Parliament reconvened for the plenary session yesterday to debate the K2.2 trillion 2020/21 National Budget with the opposition describing the proposed financial plan as a wish-list of unrealistic
commitments that risk driving the country into a macroeconomic tailspin.
But Minister of Finance Felix Mlusu, in an interview after Parliament adjourned, equally stated that the DPP official response delivered by his predecessor Joseph Mwanamvekha was not realistic either.
In his response, Mwanamvekha, who is DPP spokesperson on finance matters in Parliament, said the proposed financial plan was elusive on a litany of campaign promises the Tonse Alliance administration dangled prior to the court-ordered June 23 Fresh Presidential Election.
He cited the universal fertiliser subsidy programme, K15 000 monthly allowance for senior citizens aged above 65, introduction of mega farms, subsidized passport fee, Covid-19 risk allowances for medical doctors, nurses, teachers, the police, immigration and the prison staff, among others.
The Tonse Alliance, whose candidate Lazarus Chakwera of Malawi Congress Party (MCP) polled 58 percent to defeat then incumbent president Peter Mutharika of DPP, has been in power since June for a five-year mandate.
In his presentation of the budget on September 11, Mlusu said the proposed financial plan assumed a 1.9 percent real gross domestic product (GDP) growth rate in 2020 and 4.5 percent in 2021.
He also assumed a stable exchange rate, single-digit inflation rate of 9.3 percent in 2021, steady policy rate of 13.5 percent and a historical budget deficit of K755 billion.
But in his 24-page response, Mwanamvekha said DPP considered the fiscal plan consumptive as opposed to development-oriented as 92 percent of domestic revenues are financing recurrent expenditures.
Recurrent expenses in the K2.2 trillion budget are estimated at K1.679 trillion and comprise K523.7 billion for wages and salaries, K376 billion for interest payments, K308.9 billion for goods and services, K266 billion for social benefits and K97.4 billion for subvented organisations.
The budget also allocates K511.2 billion development budget, out of which K410.3 billion is for foreign-financed projects and K100.9 billion for domestically-financed projects.
The Nation analysis shows that at K100.9 billion, local resources earmarked for development in the budget represent 19.7 percent of total development expenditure. In other words, this means that for every K1 invested in physical capital formation, only about 20 tambala is from Malawians and 80 tambala from non-Malawians.
Said Mwanamvekha: “The budget is unfriendly to the business sector as no fiscal incentives necessary for cushioning and supporting the struggling private sector during this Covid-19 period have been provided. It is also unrealistic because all assumptions used in this budget are overlay exaggerated.”
He also described the budget as “overburdening in debts” as it proposes a yawning worst-ever budget deficit in the history of this country at K755 billion, which is equivalent to 7.5 percent of the budget.
But while it is inevitable for a government to run on a budget deficit, most economic experts The Nation recently spoke to opined that it would be possible to reduce such a high level of deficit if some measures in the budget were implemented differently.
On specific assumptions underpinning the budget, Mwanamvekha described the projected real GDP growth rate of 1.9 percent this year and 4.5 percent in 2021 as over-optimistic.
He observed that currently, both advanced and emerging economies, including Malawi’s major trading partners, donors, sources of foreign direct investment (FDI), remittances and tourism revenue, are in ‘unprecedented levels of recessions’ never recorded in decades.
Said Mwanamvekha: “The other assumption unrealistically estimated in this budget is the stability in the exchange rate. Already, the kwacha is on a free-fall as we speak and businesses are struggling to access foreign exchange to import necessary raw materials for their businesses and some of them have scaled down their operations as a result of this challenge.”
On the average inflation target of 10.5 percent in 2020 and 9.3 percent in 2021, Mlusu’s predecessor described such an assumption as unrealistic, arguing that already maize prices—which have a heavier weight on Consumer Price Index (CPI)—is sharply rising and that imported goods, including petroleum products, fertiliser, cement and all other commodities are also sharply going up due to scarcity of foreign exchange and the depreciation of the kwacha.
Mwanamvekha also described the goal to create “one million jobs during the first 12 months” as “simply a wish, cheap talk and broken promise” for the voters from the outset. He said the operating environment is very hostile due to Covid-19.
Employers Consultative Association of Malawi (Ecam) records show that 273 712 jobs were lost between January and June this year and that projections pointed to a more bleak outlook as a cumulative 680 496 people could be out of employment if Covid-19 persists up to December 2020.
On public debt which had accumulated to K4.1 trillion as of June 2020, Mwanamvekha also accused government of not decisively addressing the rising public debt challenge in the budget as manifested by a growing budget deficit which he said will continue crowding out the private sector while stifling private sector investment.
At 4.1 trillion, Malawi’s total public debt represents 65 percent of GDP and is an increase of K458 billion over the same statistic a year earlier.
But rising on a point of order after Mwanamvekha’s presentation, Minister of Trade Sosten Gwengwe—who prior to the change of government was Budget and Finance Committee of Parliament chairperson—disputed assertions that DPP left a budget deficit of K357 billion in government.
He said: “Actually, Madam Speaker Madam, DPP left a budget deficit of K557.7 billion and not K357 billion as claimed by the former minister [of Finance]. I am rising on procedural order because this can’t be left for two weeks to come without commenting.”
Next to give a scrutiny of the financial plan was Budget and Finance Committee of Parliament chairperson Gladys Ganda who also described most of the assumptions in the budget such as the 1.9 percent GDP growth rate for 2020 as ambitious.
She asked government to be more realistic in generating statistics which she said are crucial in the entire budget process.
But after Ganda, a DPP legislator for Nsanje Lalanje Constituency, had presented her report, a heated debate ensued as some members of her committee claimed the issues she highlighted were not part of the original report they had unanimously agreed.
This prompted Speaker of Parliament Catherine Gotani Hara to pend the Budget and Finance Committee’s report “until it is investigated”.
In an interview yesterday after the House adjourned, Mlusu said he could not instantly respond to issues Mwanamvekha raised, saying he will give a comprehensive response when winding up the budget debate.
The minister also said Treasury has noted all the concerns from the parliamentary cluster committees as well as the opposition and will map the way forward.
During the interview, Mlusu said most of what Mwanamvekha had raised was not realistic, citing the K4.1 trillion public debt which he said was inherited from the DPP regime.
He said also said election campaign promises cannot be fulfilled in one financial year.