Budget and finance committee’s take on 2016/17 budget

 

Mr Speaker, Sir and distinguished members of this August House, I have the honour to present to the House a report of your Budget and Finance Committee in response to the Budget Statement that was presented by Minister of Finance, Economic Planning and Development on June 27 2016.

To begin Mr Speaker, Sir, I propose to proceed as follows: First I will highlight some positive issues and themes that seem to come out of the budget, then I will comment on the prevailing economic conditions and policy framework within which the proposed budget is framed and thirdly I will comment on six proposed policy areas arising from the minister’s statement and present the committees’ analysis and position on the proposed budget. Finally, I will comment on government priorities as reflected by allocation to some selected votes.

Mr Speaker, Sir, let me comment on the prevailing economic situation.

The committee noted a number of issues on which government carried out and should be commended for working in the public interest.

Firstly, Mr. Speaker Sir, the committee wishes to acknowledge efforts towards restoring the integrity of our Public Financial Management. Government has promoted accountability in ministries, departments and agencies (MDAs) by making submissions of expenditure and reconciliation reports as a condition for subsequent funding. Again, Mr. Speaker, Sir, government says it has now started monitoring finances in MDAs to ensure that expenditures incurred are in line with the approved budget estimates although this is difficult to believe because the actual estimates are not presented to this House for scrutiny and monitoring.  We hope this is true as these efforts will restore confidence and comfort among our developing partners and encourage them to return to Paris Principles Declarations to enable donors use local financial systems.

Secondly, Mr. Speaker, Sir, the committee would like to commend government for bold steps to deal with the problem of food insecurity. Government conducted food vulnerability assessment survey which provided information on the food situation in the country and put measures to tackle this problem. For the first time government has swallowed its pride and reached out to commercial farmers to produce food through winter cropping, proving resources for maize imports and issued a $30 million guarantee to Agricultural Development and Marketing Corporation ( Admarc) to borrow funds from banks for this purpose. The presence of Admarc  in local markets is now felt and its participation is an admirable testimony in government’s quest to deal with the problem of food insecurity which has befallen us. It should be appreciated that government has realised that the marginal propensity to consume by the citizenry supersedes all other priorities. Our people have to live.

Thirdly, Mr. Speaker, Sir, the committee has also taken note of proposal to reform the Fertiliser and Input Subsidy Program (Fisp). Sometimes the credit is not accorded for results achieved in the short run, but the boldness and courage of effort itself is worth commendation.

That said, Mr Speaker, Sir, the committee noted a number of worrying developments in the general economic climate and I wish to highlight some of these in the four sectors of the economy.

The committee notes with concern that the 2015/16 macroeconomic performance was affected by exogenous shocks especially extreme weather event, which resulted in rising food prices due to low production of maize in the 2015 growing season. The growth rate of the economy was revised downwards to 3.1 percent from an earlier projection of 5.4 percent. It is, however, doubtful if the 3.1 percent growth was achieved, Mr. Speaker, Sir considering the fact that the economy is still in dire straits.

Likewise, Mr Speaker Sir, inflation has remained stubbornly high, exceeding 23 percent percent and the domestic debt stock increased to K526.4 billion. It is against this background that the committee believes that prospects of the economy in the FY2016/17 will be poor compared to FY2015/2016 since most areas of the country experienced dry spells, floods and early cessation of rain and the nation is looking at food imports to feed eight million people who are food insecure.

Members of Parliament are currently deliberating on the proposed budget
Members of Parliament are currently deliberating on the proposed budget

The committee, Mr. Speaker, Sir, noted that in spite of this picture, in his speech, the Honourable Minister indicated that growth in Sub-Saharan Africa is expected to remain weak at 3.0 percent due to the continued slowdown in the global economy. He then proceeded` to indicate that despite the agricultural output being seriously reduced this year, the economy is expected to rebound from a real gross domestic product (GDP) growth rate of between 3.1 percent to 5.1 percent.

The committee notes with great concern that the performance of many sectors in the economy, in fact more than last year, will be adversely affected by the poor performance of the agricultural sector. Given the economic environment that I just painted, the committee fails to understand how Malawi can rebound and grow above average in the region. South Africa, the second largest economy in Africa has projected a growth rate of negative 1.2 percent and I am at pains to believe at the Ministers projected growth rate figure. As a nation, Mr. Speaker, Sir, we may need to pray more than five times a day to achieve this ambitious rate of growth.

To demonstrate my argument, Mr Speaker, Sir, allow me to briefly comment on the specific sectors of the macroeconomy

Monetary policy

Mr Speaker Sir, in the area of monetary policy, the committee observed that the Reserve Bank of Malawi (RBM) has continued to implement a contractionary monetary policy by keeping interest rates high to fight inflation.

You may recall, Sir, that during the Mid-Year Budget Review, the minister promised the nation that in the next months interest rates would fall. Five months down the line, the committee noted with sadness that the promised reduction never materialised. Due to depreciation of the kwacha and low agricultural production, inflation has been persistent at high levels.

