INTRODUCTION
Mr. Speaker, Sir, I am delighted to be here this morning to deliver the State of the Nation Address to this august House and to open the 2015/2016 Budget Meeting.
Allow me, Mr. Speaker, Sir, to begin my address by exalting the Almighty God for his continued grace that has seen us through the first year of my term of office as President of the Republic of Malawi. I also express my sincere gratitude to all Malawians for giving me the opportunity to serve them as President and this honourable House for its support during the year.
Mr. Speaker, Sir, in my first State of the Nation Address in June last year, I outlined a comprehensive reform agenda and plans to transform this nation. I also specifically stated that prosperity, justice and security would be pillars of my Administration. Today, I am here, Mr. Speaker, Sir, to report on the progress we have made thus far and where we stand as a nation. I will talk about the strong foundation that we are laying to propel our nation forward. I am particularly delighted because we are already delivering on our promises before the first anniversary of my Administration.
Mr. Speaker, Sir, as stated in the 2014 DPP Manifesto and indicated in my 2014 State of the Nation Address, we are at a very pivotal moment of our history as a nation. The first fifty years of independence were a mixed bag. While we have so far registered a number of successes, we have also not done well in some areas.
Mr. Speaker, Sir, I am reiterating today that we, as a nation, have to always learn from experience and past mistakes. The opportunity to correct mistakes lies with us. Mr. Speaker, Sir, we all have to be mindful of the fact that history will harshly judge us if we do not seize the opportunities that are currently available for us to redefine and reposition our destiny as a nation. Our children will never forgive us if we fail to make the right decisions for a better future.
Mr. Speaker, Sir, let me, therefore, reaffirm my commitment to public sector reforms as one of the important pillars for sustainable socio-economic transformation. This entails abandoning archaic systems and practices that, though familiar, are no longer serving us efficiently. I repeat, Mr.
Speaker, Sir, that our current situation necessitates fundamental changes in the way we do things as we look into the future with renewed hope, confidence and enthusiasm. Iam, however, aware that old habits die hard and that change can be a painful or stressful experience. I am thus calling upon all Malawians, especially you, Honourable Members of Parliament to render your support to the reform initiatives.
Mr. Speaker, Sir, this is why I have, in the past few months, launched various public sector reforms under the Public Service Reform Agenda. I have also launched several programmes and initiatives aimed at enhancing knowledge and skills transfer and empowering Malawians in various aspects of life. In addition, I recently launched the Public Finance Management Reforms Programme with a view to strengthen public sector finance management. The programme, which is home-grown and tailor-made to our particular circumstances, aims to curb mismanagement of public funds so that we avoid the recurrence of the Cashgate scandal.
Mr. Speaker, Sir, true to my manifesto promise, I appointed and have maintained a lean Cabinet of 20 members including the President and Vice President. I am proud to report that the lean Cabinet has so far performed well and achieved its main objective of minimizing Government expenditure. In addition, we have already significantly reduced the powers of the presidency by transferring some departments from the Office of the President and Cabinet (OPC) to relevant ministries. This means OPC is now focusing on its core functions.
Mr. Speaker, Sir, all this is a clear demonstration of the DPP-led Government’s commitment in delivering on its promises. It is for this reason that I have titled my address Fulfilling Our Promises.
MACRO-ECONOMIC POLICY REFORMS
Mr. Speaker, Sir, Government will continue to design and implement sound macroeconomic policy reforms aimed at creating a stable macroeconomic environment for the private sector to thrive, with a view to transforming the economy to attain full recovery and achieve sustained inclusive growth and development. Fiscal and monetary policies will, therefore, seek to ensure that annual inflation remains low, stable and within single digits; reduce and eventually eliminate huge domestic borrowing; reduce balance-of-payments deficits; maintain a stable exchange rate; and achieve and maintain lower interest rates. The policies will ensure that the economy achieves and maintains high economic growth rates of at least 6 percent.
