Hopes high on new fiscal plan

Minister of Finance and Economic Affairs Sosten Gwengwe presents the 2023/24 National Budget today amid high expectations on how government intends to grow the economy and address the social woes Malawians are facing.

Speaking in an interview on Tuesday, National Planning Commission director general Thomas Chataghalala Munthali said they expect the national budget to focus more on incentivising productive sectors, but without neglecting the social sectors.

He said: “This is because social sectors are important for a good quality of life, but they don’t generate resources of their own; hence, they need vibrant productive sectors that can sustainably fund them.

“Malawi has for a long time neglected these productive sectors and focused more on the social sectors and social protection interventions.”

Munthali said this has sometimes happened by default due to the exogenous shocks that have necessitated supporting the affected populations.

He said focusing on the productive sectors using State-run institutions such as the revamped fit-for-purpose commercial-oriented Agricultural Development and Marketing Corporation, the Malawi Development Corporation and having a mining company operating under special purposes vehicles in strong alliance with the private sector, will need to happen immediately.

He said: “Solid productive sectors such as mega farming, mining, manufacturing, tourism and trade-facilitating economic infrastructure without neglecting the social sectors are even more important now that the country continues to be affected by a spate of exogenous shocks.

“So, we need to build buffer resources that can be drawn on when the country is faced with these exogenous shocks, so we don’t turn to debt and donors who will be busy with their own economies when shocks hit the country. We don’t have the luxury of time.”

The current K2.84 trillion fiscal plan has faced criticism, with some analysts branding it consumptive than productive as only K626.6 billion was allocated for development expenditure.

During the fiscal year, Treasury projected to spend K213.6 billion on social sectors.

Meanwhile, the budget projected a deficit of K842.1billion, representing 7.1 percent of the gross domestic product (GDP) and the fiscus has accumulated K7.3 trillion in public debt as at September 2022.

Consumers Association of Malawi executive director John Kapito said consumers expect a lean budget with realistic assumptions and serious cuts for senior government officials considering the current economic challenges.

He said: “Having seen the implementation of this year’s Affordable Inputs Programme, every good thinking Malawian would wish the discontinuation of the programme and redirect the resources towards education, health and tourism.

“We are also expecting that many government ministries, departments and agencies will be merged to reduce public expenditure. This is a time we need a sober economic budget and not a political budget that will make Malawians more poorer.”

When presenting the 2022/23 Budget Statement in Parliament last year, Gwengwe made a number of assumptions  such as projecting that the economy will register an increased growth rate of 4.1 percent in 2022 and four percent in 2023.

He also projected that inflation rate will average 9.1 percent while the policy rate, the rate at which government borrows from the central government as lender of last resort, will average 12 percent in the 2022/23 fiscal year.

But the policy rate now stands at 18 percent, inflation rate averaged 21 percent in 2022 while growth has been recorded at 1.2 percent.

The exchange rate was then assumed to be stable at around K834 against the dollar, but now, following 25 percent devaluation of the kwacha in May 2022, the local unit is selling at around K1 036 against the dollar.

Institute of Charted Accountants in Malawi (Icam) acting chief executive director Charles Chimpeni said the institute expects a fiscal plan that is endowed with realistic revenue collection targets that takes into consideration the tax base and general economic performance.

He said that while they also expect the budget deficit to narrow, they would also want the pay as you earn zero rate to increase to K250 000 in view of the high cost of living, now at K356 000 for a family of six.

In the 2022/23 budget, Gwengwe, while maintaining the tax-free band at K100 000, revised other tax brackets with those earning between K100 000 and K330 000 taxed at 25 percent, those earning between K330 000 and K3 million taxed at 30 percent while those earning between K3 million and K6 million are taxed at 35 percent.

Those earning above K6 million are taxed at 40 percent, but Icam wants this revised as well.

On the other hand, to the end of the 2022/23 fiscal year, domestic revenue is projected to go down from K1.636 trillion to K1.628 trillion.

However, in the nine months to the close of the 12-month 2022/23 financial year, MRA has collected K1.3 trillion.

To propel industry growth and offset the demand for imports, private sector lobby group Malawi Confederation of Chambers of Commerce and Industry (MCCCI) proposed the removal of value added tax on wheat flour, removal of 10 percent excise tax on non-alcoholic nutritional drinks, reduction to 30 percent excise tax on alcoholic beverages in plastic bottles with alcohol volume of 15 percent and widening the tax base from untapped markets

MCCCI chief executive officer Chancellor Kaferapanjira urged government to consider with seriousness the tax proposals.

The 2023/24 budget comes at a time the cost of living crisis is biting consumers  hard, leaving the majority struggling to make ends meet. n