Brave budget

Malawians affected by dry spells and flooding can breathe a sigh of relief as the Minister of Finance, Economic Planning and Development Goodall Gondwe has allocated exponential amounts of money to purchase maize and implement irrigation programmes for smallholder farmers.

In the longest budget statement Gondwe has delivered in recent times, two hours and seven minutes, the minister visibly limped back to his seat as he had stood for that long without his customary walking stick.

He did not mince words as he made it clear that the priority of the government this 2016/17 financial year was that people must have food to eat and stressed that controlling officers should prudently implement the budget and prepare for reduced funding.

“Nonetheless, it is the expectation of the government that ministries, departments and agencies (MDAs) will plan their programmes and activities within the available resources, and that they will neither over-commit nor create unauthorised arrears,” Gondwe warned.

But the priority of the government will be at the expense of recurrent funding for activities planned for ministries and departments clearly stating the budget would address short and mid-term challenges being faced as a result of climate change.

All indications are that maize production will be significantly low even before the third and final round of crop estimates is released later next month.

Maize production has been estimated at 2.4 million metric tonnes (MT) with an additional 790 000 MT of relief food to support an estimated 8.4 million people.

Gondwe has allocated K35.5 billion for the procurement of maize in the 2016/17 budget of which K6 billion would go towards winter cropping by private sector large scale farmers who are expected to contribute about 500 000 MT of maize through the initiative.

However, he admitted that the money allocated was not enough as it was merely in addition to the funding the Treasury has provided in the second half of 2015/16.

In continuation of the reforms of the Farm Input Subsidy Programme (Fisp) which started last year on a low scale, the number of beneficiaries has been reduced to 900 000 from 1.5 million.

This has resulted in a 50 percent reduction of the 2016/17 Fisp budget from the revised K63.9 billion to K31.4 billion.

However, the government has once again devolved the importation of 60 percent of fertiliser to private traders who will sell directly to farmers, while the remaining 40 percent will be implemented through the Smallholder Fertiliser Revolving Fund of Malawi (SFRFM), with support from Admarc.

Meanwhile, Gondwe has obtained clearance from the International Monetary Fund (IMF), which has relaxed stringent domestic borrowing in keeping with the seventh Extended Credit Facility (ECF) pegged at K25 billion which Treasury barely managed not to go over when it registered K23 billion as a result of increases in Fisp expenditures.

The minister said domestic borrowing is set at K60 billion, way above the limit of K25 billion set in the 2015/16 budget.

The minister has also projected a deficit of K171.2 billion which will be foreign loans worth K111.2 billion.

“Further, the lower limit for the current fiscal year has also been relaxed to finance immediate food purchases,” he said.

While Gondwe said the budget was not acting under IMF instructions, he did not outline about five measures sanctioned by the institution which include increasing domestic resource mobilisation apart from allocating resources to enable maize procurement and support irrigation farming.

IMF has also ordered that the wage bill must be maintained below 7 percent but not at the expense of recruitment of teachers, health personnel and Police officers.

While the hire freeze remains in place 10 500 primary school teaches and 477 secondary school teachers who were not recruited last year will be hired this year which will increase the wage bill from K198 billion to K224.4 billion.

However, Gondwe disclosed a modest 15 percent average salary increment for civil servants in lower grades.

He has also paid mind to the IMF direction that allocations to the health, education and other critical social sectors must not be affected by allocating K198.5 billion to the Ministry of Agriculture, Irrigation and Water Development, K147.6 billion to the Ministry of Education, Science and Technology and K95.8 billion to the Ministry of Health.

As such, the 2016/17 budget has been set at K1.1 trillion, up from the revised K917 billion in the 2015/16 budget, of which K774 billion will be domestic revenue while K190 billion will be grants translating to 22.2 percent of the gross domestic product (GDP).

The budget has once again remained ambitious of donor support despite poor performance of grants in the 2015/16 budget.

“There is a 45.5 percent increase in grants due to a high rise in project grants that have been pledged, particularly by the European Union,” Gondwe said.

But of course this is not yet assured as the EU and World Bank are in the process of finalising evaluations of the public finance and economic management framework.

At a time when Gondwe has been preaching independence from donors and describing the past two budgets as ‘zero aid’, the 2016/17 budget includes a K279.8 billion from donors and loans for the development budget while local resources will only account for 11.8 percent, which is K36 billion.

The budget has also provided K50.2 billion towards the pensions and gratuities but once again, there has been no funding allocated to the migration of 122 000 civil servants to the National Pension Scheme due to lack of money. n