Malawi plans to reduce to 10 percent its current dependence on donor money, announcing on Wednesday that it wants domestic resources to finance 90 percent of the national budget in a decade’s time.
Capital Hill has since outlined measures that will help the country to maximise domestic revenue collection for implementation of subsequent budgets and achieve its ambitious goal, but no new ideas have come forth.
Peter Simbani, director of Debt and Aid Management in the Ministry of Finance, Economic Planning and Development, unveiled the ambitious plan in Lilongwe yesterday in his statement during a High-level Forum on Development Effectiveness held under the theme Towards a Transformed and Self-reliant Malawi.
He said: “In 10 years’ time, government aims to reduce its dependence on donor support. Currently, domestic revenues account for about 60 percent of total national budget.”
Among other measures, government will intensify the broadening of the country’s tax base, strengthening the capacity and systems in revenue collecting agencies and reducing the cost of collecting and improving service provision to taxpayers.
In an interview later, Simbani clarified that in the next decade, government targets increasing the share of domestic revenue from 60 percent today to 90 percent or above while reducing the share of development partners’ contribution to the budget.
Available data shows the continued significant value of development assistance is still coming to Malawi across all sectors, according to information The Nation sourced during the meeting.
Simbani said to reduce donor dependence, government will increase transparency and tackle corruption to build public confidence in the fairness and competence of revenue collecting agencies.
He said: “We will facilitate economic growth by simplifying policies and processes, removing red tape and administering the rules consistently and coherently.”
Simbani also assured that government will endeavour to modernise administrative processes aimed at reducing the cost of collecting tax revenue, thereby improving overall compliance and revenue collection and also freeing resources for other expenditure priorities.
However, he acknowledged that there are glaring challenges that government is facing in its pursuit to wean itself off from donors.
For example, Simbani said currently, there is a base erosion and profit shifting by multinational companies as well as lack of rationalisation of the tax incentive structure resulting in excessive and ineffective tax incentives.
To overcome the challenges, he said government will, among others, support major infrastructure investments mainly at the Malawi Revenue Authority (MRA) and the Revenue Division of the Ministry of Finance, Economic Planning and Development.
However, the country’s donors, who contribute about 80 percent to the development budget and 40 percent on the recurrent side, have since cautioned Malawi that trimming dependence on aid will require sustained and broad-based economic growth, greater investment, increased domestic resource mobilisation, reduced corruption and illicit flows as well as creating a vibrant private sector.
In her statement, head of the United Kingdom’s Department for International Development (DfID) Jen Marshall, who spoke on behalf of development partners, said collectively, they are approximately funding Malawi to the tune of $1 billion (K450 billion) a year towards development progress.
“The President [Peter Mutharika] has set out his highly commendable intention for Malawi to be self-reliant in terms of its recurrent expenditure in five years, and for Malawi to transform economically,” she said.
Marshall said in a rapidly changing and competitive world, Malawi knows it needs to priotise strategically and make hard choices and keep a clear coherent policy direction.
Delivering a key note address earlier, Minister of Finance, Economic Planning and Development Goodall Gondwe noted that Malawi has a strong potential to adequately finance its budget using domestic resources, citing countries such as Kenya which, he said, finances 90 percent of its recurrent budget using domestic resources.