Budget sounds like another grooved record

Barely weeks into his new role, Minister of Finance and Economic Affairs Sosten Gwengwe on Friday tabled for consideration by Parliament his maiden national budget and the Tonse Alliance administration’s third fiscal plan.

Naturally, there are mixed reactions to the K2.8 trillion 2022/23 National Budget whose major gainers include consumers of cooking oil and tap water who will no longer pay the 16.5 percent value-added tax (VAT) levied on the products.

Members of Parliament and their constituents are the other biggest beneficiaries as the minister more than doubled the annual Constituency Development Fund allocation from K40 million to K100 million for each of the 193 constituencies.

In his budget statement, the minister stressed that during the fiscal year to run from April 1 2022 to March 31 2023, the Malawi Government will in earnest start addressing issues of public debt management as well as import substitution and tackle balance of payment.

The proposed budget now under scrutiny is anchored on strict fiscal consolidation policy to be supported by the implementation of the Domestic Resource Mobilisation Strategy and roll out of some programme reforms aimed at containing costs in a sustainable way.

The financial plan is coming at a time the economy is battered with the impact of Covid-19 as well as dwindling domestic revenue collections and high public debt. At K5.5 trillion or an equivalent of 54 percent of the Gross Domestic Product (GDP) and close to the 60 percent regional and international threshold, interest rate payments pegged at K524 billion exceed sectoral allocations. For instance, education is allocated K462 billion, agriculture K447 billion, health K283 billion and civil servants’ salaries and wages will consume a whopping K670 billion.

The budget deficit is projected to shoot to K885 billion from K718 billion in the financial year ending on March 31 2022.

It is a promising budget amid low growth, rising debt and deteriorating fiscal performance. The minister talks about import substitution, public debt management, export diversification and resolving the balance of payment riddle.But in my view, the projections may end up being mere wishes than reality in the absence of strong political will as well as clear indication on how long the consolidation process will take. Timelines are important in driving change.

Economic growth is projected at 4.1 percent, up from 3.3 percent last year. However, this is still far below the internationally recommended minimum of six percent needed to have an impact on poverty reduction.

There are major infrastructure projects highlighted in the budget. However, lack of clarity on sources of funding quickly wipes out the expectation as memories are still fresh of how the highly touted K1 trillion infrastructure bond has failed to attract investors, leading to stalling of projects.

Inflation is yet another potential threat to the budget and economic recovery in general as it will negatively impact on purchasing power.

Currently, MPs and other stakeholders are analysing the proposed national budget in cluster committees. It is my expectation that some of the highlighted shortfalls and lack of clarity on how the economy will be stimulated will be addressed before going into plenary session of Parliament.

Prior to the 2021/22 National Budget ending on March 31, I titled my pre-budget write-up ‘Budget will tell if destination remains ‘Canaan’’ as per Tonse Alliance campaign promises. This is the third of five budgets.

National budgets or expenditure plans play a critical role in fostering economic prosperity and eradicating or reducing poverty. Through the national budgets, governments implement their development plans. This is the more reason budgets should be realistic and informed by economic realities.

Given the dwindling domestic revenue collections, the key source of financing the budget, it is important to consider the reality that direct budget support is critical in budget implementation. It is time to re-engage the donors as the 30 percent-plus the donors pumped into the recurrent budget and the over 80 percent in the development budget eased pressure.

If ‘Canaan’ remains the destination as promised by Tonse Alliance, there is need to embrace hard choices, trade-offs, credible revenue projections and sustainable expenditure. Public finance management should improve to save the estimated 30 percent of public funds lost to fraud and corruption annually.

In his budget statement, the minister talked about controlling expenditure. But this sounds like a grooved record, especially given the fact that his predecessors have made similar promises before with very little to match on the ground.