LILONGWE-(MaraviPost)-Below is the Malawi Mid-year 2017-2018 national budget, presented at Parliament on Friday, February 16, 2018 by Minister of Finance, Goodwell Gondwe;
1. Mr. Speaker, Sir, since 2005, we have continued with the tradition that requires reviews of the budget after completing the first half of the financial year. There is no legal requirement that this must be done; but the practice has served us well because it enables us to examine the continued pursuance of sound fiscal management. This year as it will be the case henceforth; the reviews will ensure the maintenance of the hard won macroeconomic stability and a rebounded economy.
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2. Mr. Speaker, Sir, my statement will be short and will merely introduce the facts and figures contained in “The 2017/18 Mid-Year Budget Review” document that will be distributed to honourable members shortly. We have concentrated on preparing documented material for the study of honourable members.
3. It is also important to mention to the house that this year the review has been conducted in parallel with the International Monetary Fund mission that has just completed its work in Malawi. The IMF has released a press briefing to the public on which the media has commented profusely. I therefore hope that members are already aware of what am likely to
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say. Mr. Speaker, Sir, I would therefore like to encourage my honourable colleagues to study our document as intensively as they normally do.
4. The data we have used is as at the end of the first half of 2017/18. The needed adjustments have been made in response to the obstacles that the budget has encountered during the first half of the financial year and which could have deflected the attainment of the budgetary targets that underlied the macroeconomic stability that has been maintained.
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5. These obstacles include the Government’s bailing out of ADMARC with an amount of K45.2 billion to commercial banks that extended loans to that institution to purchase maize and other crops. The second setback was an unbudgeted excess of wage expenditure of just over K5 billion by the Police Service and the Defence Force. The third set back was the slowdown of revenue collection by the Malawi Revenue Authority.
6. At the end of the first half of 2017/18, the under collection of revenue amounted to K45.9 billion of which K38.1 billion was tax under collection and K7.8 billion was the non-tax revenue under collection.
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7. These three main budgetary setbacks were the major setbacks that could have derailed the achievement of the financial targets that were set to anchor the maintenance of the hard won macroeconomic stability and the economic rebound.
8. Mr. Speaker, Sir, before I go too far into these matters, let me quickly comment on our maize situation. As ADMARC could only sell a small tonnage of the maize that it purchased last season, a total of approximately 90 metric tonnes of maize remains unsold and now constitutes part of the food reserve that is available to the country. Together with the amount of 182,000 tonnes that was purchased by the NFRA, we have a total maize reserve of
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272,000 metric tonnes. This is the highest level of food reserve the country has ever had. Furthermore; it is also estimated that 68,000 tonnes is available around the country.
9. In discussing the current food situation, it must be borne in mind that as of now there is no food shortage in Malawi and that the calamitous effects of dry spells and the fall armyworms Malawi is experiencing could impact on the country much later. All that could be said now is that food shortages will occur in a number of areas in Malawi and that we should prepare measures to mitigate this likely food disaster.
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10. We have therefore set aside money to purchase a further 200,000 metric tons of maize that could enable ADMARC and NFRA to start purchasing available maize stocks immediately and resources for the logistics to transport maize within the country.
11. The bailout has created an ADMARC indebtedness to the Government and therefore the 90,000 tonnes of maize could be used to part pay this indebtedness of K45.2 billion to the Government. Arrangements for the payment of the balance will be worked out later.
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12. Mr. Speaker, Sir, let me now explain to the house how the review exercise has been conducted.
13. On the Development Budget; the Government selected (15) projects out of (85) that are shown in annex IV A of the document referred to earlier that will be distributed to honourable members at the end of my statement. These 15 projects must be completed at the end of this financial year. His Excellency the President has constituted a Cabinet Committee which I chair, to review the implementation of these projects monthly and to report to him any hindrances that may occur.
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14. A further group of (26) projects Annex IV B must be implemented to a stage where each is visible. Another group of (15) projects Annex IV C that are funded almost wholly by development partners will also continue to be implemented during the second half of the financial year. The remainder group of (29) projects Annex IV D will be pended into the next financial year. To ensure that the designated projects that will continue to be implemented during the second half of financial year have adequate funding, some resources from the pended list of projects have been transferred to the prioritised projects i.e. the list of projects in Annex IV A and Annex IV B. As part of the adjustment exercise, the balance of resources of
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approximately K34 billion have been transferred to repay part of the accumulating domestic debt.
