‘2016 budget will not lift people from poverty’

Last week Minister of Finance, Economic Planning and Development Goodall Gondwe unveiled in Parliament a K1.1 trillion budget. Our reporter FATSANI GUNYA engages the chairperson of the Budget and Finance Committee of the House RHINO CHIPHIKO, MP, on his take of the proposed budget. Excerpts:

    What is your initial response to the Budget Statement?

The Minister of Finance presented a bold budget that responds to the current needs of this country. As opposed to the previous budgets, this budget seems to be addressing the realities on the ground and leave little fiscal space for government to spend on non-essential expenditures. The budget has been formulated against a background of erratic weather conditions which have had a devastating effect on production of food crops in this country. The effects of El Nino have, for the past two years, had a destabilising effect on achieving macro-economic stability. Inflation has been hovering around 24 percent and our interest rates, currently at 41 percent, are the highest in the sub-Saharan region. The gross domestic product (GDP) growth has stagnated and last year the rate was revised backwards to about 3.1 percent. All in all, the 2016/17 budget is a consumption budget and it is realistic because government has to feed its people for them to be alive.

Are there areas the Minister of Finance should have done better?

Of course. Firstly, the Minister of Finance failed to eloquently articulate the monetary policies that the country will implement in the coming budget year. The projected growth will unlikely be achieved against the backdrop of the prevailing macroeconomic instability. Though we commend government for reducing the number of beneficiaries in Fisp, the K30 billion allocation will likely go down the drain again and will not help the intended targets considering the projected poor weather conditions due to the effects of El Nino.

Secondly, government has not allocated adequate resources of support services like Extension and Research in the Ministry of Agriculture which will adversely affect productivity. My view is that the current budget will not lift people from abject poverty as there will be no investment in productive sectors of the economy.

Last time out, the minister proposed a decrease in total expenditure of 2.5 percent from K930 billion to K900 billion. How is this panning out in terms of improving the country’s ailing economy?

Lastly,the decrease in total expenditure is in response to problems with resource mobilisation to fund the budget. It is necessary because government through the Malawi Revenue Authority (MRA) is not able to meet the budgeted target on tax collections. This [funding reduction], however, will not have a direct bearing on improving the ailing economy because it will not result in growth in GDP, and it is just another fiscal measure to keep the economy in check.

Heading into the third consecutive fiscal year without Direct Budget Support (DBS) from donors, how are we fairing?

It is not entirely right to say that the country has not been receiving donor budget support. For instance, just last year, grants were projected at a total of K97.1 billion. This comprised K7 billion for programme grants, K37.2 billion was dedicated grants and K52.9 billion for project grants. At Mid-year, the projection was revised upwards to K130 billion with an upward adjustments of K13.6 billion in programme grants, K11.8 billion in dedicated grants and K8.4 billion in project grants. If you take out dedicated and project grants, the difference of K20 billion is programme grants, which culminates into budget support. It is all semantics I think.

Do you think the new tax measures will improve the economy?

Not at all. Taxes will remain high as long as the tax base remains the same.

MRA has introduced a number of initiatives to increase the tax base and improve efficiencies in tax collection. This is ongoing and will take a number of years for the country to start reaping the benefits. Now, government has introduced a number of tax measures this year mainly to do with reducing that basket of goods that were zero- rated in the value-added tax [VAT] regime. For example, milk, bread and laundry soap will now attract a 16.5 percent VAT and obviously this means the consumers will pay higher taxes than before. However, if you consider that the majority of the people in rural areas do not consume milk and bread, then this is a good move and is equitable. Government will thus stop subsidising the well-to- do at the expense of the poor.

Lastly, delays of budget documents reaching parliamentarians have angered many, will this negate on the quality of scrutiny accorded to the budget?

Yes, there has been a delay to submit reports to parliamentarians because of logistical reasons but this improved on the second day. Clusters managed to continue with their work and continue to do so.