Budget and finance committee suggests solutions to economic woes

Speech by Chairperson of Budget and Finance Committee of Parliament Rhino Chiphiko

The Budget and Finance Committee noted that the 2016/17 budget includes at least K500 million ($693 481) provided by the European Union (EU) and the World Bank which will be available to each district for Public Works Programme (PWP) to improve incomes of smallholder farmers which has been drastically reduced due to the drought and floods.

While the committee agrees with government that these resources can assist in building rural infrastructure, it also notes with concern that this program is a social safety net and does not build long lasting capacity and resilience among rural recipient households.

Reforming Farm Input Subsidy Programme (Fisp)

Mr Speaker Sir, the committee welcomes government’s attempts to reform Fisp and commend government for finally adopting the suggestions that have been made in the past regarding the need to restructure Fisp. Firstly, the committee also welcomes the decision to engage commercial farmers to shore up national food security under contract with government, since this will assure nation food self-sufficiency and accessibility at affordable prices.

Mr Speaker Sir, the committee cautiously welcomes the decision to change both benefits and beneficiaries of the programme. Although government has indicated that it has transferred exchange rate risk to private sector, the committee is of the view that eventually the private sector will transfer that risk onto the consumer and this will be unbearable.

Secondly, Fisp has had other problems, including targeting problems and high administrative costs, so that benefits are captured by different levels of the value chain and not the real poor that the programme claims to target. In a year when 8.4 million people face hunger, the government is also reducing beneficiaries from 1.5 million to 900 000. The committee, therefore, wishes to learn from the Minister of Finance, Economic Planning and Development what social safety net is being contemplated for food insecure households that will be removed from Fisp.

Strengthening National Development Planning

Mr Speaker Sir, the minister also stated that significant progress has been made on establishing the National Development Planning Commission. The committee welcomed the notion that the National Development Agenda should survive change of ruling parties. As the committee awaits the introduction of proposals for constitutional amendment and enabling legislation, it feels compelled to caution government to learn from failures of the past. The committee is mindful that following the adoption of the Malawi Vision 2020, which had bi-partisan support, Malawi created a National Economic Council with representation from a cross-section of stakeholders. While the Economic Council had initial political support it was bureaucratically isolated, bred frustrations and; hence, was short-lived. With its dissolution, Vision 2020 died as well.

National registration

Mr Speaker Sir, the committee concurs with the Government about the importance of this investment considering the economic utility and economic facilitation that attend a national identification system. However the Committee does not understand why such a nationally important activity has to await donor funding. If we were serious we could have funded this project from domestic resources. In addition, Mr Speaker, the Committee needs assurance that during the registration process the authorities will separate Malawians form non-Malawians since we have noted with regrets, how non-Malawians have easily accessed the Malawian Passports and Driver’s license without any problems.

Public finance management reforms

Mr Speaker Sir, the committee also noted how the minister struck a very positive tone on progress made in Public Finance Management reforms. While the Committee acknowledged that there is progress in strengthening the country’s public finance management system, the committee is of the view that more needs to be done. Recent reports of Cashgate type  embezzlement through embassies, inability migrate to a new  platform for IFMIS three years after Cashgate, suggests that risks to public finance still persists.

Programme based budgeting (PBB)

Mr Speaker Sir, the committee noted with great interest that the government intends to scale up implementation of the PBB following a couple of pilots. In principle, PBB would ensure that funds are channelled to the necessary departments and sections in various ministries and will ensure performance in all sections of a ministry. The committee is concerned, however, that with chronic underfunding, most MDAs cannot deliver, therefore it is highly unlikely that programme based budgeting will not work.

Budget framework

Mr Speaker Sir, I don’t intend to discuss the budget framework line by line. I will highlight areas where the committee raised issues worth commenting upon.

Firstly, the committee noted the contradiction between the budget and what President Peter Mutharika and minister said in their statements. In both the State of the Nation address and the Minister’s Statement, an impression was created that Malawi is moving toward donor independence. Well, Mr Speaker Sir, upon scrutiny of the budget the committee finds these claims to be blatantly misleading, especially given that the estimates laid before this house clearly show an increase in total grants from K97 billion to K190 billion, representing a 97 percent increase. In fact, the share of foreign resources is proposed to rise from the estimated 13 percent of total resource envelope last year to 20 percent in this budget. Mr Speaker Sir, the committee was perplexed at why the President and minister chose to give an impression that was both factually and arithmetically false.