15. While I am on the issue of domestic borrowing, let me react to comments that have been made by the public and orchestrated by some honourable members. The Government, like most honourable members, strongly believes, that the accumulated domestic debt has to be reduced by repaying some of it and by progressively reducing the annual additions to the domestic debt so that the required ratio of domestic debt to GDP can be reduced from the present ratio of 25 percent to an internationally accepted level of 20 percent. We believe that at the rate that the annual borrowing is being reduced, and the rate
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at which nominal GDP is growing, this ratio can be reached in about three years’ time.
16. Mr. Speaker, Sir, furthermore, the indictment that has been levelled against the Government that it has an “appetite” for domestic borrowing does not resonate with the facts, at least since 2014. 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 down 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.
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17. After all, the rise in domestic borrowing was “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.
18. Mr. Speaker, Sir, another uncharitable accusation is that the Government borrows to fund consumption. Honourable members will see from the budget figures that consumption which is synonymous with Recurrent Budget,
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is completely covered by domestic revenues and designated external grants. It follows that the extra available resources from external grants, domestic revenues and borrowing must be funding the Development Budget. That being the case, this indictment that domestic borrowing in Malawi is needed to satisfy the consumption segment of the budget is a falsehood. Without a revenue substitute, a reduction of either external or domestic borrowing will impact negatively on the Development Budget.
19. The attention of the house is called to the fact that since 2005 apart from the period 2013-2015, more and more of our Development Budget is funded by local
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resources. This year for example, 38 percent of development budget is being funded by local revenue and borrowed resources.
20. And now Mr. Speaker, Sir, let me deal with the budgetary adjustments within the Recurrent Budget to realign the budget with the budgetary targets as originally designed. As been pointed out, the budget has suffered two main traumas, the first being the excess in expenditure as a result of the ADMARC bailout of K45.2 billion and the second is the huge under performance in the revenue collection of close to K45.9 billion in the first half of the year that would
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also have derailed the budget if the trauma continued into second half of 2017/18.
21. It is believed that with a number of economic measures that will eliminate power outages, tax collection will be normalized in the second half of 2017/18 and yield roughly K70 billion more than was collected in the first half of the year. It is also expected that Malawi will receive a budget support of K60.0 billion from the World Bank in the course of the second half of the year. In the event therefore, for the whole 2017/18 total revenue plus grants would be K1,130.3 billion which is a little higher (2.6 billion) than originally budgeted at K1,127.7 billion.
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22. As regards the reviews of expenditures within the Recurrent Budget, the adjustments have concentrated on reductions of travel related budgetary lines within the “Other Recurrent Transactions”. Although it will be seen at the end of Annex II that it forecast that the total ORT will increase from K660.2 billion to K686.9 billion. In fact the increment could have been much larger if budgetary reductions were not made in a number of votes.
23. The adjustments have concentrated in the reduction of travel related budgetary lines in a number of votes as can be seen from Annex II. The measures that will anchor these reductions are being discussed
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and confirmed by the Chief Secretary and Secretary to the Treasury; they are likely to include 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
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have been made to their votes. It will also be seen from the table that wages are programmed to be increased somewhat by an amount close to K6 billion. This figure would have been much larger were vacancies not frozen by eliminating as can be seen from the table.
24. The Budget therefore has been subjected to a rigorous adjustments than the figures show.
25. In sum, therefore as will be seen, the review will result in a small reduction of the budget by approximately K9.3 billion (or 0.7 percent of GDP),
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while total revenues and grants will register a small increase of K2.6 billion from the original budgeted figure of K1,127.7 billion to K1,130.3 billion.
26. 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.
27. These figures show that the review exercise has succeeded to retain the essence of the budget and will not lead to macroeconomic instability in form of a
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higher rate of inflation but will maintain the downwards trajectory of the rate of inflation. It is therefore confirmed, as IMF also did, that the estimated inflation figure this year will be 11 percent as against 20 percent in 2016.
28. Thus the purpose of the exercise to retain financial targets that will maintain macroeconomic stability and the economic rebound that has been achieved is assured.
29. Mr. Speaker, Sir, the more interesting statistics figures that the IMF have left behind is their strong
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forecast that if the macroeconomic is managed well as it is now, the economy, as we have emphasised before, the average economic growth rate of Malawi could reach 7 percent. This should give honourable members confidence that the economy is being managed as well as it should. They state that in the medium term (3 to 5 years), growth rates could be high in Malawi. This is the Government’s goal. We are determined to emerge out of a group of poorest countries in the world within the medium term. Yes, Sir, we can and will.
30. Mr. Speaker, Sir, and honourable members, I thank you for this opportunity to give you this financial report of the Mid-term review.