Cautious budget: K1.3 trillion fiscal plan

Goodall Gondwe yesterday tabled a cautiously optimistic budget that nourished the new wave of economic hope, but also went out of the way to lower expectations.

 Gondwe—the Minister of Finance, Economic Planning and Development who was presenting the K1.3 trillion 2017/18 Budget in Parliament in the capital Lilongwe—also stuck to his belt-tightening strategy to stabilise the economy even as he sought to ease the pain for low income earners—a tough attempt at balance.

The next budget may spend 13.5 percent more than last years at current prices, but when inflation is factored in; the new fiscal plan is, in real terms, lower—signalling a frugality that tightens spending in spite of having the most promising fiscal outlook since 2012.

It is an abundance of caution rooted in pragmatism—the country is not out of the woods yet both in terms of fiscal management and economic performance despite strong endorsements from the World Bank and the International Monetary Fund.

“Mr. Speaker, Sir, I will be the first to admit that we still have a lot to do to perfect economic management and certainly the economy still requires careful handling. Financial resources are still scarce,” said Gondwe, just in case someone thinks the World Bank’s recent $80 million budgetary support windfall signals party time.

In fact, Gondwe said he will use this money as a down payment on the public debt.

He added: “In the circumstances a careless use of resources can easily reverse the rebound. I also admit that we yet have a lot to do to adopt basic sound fiscal management practices as needed to routinise bank reconciliations.”

Austerity, insisted Gondwe, is a painful, but necessary path to sustainable economic growth he believes should average seven percent over the next 10 years to help cut destitution in a country where one in every two people live below the poverty line.

The budget estimates that the Malawi economy could grow by a rate of between five and six percent in 2017, which would be a stronger showing than the 2.7 percent in 2016 and 3.3 percent chalked in 2015.

These were years battered by two consecutive seasons of poor crop harvest that cumulatively saw agriculture output slump by 35 percent. Agriculture contributes more than 30 percent to the country’s economy, a factor Gondwe must have had in mind as he has allocated the largest share of the development budget (17.4 percent or K62 billion) to agriculture and climate change projects.

“I owe it to the House to point out that an economic rebound does not mean that we now have enough resources to spend. It merely means that we have emerged out of the hole into which we were thrust by the ‘Cashgate’ episode and that we can now commence an economic management that should lead to robust economic growth. It does not mean that we can indulge into lavish expenses and focus on personal wealth gathering, because such actions will push us back into the economic dungeon,” said a blunt Gondwe.

 But Gondwe has been generous, too, given the limited fiscal space he is boxed in.

He has proposed that the minimum wage jumps from K19 000 per month to K25 000, representing an increase of more than 31 percent.

The budget has also expanded by 50 percent the tax- free band from K20 000 to K30 000, a tax break that will cost Treasury at least K10 billion annually.

This is the first time in four years government has widened the tax-free bracket—a move that means only those earning between K31 000 and less than K3 million will be taxed Pay as You Earn (Paye) at the flat rate of 30 percent.

But Gondwe hopes to recoup the foregone revenue by increasing Paye on those earning more than K3 million a month from 30 percent to 35 percent in what the Minister said was an attempt at improving “the distribution of income from the rich to the poor.”

Apart from low earners, pensioners will also go to the bank smiling following a 200 percent increase on pensions for those who retired prior to 2004.

Gondwe has heard the cry of pensioners and interest groups who appealed to him that there were huge disparities between earnings of those who retired before 2004 and after following the change in the pension formula.

“A retiree from the latter group could now be receiving a quarter of the pension paid to a post 2004 retiree who retired at the same grade and had the same number of years of service,” he explained.

The move will cost the taxpayer K20 billion in addition to the planned migration of civil servants that are below 35 years of age and those newly-recruited to the contributory National Pension Scheme from July 1 2017.

But if the next budget becomes the launch pad for meaningful growth and prosperity that it hopes to be, history could look back at one paragraph in Gondwe’s speech in Parliament yesterday as a turning point for Malawi.

Reads the paragraph: “The leadership should spend more time on developing the country than on personal welfare. This should be the anchor of their workload.”

While many would interpret such leadership to mean the presidency, a fair interpretation of this poignant statement points to every leader at every level, in every organisation or community—public or private—to serve their people, not their pockets.

 Key development priorities

In the absence of a national development strategy following the expiry of the Malawi Growth and Development Strategy (MGDS II), Gondwe has looked to the areas which President Peter Mutharika outlined in his State of the Nation Address on May 5.

The newly-formed National Planning Commission has taken over the work of the ministry to formulate the new strategy which hopefully should come into effect before the end of the financial year.

The sectors of Agriculture, Irrigation and Climate Change, Education, Health, Energy, Transport and Communications and Infrastructure and Tourism have been identified as the priority sectors which will enjoy the majority of the K348 billion development budget.

About K62 billion has been allocated to agriculture and climate change inclusive of K17.6 billion to the Green Belt Authority including the Shire Valley Irrigation project.

In Education, K38.7 billion has been allocated for 5 million desks and construction of libraries and laboratories in each constituency for community day secondary schools (CDSS) apart from construction of 12 primary schools in Blantyre, Lilongwe and Mzuzu cities.

The rehabilitation of 50 national secondary schools has also been included in the K38.7 billion education development.

About K25.7 billion has been allocated to the health sector for construction of community health facilities as well as the construction of the long awaited district hospitals in Phalombe, Blantyre and Lilongwe.

About K69.9 billion has been allocated to roads, K12.7 billion to the energy sector and a paltry K1.3 billion to tourism. n