K2.2tn budget passes

Parliament yesterday passed the K2.2 trillion 2020/21 National Budget with minimal amendments to the financial plan tabled by Minister of Finance Felix Mlusu.

Passed at 12:44 after three days of rigorous scrutiny of allocations, the minor changes in the fiscal plan included chucking off K200 million from Malawi Electoral Commission (MEC) Vote 460 and rechannelling of K150 million to Vote 430 (Malawi Human Rights Commission) to help the rights body operationalise the Access to Information (ATI) and Gender Equality laws.

The passing of the Tonse Alliance administration’s first-ever substantive budget means Mlusu can now start spending the K2.2 trillion chunk from November 1 2020 as currently the K722.4 billionfour-month provisional budget passed in June was still in force until October 31 2020.

But with the fiscal deficit left hanging at K755 billion, the passing of the budget simply confirmed fears by critics that such a deficit—the highest in Malawi’s history in nominal terms—risks further destabilising the already fragile macroeconomic framework.

Mlusu expects to finance the deficit by foreign borrowing amounting to K224.8 billion, but a larger chunk of K530.1 billion is expected to come from domestic financing. Economic analysts we interviewed yesterday feared the domestic borrowing will worsen the crowding out effect of the private sector while also pushing up interest rates on the market.

At K530.1 billion, domestic borrowing represents 7.4 percent of gross domestic product (GDP). With domestic debt currently at K2.4 trillion or 57.2 of the country’s total public debt (TPD), representing 33 percent of GDP, Mlusu has simply chosen a dangerous path.

Yesterday, analysts also maintained their earlier scepticism that the projected K1.179 trillion domestic revenue in the budget could still be unattainable as most economic fundamentals, including projected real GDP, currently do not provide for a conducive environment for generating such ‘ambitious revenue target.” (Reads the main story in Business Review pullout in this edition where the International Monetary Fund has also forecasted lower-than-normal revenue).

With little re-balancing in the budget, Mlusu has also paid a deaf ear to critics who argued that the budget is purely consumptive and not developmental—with wages and salaries alone allocated K523.7 billion which is 7.3 percent of GDP and hovers above the development budget at K511.2 billion.

International development experts generally agree that a development budget should be a threshold of at least 25 percent of the entire budget but Tonse Alliance’s maiden budget falls short of such a benchmark as it represents 23 percent of the total budget envelope.

The minister has also remained adamant to outcries by consumers and cooking oil companies under the umbrella body Edible Cooking Oil Association of Malawi against the re-introduction of a standard value added tax (VAT) of 16.5 percent on refined cooking oil.

Mlusu also chose not to succumb to recent calls by agriculture experts, including National Association of Smallholder Farmers in Malawi, who asked Treasury to consider re-allocating some money from low impact programmes such as the Affordable Input Programme (AIP) which has been allocated K160 billion, to high impact programmes and areas such as extension and research services.

Before the House unanimously passed the budget, there was heated debate on some votes as members of Parliament (MPs) sought clarity from responsible line ministers as well as Mlusu.

Zomba Chisi MP Mark Botomani (Democratic Progressive Party-DPP) asked government to provide a clear policy direction on construction and renovation of police stations in the country. He said Jali Police was in a dilapidated state and servicing three constituencies, including his.

Reacting to Botomani’s submission, Minister of Homeland Security Richard Chimwendo-Banda said Jali Police is one of the police stations receiving a monthly allocation meant to cater for gradual renovations of the infrastructure.

Neno South MP Mark Katsonga-Phiri (independent) described as “too little” an allocation of K1.7 billion to Ministry of Industry (Vote 390), arguing such an allocation contradicts Tonse Alliance government’s dream of creating one million jobs.

The legislator, whose Progressive People’s Movement is part of the Tonse Alliance, said: “I am party to Tonse Alliance government and creating one million jobs is a serious matter and we also have to be seen to be serious with our policy. K1.7 billion is too little to the ministry which is key to creating such jobs.”

On his part, Mulanje Bale MP Victor Musowa (DPP) also complained about perpetual under-allocation of resources to the National Audit Office (NAO) which he said has led the institution to fail to audit district councils since 2014 while also failing to audit embassies for many years.

Records show that NAO allocation in the 2020/21 budget is K2.4 billion, the same as was allocated to it during the mid-year revised 2019/20 National Budget passed on February 27 2020.

In an interview soon after the budget had passed, Mlusu thanked the MPs for their respective contributions and support, saying it is now government responsibility to implement the blueprint.

He said: “The passing of the budget means government has been empowered to continue providing social services and development projects. This means some of the government promises will start to be enjoyed such as the K100 000 tax-free band, the Affordable Inputs Programme, among others”.

On the state of borrowing, Mlusu maintained that government had inherited debts and interests from the ousted DPP administration which he said needs to be settled to ensure projects that had stalled should continue.

Budget and Finance Committee of Parliament chairperson Gladys Ganda congratulated Mlusu for the passing of the budget, saying the minister did a good job.

She hailed the government for deferring contentious votes during Committee of Supply, saying it demonstrated to be a listening administration.

Ganda, a legislator for Nsanje Lalanje affiliated to DPP, said: “This is the first budget for the new Minister of Finance and the new Tonse Alliance government coming at difficult economic times due to Covid-19.”

She shared Mlusu’s sentiments that government cannot fulfil all promises at once and hoped that with time, some promises may come to fruition given availability of resources.

DPP spokesperson on matters of Finance and Mlusu’s immediate predecessor Joseph Mwanamvekha said it was important that the budget was passed so that government operations should continue. He said DPP was looking forward to implementation of the budget to translate into better welfare of the people.