Mr. Speaker, Sir, the sound macroeconomic policies that Government has been implementing in the 2014/2015 financial year have already started bearing positive results. The economy is projected to register a real GDP growth of 5.4 percent in 2015, despite setbacks such as recent floods and dry spells that have affected agricultural production. Going forward in 2016, the economy is projected to rebound with a strong growth of 6.5 percent.
Mr. Speaker, Sir, although our current foreign exchange reserves still remain lower than adequate, it is pleasing to note that recently, our foreign exchange reserves have risen to more than 3 months of import cover. This increase in foreign exchange reserves has managed to anchor the stability of theKwacha in 2015.
Mr. Speaker, Sir, it is expected that foreign exchange reserves would continue to rise with the onset of the tobacco marketing season and the resumption of the International Monetary Fund (IMF) programme.
Mr. Speaker, Sir, annual average inflation is expected to drop from 23.8 percent in 2014 to 16.4 percent in 2015. This is due to the combined effect of the stable exchange rate and a significant decline in global oil prices. It is projected that inflation will continue to be on a downward trend and will reach an annual average rate of 12 percent in 2016.
Extended Credit Facility
Mr. Speaker, Sir, I am pleased to report that Government successfully concluded negotiations with the IMF on the Extended Credit Facility (ECF) for the Fifth and Sixth reviews in March, 2015. This resulted in the IMF’s approval of the completion of the Fifth and Sixth reviews of Malawi’s economic performance under the programme supported by the ECF arrangement, as well as financing amounting to US$18.1 million for immediate disbursement. Mr. Speaker, Sir, the successful conclusion of the reviews and approval of the disbursements is expected to trigger disbursements from all other development partners, since this signals Government’s commitment to the macroeconomic programme.
Fiscal Policy
Mr. Speaker, Sir, following the “cash-gate” scandal, the contribution of donor support to the budget substantially declined from about 30 percent of the total resource envelope to less than 20 percent in the 2014/2015 fiscal year. As a result, the 2014/2015 budget has been largely financed by domestic resources.
In order to fill the revenue gap created by the deficit in donor financing, Government intensified implementation of tax policy reforms aimed at improving the tax regime to reduce loopholes and improve on tax compliance and investor confidence. In addition, Government also embarked on a comprehensive review of the various tax legislations in order to improve on tax administration and encourage investment in the country. This process is expected to be completed by the end of the 2015/2016 fiscal year.
Mr. Speaker, Sir, let me report to this august House that Government, through the Malawi Revenue Authority (MRA), introduced the Electronic Fiscal Devices (EFDs) to improve the collection of Value Added Tax (VAT). I am, therefore, appealing to both the public and business operators to support the new system and embrace the culture of tax compliance in order to assist the Government in fulfilling its social and economic obligations.
Mr. Speaker, Sir, Government has also taken steps to strengthen debt management practices and restructure repayment of outstanding arrears to suppliers in order to ease pressure on the budget and give Government room for other priority expenditures. Government will also avoid further accumulation of arrears through strict expenditure control measures.
Going forward, Mr. Speaker, Sir, Government will endeavour to reduce its fiscal deficit to levels below the internationally acceptable threshold (3 percent of GDP), in order to reduce pressure on domestic borrowing and interest rates. This will be supported by Government’s commitment to fiscal consolidation and foreign borrowing through loans obtained on concessional terms.
Mr. Speaker, Sir, the 2015/2016 budget will reflect a prudent fiscal stance whereby all recurrent transactions will be largely financed by domestically generated resources with a modest net domestic borrowing of about 1.1 percent of GDP.
Mr. Speaker, Sir, Government will also introduce the Programme Based Budgeting (PBB) in the short to medium term, in line with the ongoing Public Sector Reforms. This budgeting approach will ensure that ministries and departments report on achievement of results under specific programmes that are aligned to their strategic objectives as a prerequisite for funding.
