a shortfall in revenue collection as has been the case before.

“This will exert more pressure on net domestic financing which has been set at K60 billion compared to the lower limit of K25 billion set in the previous budget. Therefore interest rates are likely to remain elevated hence prohibiting growth in the economy,” said Alliance Capital.

Economics Association of Malawi president Henry Kachaje says the projected revenue for the 2016/17 national budget is far from realistic.

Kachaje said Malawi’s national budgets in recent years have focused more on consumption that production.

“There has been a challenge that much of our expenditure has been on consumption and we are not investing a lot in productivity. The broad issue that that we must move away from a budget that promoted dependency on the government from the citizenry.

“Each political government is always focusing on more subsidies and that is what is increasing the burden on the national budget and that presents a very serious problem because resource for government is not increasing.

“We find the budget to be a challenging budget because it is implemented at a time the country is facing challenging hunger situation because much of the resources instead of going towards development programs they will be going to humanitarian needs and procurement of food for the general population and we find that to be the challenge in this year’s budget implementation,” said Kachaje.

In its budget analysis, audit firm, Enrst and Young predicted tough times ahead for tax compliant business operators in the country as pressure mounts on the government to mobilise resources to meet 73 percent of the budget which it [government] expects to be financed from local resources.

In his presentation of the EY Tax Budget review 2016, Director of Taxes at EY, Misheck Msiska, said it is not immediately clear what tax review measures government plans to undertake as it seeks to broaden the tax base and improve tax administration.

“Previously, tax revenue accounted for about 60 percent of the budget, while donor grants covered 40 percent,” said Msiska.

Indigenous Businesses Association of Malawi (Ibam) president Mike Mlombwa said much as the task ahead in as far as mobilising resources amounting to K1.13 trillion is enormous, Malawians can fund their own budget if economically empowered.

According to Mlombwa, moaning and groaning about the size of the budget could not help Malawians.

“Of course the figure appears frightening but we cannot just stand and do nothing about it. We need more Malawians to start paying taxes so that government collects more.

“This could only be done if government empowers Malawians. It’s about time Capital Hill open up more business opportunities for Malawians so that they create more jobs and pay more in for of taxes,” said Mlombwa.

He said, government being a biggest buyer, should ensure that about 80 percent of the resources in the budget goes to Malawians so that they could have a multiplier effect in as far as job creation is concerned.

“There could not be a better time than this, arguing that the K1.13 trillion budget comes at a time when government has just unveiled the Buy Malawi Strategy.

“If we empower more Malawians through the strategy, I don’t see any reason why we cannot finance this budget,” said Mlombwa.

Presenting the budget, Gondwe challenged MRA to “rise to the needs of the country at this crucial moment when the enhancement of domestic resource mobilization is critical for the attainment of our national priorities”.

As many analysts have said America was built by Americans, Japan was built by the Japanese and China was built by the Chinese, it is high time that Malawians show the world that they, too, can build their own country.

But for that to happen, Malawi needs many people in the tax net, not just a handful as has been the case over the past years. Empowering locals is the key.

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