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Bailout for the poorest

In a bid to ease the pain of Thursday’s 44 percent devaluation of the kwacha, the Ministry of Finance and Economic Affairs has unveiled safety nets for vulnerable communities.

Briefing journalists in Lilongwe yesterday, Minister of Finance and Economic Affairs Simplex Chithyola Banda said, among other measures, Treasury will increase social cash transfer beneficiaries from the current 10 percent to 15 percent of the population, translating to one million households on top of the two million.

This means that government will have to cough an additional K1.4 billion over and above the K2.8 billion provision for the social cash transfer programme (SCTP) in the 2023/24 National Budget.

Treasury also plans to increase social cash transfer benefit levels by 57 percent. Currently, households on average receive K9 000 per month, translating to an additional K5 130 per month, pushing the whole budget to K4.24 billion of the programme, which is 95 percent donor-dependent.

Further, Treasury said it will continue implementing Cyclone Freddy recovery interventions in Blantyre Rural, Thyolo, Phalombe, Chiradzulu, Mulanje, Nsanje, Chikwawa, Balaka and Zomba Rural targeting 184 920 households with beneficiary households receiving K150 000 for consumption needs.

This means Treasury will have to cough an additional K2.7 billion monthly for this to come to fruition.

Further, under the new measures Treasury plans to re-introduce the price shock urban emergency cash transfer programme targeting 105 000 households in Zomba, Blantyre, Mzuzu and Lilongwe cities with a once off transfer off K150 000 for three months, translating to another K1.57 billion.

In the outline, Treasury also seeks to increase the wage rate for the climate smart public works programme and extend beneficiary work periods from the current 12 days a month to six months in a year. This is expected to benefit 520 000 households from the current 362 450 nationwide.

During the briefing, the minister said government will “immediately” engage all civil service trade unions to review salaries in the public sector and determine how civil servants can be properly cushioned against the alignment.

In a follow-up response to a questionnaire, Chithyola Banda said the government has already secured the bulk of the funding for the social protection measures.

But in a written response yesterday, economist Bond Mtembezeka described the cushioning measures as “a double edged sword”.

He said: “On one hand, you have the devaluation which will hit not only poor families, but also everyone else and will have implications beyond the social cash transfer horizon.

“On the other hand, scaling the social cash transfer will add more pressure to the government debt which is already at precarious and unprecedented levels.”

Government’s move comes at a time when increasing shocks are mounting pressure on the country’s social protection programmes, whose coverage already remains inadequate to alleviate the vulnerabilities of households steeped in poverty.

In its published 2023/24 Social Protection Budget Brief, Unicef observes that given the multivariate shocks facing Malawi, there are growing financing needs for the social protection sector with Malawi Government requiring an additional K12 billion for cash transfer expansion.

This is in addition to the K32.5 billion for the expansion of the Climate-Smart Enhanced Public Works Programme to respond to the additional social protection needs caused by the significant livelihoods ‘losses from Tropical Cylcone Freddy.

However, Chithyola Banda said government will design other aspects of cushioning measures to be announced when he presents the Mid-Year Budget Review Statement in Parliament.

In the 2023/24 financial year, the allocation to social protection through the national budget increased from K52 billion the previous year to K130 billion. The growth is largely connected to additional resources from the World Bank through the Malawi Social Support for Resilience Project grant.

A poverty assessment report published by the World Bank (2022) revealed that the probability of a household being poor increases by 14 percent after experiencing a climatic shock.

Price increases of 32 percent were also found to increase the national poverty rate by almost eight percentage points, implying that the share of people living with less than $1.2/day would increase from 50 percent to 58 percent in relation to inflationary shocks.

Since 2006, the SCTP has been progressively expanded in rural areas reaching over 300 000 households and 1.33 million ultra-poor people.

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