Malawi Minister of Finance, Economic Planning and Development Goodall Gondwe on Tuesday unpacked the 2014/15 National Budget worth K742 billion based on the principle of zero-aid with a deficit of K107 billion.
Gondwe’s budget, as earlier indicated, does not include budgetary support from donors, but falls short of explaining where revenue will be sourced.
The minister was, however, quick to say this did not mean the Government of Malawi did not need donor support as discussions were still underway with the major development partners such as the United States of America (USA), European Union (EU), United Kingdom (UK), World Bank and African Development Bank (AfDB).
Of these donors, EU, the World Bank and AfDB have hinted at a K43 billion injection into the 2014/15 budget, but Gondwe said: “We have assumed that none will be received.”
This feeling has also forced government to reduce expected grants from donors to K38.5 billion from last year’s commitment of K93.6 billion of which only K31 billion was disbursed.
“Mr Speaker Sir, honourable members will have concluded that the country is passing through turbulent times financially. This would be a correct conclusion. In such circumstances, we should adopt a frugal stance where individuals or groups of individuals should desist from asking what more the government can do to improve their own situations,” said Gondwe quoting President John F Kennedy of the US.
He said the drastic reductions to ministries as a result of reduced fiscal expenditure, donors withholding 16 percent of budgetary support were a direct result of Cashgate in which close to K14 billion was stolen from government coffers.
Although he subsequently avoided using the word Cashgate in his remarks, Gondwe said this crippled the ability of the government to function and it incurred a K121 billion domestic debt.
In Gondwe’s own words, the 2014/15 financial plan is severely constrained as a result of the K340 billion cumulative domestic debt, withheld budgetary support and arrears of which only K50 billion will be paid out.
However, his budget statement titled ‘Restoration of Fiscal Discipline as a Foundation for Poverty Reduction’ fell short of clearly stating where Malawi Revenue Authority will get the K535 billion revenue for recurrent expenditure which includes a 24 percent salary increase for civil servants.
There are no significant changes to the tax regime, but Gondwe has instead removed value added tax (VAT) on raw materials for the production of fertiliser and medicines and removed import duty, import excise and VAT on minibuses that are zero to five years old.
But it seems Gondwe has turned his attention to Malawians and locally hired employees working in foreign embassies and international organisations that are not paying taxes.
“My ministry will work with the Ministry of Foreign Affairs to get information on nations and locally hired employees so that MRA can enforce this tax law and collect taxes.
“In addition, government has noted with concern that some holders of permanent resident permits are not paying tax on income earned in Malawi,” said Gondwe but did not give the amount of expected revenue from this source.
Government will also be working on the assumption that inflation rate will continue to go down to at least 15 percent with a possible economic growth of 6.1 percent to improve economic activity and enable MRA to collect the projected K525 billion.