Mr Speaker Sir, the estimates show that all types of donor assistance are forecast to increase, a major driver of which this increase is a rise in project grants which are expected to rise from K67 to K127 billion representing a 141 percent increase. However, Mr Speaker Sir, even the much maligned budgetary (programme) support is expected to grow by 95 percent, while dedicated grants have been estimated at K50 billion which is K13 billion higher than the 2015/16 estimate of K37 billion, representing a 34 percent increase.

Expenditure and net lending

Mr Speaker Sir, allow me to comment on expenditure and net lending.

Mr Speaker Sir, the committee noted that in the FY2016/17 total expenditure and net lending is projected at K1 136.96 trillion, representing an increase by K212.97 billion (or 23 percent increase) from last financial year. Of this amount, the Recurrent budget is projected at K815.54 billion (or 72 percent) while development expenditure is forecast at K317.92 billion (or 28 percent).

The committee further noted that estimates of recurrent expenditures of K815.54 billion have increased by K117.19 billion (or 17 percent) over last year’s approved budget of K698.35 billion. The committee noted with concern that the bulk of the increase in recurrent expenditure is on account of the wage bill and Interest on debt. Wages and salaries are expected to rise from K228.69 billion to K264.50 billion, representing a 16 percent increase from last year’s estimates.

Mr Speaker Sir, if Malawi does not change its monetary policy interest payment will choke the budget. Interest payments are forecast to rise by 14 percent to from K125.5 billion last year FY2015/16 to K143.52 billion in this year’s FY2016/17. The committee is concerned that monetary policy is choking the fiscus. With interest rate in excess of 35 percent, the committee was greatly disturbed to discover that 92 percent of the total interest payments are on account of Domestic debt which is increasing exponentially.

Mr Speaker, Sir, the committee has sadly noted that a major causes of growth on ORT are wages and interest payments on domestic debt whilst the provision for goods and services whose allocation has declined by 6 percent. As growth in protected expenditures i.e. growth in wages and salaries and interest payment continue, the nominal and real value of the provision for generic goods and services will also continue to decline. A six percent reduction in the provision for goods and services in the face of inflation of over 20 percent means that the real value of the allocation to generic goods and service will buy less than 75 percent in FY2016/17 of what it bought in FY2015/16 financial year. In other words, having raised their salaries, the budget cannot provide the working materials for civil servants.

Mr Speaker Sir, instead of discussing particular votes, this year I want to discuss the policy picture that emerges from the proposed allocations.

Mr, Speaker, Sir, the committee welcomes the priority attached to agriculture, manifested in the increase in the allocation to the Ministry of Agriculture, Irrigation and Water Development which has increased by 46 percent from K133 billion to K198.5 billion. It is heartening that in a year of food deficits, uncertainty in the weather conditions, Agriculture, Irrigation and Water Development has the largest allocation accounting for 17 percent of the budget.

The Committee also appreciates the allocation to Ministry of Education Science and Technology, which has been allocated K147 million and representing 13 percent of the budget.

Conclusion

Mr Speaker Sir, a lot has been said. But the conclusion of the matter is that the Malawi economy is passing through some serious economic turbulence.

It is incumbent on all of us to find long lasting solutions to these problems. This budget is not perfect, far from it. But it has put forward some bold proposals. We, as politicians, always seek to endear ourselves to the people. We are naturally inclined to choose popularity over pragmatism. But for once here is a budget that does not seek to please everyone or buy cheap sympathy. Whether we agree with the substance or not, we must acknowledge and commend the courage it took to propose a reduction in what has long been considered pro-poor spending namely, Fisp and removal of value added tax (VAT). We all know how suicidal that can be.

Mr Speaker, Sir, events in the natural, or act of God, and in the human realm portend a difficult future.

Climate change and extreme adverse weather events, unstable exchange rate, persistent high inflation, high interest rates and constrained fiscus, all portend a sluggish and depressed economy.

Malawi is in an economic crisis.  But we can do something. We must do something. Let us lower interest rates and boost industrial production. Let us dispense with classical yet irrelevant theories and be pragmatic about our situation. This is our country. We have no other. Let us be serious and pragmatic in our solutions.