But not everyone has shared in the hardship. The high rate of inflation and high interest rate has made life unbearable for average citizen. Subsequently the high interest rate has resulted in an increase in the number of non performing non-performing loans which has in turn increased and repossession of properties by banks has also increased. On the contrary the banking system has reaped super normal profits and continue to do so.

Exchange rate policy

On the issue of exchange rate, Mr Speaker Sir, the committee observed with great concern that the minister again failed to provide any exchange rate policies that are to be adopted in the FY2016/17. Malawi remains vulnerable to external shocks as she continues to rely on a narrow and undiversified export base which is unable to support our appetite for imports, leading to a low foreign reserve holding and precipitous depreciation of the exchange rates.

Mr Speaker Sir, it is disheartening to see that the exchange rate continues to depreciate even during the period when the country is supposed to experience a stability in exchange rate and in the statement the minister in part blamed speculators for this. Last financial year, the committee suggested that Malawi’s exchange rate policy should be geared towards enhancing international competitiveness. We note that proposals for structural transformation in this budget, seems geared for domestic food security and not export growth or diversification. A structural transformation not anchored in export growth or diversification, howsoever well intentioned, will not serve our external sector or exchange rate. The imperative of import maize, the currency will be under further pressure and is likely to depreciate further.

Fiscal policy

Mr. Speaker Sir, the committee noted that Malawi’s fiscal operations continue to depart from the six principles of responsible fiscal management provided in Section 12 of the Public Finance Management Act. Budget execution remains weak, and there is limited fiscal space due to low domestic revenue collection, lower receipt of donor grants, and over expenditures on recurrent budget, resulting in growing fiscal deficit and debt service.

Consequently, Mr Speaker Sir, the real sector has been depressed for two years in a row now. Extreme weather events, poor harvest and food deficits, coupled with depreciating currency, high inflation and persistence of high interest rates have dampened investment, slowed down production and resulted in rising unemployment as companies are laying off workers.

Mr Speaker Sir, the Committee observed that an economy plagued by food shortage and in needs of food imports, where high inflation and interest rates have discouraged private sector investment, and household consumption and budget considerations have reduced public sector investment cannot be expected to grow, let alone rebound from 3.1 percent to 5.1 percent.

Strategy policy issues highlighted

Mr Speaker Sir, allow me to comment, first, on some policy areas that the minister touched on that will anchor this budget and transformation going forward.

Mr Speaker Sir, the minister lamented about what he called western-style wages being paid to or received by some executives in Malawi. While the minster suggested that these are unethical, the committee failed to appreciate the economic argument. More importantly, the minister has no grounds to complain. If the Minister of Finance notices something that threatens our economy, he is empowered by legislation to propose measures to obviate, remedy or mitigate the deleterious impacts of that development. The committee, therefore, while empathising with him, also found his lamentation lacking in a way forward. He should do something like bundling these super executives into their own tax bracket and increase their tax rate. It is not enough for the Minister just to complain loudly.

  1. Climate Change Mitigation: Creation of the Greenbelt Authority

Mr Speaker Sir, the committee agrees with the government that it is time to transform the economy from excessive dependence on rain-fed agriculture to irrigation farming and would like to commend the executive for the bold decision to establish the Greenbelt Authority (GBA). However, the Committee is not convinced that the Authority will deliver as promised for two reasons:

Firstly, the Greenbelt Authority has been placed under the  Office of the President Cabinet (OPC) and not the line Ministry of Agriculture, Irrigation and Water Development. Five years ago when His Excellency Late Professor Bingu Wa Mutharika (May His Soul Rest in Eternal Peace) created Greenbelt Initiative it was also put under OPC and it never performed because it was detached from technical line ministries which are the policy holders.

Secondly, even if the GBA was under the relevant technical ministry, it appears that the line Ministries are lacking in competence. The Committee is mindful that a number of irrigation projects constructed with borrowed funds, for example in Namiyasi in Mangochi and Nkhata-Bay, never took off. The Committee needs to assured that this time around the Department of Irrigation and Water can deliver like it has never before. With the appointment of Hon Minister Chaponda, the self-acclaimed bulldozer the committee hopes and prays that this should be possible.

  1. Addressing Food Insecurity

Mr Speaker Sir, the committee commends the executive for proposing an allocation of K35.5 billion to purchasing of food items and joins the Executive in expressing its gratitude for anticipated assistance from a number of development partners.

That notwithstanding, Mr, Speaker Sir, the committee noted with alarm the contradictory information coming from the executive on this food security. In the State of the Nation address, the President informed the nation that maize production has declined by 12.4 percent and that about three million people have been rendered food insecure. But in his Budget Statement, a week later, the Minister of Finance has indicated that the country requires about 790 000 tonnes.

 

To be continued next week

 

Speech by chairperson of Budget and Finance Committee of Parliament Rhino Chiphiko presented in Parliament on June 13 2016

Share This Post

Powered by