The Economics Association of Malawi (Ecama) has described the 2021/22 fiscal plan as ‘quite ambitious’ despite having measures to help spur economic development and private sector growth.
In an interview on the sidelines of the association’s membership and private sector meeting with Minister of Finance Felix Mlusu, Ecama president Lauryn Nyasulu said it is clear that revenue collection will face some challenges as the Covid-19 pandemic continues to disrupt the private sector, reduce government revenues and present more expenditure demands.
She said: “What is coming out is that the ministry has really attempted to put forward some incentives to ensure the economy rebounds but at the same time, there is need to balance on how well we are investing.
“One thing that came out clear in the budget is that the country will face revenue challenges in the short-term. Government relies on revenue that has been collected to invest and spend.”
In his presentation on the proposed tax measures, Ecama executive director Frank Chikuta observed that the Customs Procedures Code and the duty-free imports may affect local production, constrain private sector growth, reduce tax revenue and worsen the fiscal deficit.
He also singled out government’s macro-economic projection of attaining a stable exchange rate of about K780 per dollar, observing that the exchange rate may not be stable
“Reserves have been trending downwards despite the tobacco selling season, dropping from 410.16 million [1.96 months of imports] in March 2021 to 392.01 million [1.88 months of imports] at the end of April 2021,” Chikuta said.
During the 2021/22 nine-month financial year, Treasury projects to collect K1.101 trillionin domestic revenues, of which tax revenues are estimated at K1.044 trillion, representing, 10.2 percent of the gross domestic product (GDP) while other revenues have been estimated at K56.9 billion.
To boost the growth of small businesses and to reinvigorate the economy suffering from the effects of Covid-19 pandemic, Treasury has also introduced a duty-free week for imports not exceeding $3 000 (about K2.3 million) and also increased the Comesa Simplified Trade Regime threshold from $2 000 )about K1.6 million) to $3 000.
However, in an interview after the event, Mlusu, said Treasury is of the view that the projections are going to hold, pointing out that for instance, the exchange rate is going to hold because of the activities Treasury is undertaking and the prospects of the economy is opening up.
On the duty-free week, the minister said: “We have done various analyses in-terms of the revenue to be forgone on duty-free week.”
Nyasulu, however, pointed out that the duty-free week is a threat to private sector development as the move is meant to encourage imports at a time when the economy would love to see local production being stimulated“if we are to attain the growth levels that are being projected.” n