Consumer and business perspective of 2018/19 budget

On May 18 2018, Minister of Finance, Economic Planning and Development Goodall Gondwe presented the 2018/19 Budget Statement in Parliament. The thrust of the budget is robust economic growth as the main goal of economic management alongside maintenance of macroeconomic stability for robust, inclusive and sustainable growth.

The budget remains the most important document through which policies and programmes are executed by governments. These policies and programmes have implications, either positive or negative on consumers and the private sector.

Overview of the K1.5 trillion budget

At K1.5 trillion, the budget is 13 percent higher than the K 1.1triillion 2017/18 revised budget, representing 22.8 percent of the gross domestic product (GDP).

Revenue is projected at K1.2 trillion, representing 23.6 percent of the GDP, of which, K 1.05 trillion will be generated domestically while the remaining K209 billion, representing 3.9 percent of the GDP, will be in a form of grants.

According to Gondwe, K20 billion has been set aside for maize purchases this season as maize production has dropped by 19.3 percent to 2.8 metric tonnes.

The minister also announced a hike in wages and salaries, increasing the government wage bill K392.0 billion, representing a 24.3 percent increase over the 2017/18. The increased wage bill is on account of 20 percent and 10 percent salary adjustment for junior and senior grades, respectively, in the public service.

Low-income earners have also been considered as government moved to widen the tax-free bracket from K 30 000 to K 35 000-a move that means only those earning above K35 000 will be taxed Pay as You Earn (Paye) at the flat rate of 30 percent.

On allocations, the education sector got the lion’s share at K166 billion. The agriculture sector got K151 billion, while the health sector is third on the list with K86.7 billion as reflected by government priorities outlined in the Malawi Growth and Development Strategy (MDGS) III.

Youths have also not been left out with government allocating K9 billion for youth tree planting programmes and entrepreneurship.

Treasury has since given Malawi Revenue Authority (MRA) a tax revenue target of K940 billion with K112.2 billion to be generated through non-tax revenue.

Government projects a real GDP growth rate of 4.1 percent in 2018 and 6.0 percent in 2019 and an average inflation of around seven percent.

Consumer perspective

Consumer Association of Malawi (Cama) executive director John Kapito is of the view that the 2018/19 fiscal plan is a “people’s budget” as most of the projects outlined in the budget are centering on giving a livelihood and creating disposable income to Malawians.

“Of course, a budget statement is just a statement until when it is implemented and that is tested depending on the resource envelope. But as consumers, we feel this is a people’s budget as we see that government is trying hard to get resources into communities and in people’s pockets.

“If this is well implemented, it could spur activities on the market and create disposable income among communities,” he says.

Businesses perspective

Businesses commend government for the economic gains made so far, in its mission towards macroeconomic stability like reducing inflation and interest rates.

Despite the achievements however, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira says it is surprising to note that the 2018/2019 budget has totally ignored the private sector, a sector which has the highest potential to catapult the country to economic freedom.

He observes that complementary enablers for inclusive growth and industrialization, such as immediate remedial solutions to the energy crisis that the economy is facing and incentives have not been considered in this budget.

Again, the 2018/19 budget has ignored most of the issues proposed by the private sector.

He says: “The modest GDP growth forecast of 4.1 percent and 6.0 percent in 2018 and 2019 respectively is not enough to fix the economy, because our export base is narrow, commodity based and prone to climatic conditions. Malawi needs at least 7 percent growth rate sustained over a period of not less than 6 years to meaningful bring a change in the economic development of the country. More and more countries in Sub-Saharan Africa are shifting towards value addition through industrialisation. Industrialisation, driven by private sector growth, has all the pre-requisites of mopping out unemployment which is one of the major challenges that Malawi is grappling with today.

“Secondly, improvements in the macroeconomic environment such as inflation rates and lending rates have not trickled down to businesses because of consistent key challenges in the business environment. These challenges include among others inadequate supply of electricity, lack of affordable long term capital, and uncertainty in the economic and regulatory policies. Malawi is characterised by changing of laws and policies every year creating much uncertainty for private sector.”

Kaferapanjira points out that of concern to the private sector is domestic borrowing which the budget statement alluded is going to rise by K176 billion due to diminished foreign borrowing.

“This is a worrying trend for the private sector considering that Malawi is already above the 20 percent threshold for domestic borrowing. This is likely to influence an upsurge in the interest rates and crowd out private sector capital.

The money that would be borrowed by Government if also not used for productive purposes will further push up inflation rates.”

Declining grants

According to the 2018/19 draft budget statement, grants are on the decline with figures indicating a projection of K21.1 billion grants in the 2020/21 financial year, from a projected K194.7 billion in the 2016/17 financial year.

In the previous financial year, government had projected to get grants worth K118 billion, but fallen short by K59 billion, just as in the previous year, where grants were projected at K194.7 billion, but revised estimates indicated that government only managed to get K147.7 billion in grants. In the 2018/19 financial year, government projects to get 209.1 billion worth of grants.

“Grants are likely to continue declining, as some development partners such as European Union (EU) will only consider resuming budgetary support if there is progress in critical areas such as curbing corruption-which is not evident at the moment- as well as maintaining macroeconomic stability,” says Kaferapanjira.

Fears on increased tax

The expenditure outlay for 2018/19 has increased by 14 percent from K1.3 trillion to K1.5 trillion. The budget has estimated an increase in tax revenue from K950 billion to K1trillion.

While experts have casted doubts on the revenue targets, it is the private sector which is the main source of revenue for the government and its financial performance is not expected to significantly improve.

“The Minister mentioned projections for revenue growth at 7.5 percent up from last financial year. We hope we have strong basis in making such a prediction. We are also quite surprised by the assumption that revenue will grow on last financial year considering the challenges that were experienced. We can therefore only hope for the best,” says Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe.

Government has pointed out in the budget statement that it is introducing non tax measures in the budget which will be cost reflective and inflation adjusted. It has also indicated that specific Ministries, Departments and Agencies (MDAs) will communicate the non tax measures.

“An analysis of the budget figures shows that large increments to non tax revenue will originate from the Registrar General and Department of Immigration offices.

“This is an area of great importance and interest to the private sector owing to previous experience where Government raised fees for labour occupation and health services by more than 300 percent a few years ago. Business licences were also increased astronomically from K10 000 to K120 000,” he says.

Private sector recommendations

MCCCI feels the 2018/19 budget is more of a social budget than a developmental budget that is supposed to balance economic growth with social development.

“There is need to revamp the economy and turn our focus to growth oriented sectors which will invariably create jobs for the large number of unemployed youths in the country. A private sector led growth is the only way that this unemployment problem can be mopped.”

Donor perspective

International Monetary Fund (IMF) resident representative Jack Ree says whether the budget is of the people or not an area of politics and national conversation, he commends the Minister’s continued focus on public finance management reform which he said will prevent government system from becoming a leaky bucket or even a broken water main.