Malawi Government authorities need to improve on critical analysis before effecting major policy changes to the country’s fiscal framework, a socio-economic commentator has said.
As government is implementing the Economic Recovery Plan (ERP), the Malawi Growth and Development Strategy (MGDS II) and the National Export Strategy (NES), Blantyre-based economic commentator, Fredrick Changaya, has faulted authorities for lacking “a critical punch to move to another level”.
“For example, in the finance management sector, the RBM [Reserve Bank of Malawi] has kept the base lending rate intact while the commercial banks are adjusting their rates. The case could be fiscal discipline versus monetary policy, you find that the fiscal discipline is not there.
“Meanwhile, we think the RBM is controlling by holding the rate below where it was, yet, there is no control of over expenditure by government. What we are saying is that, as we are doing whatever we are doing, there is need to put critical analysis in all that,” said Changaya, who is also Candlex Malawi Limited chief operations officer, in an interview this week.
This, he says, is a clear example of the misalignment between the fiscal policy, the preserve of the central government and monetary policy controlled by the central bank.
While RBM is busy mopping up excess liquidity (money) in the market, the government is, on the other hand, flooding the market with money through over expenditure, domestic borrowing and, more recently, the increased wage bill through the 61 percent increase in civil servants salaries.
Changaya cited the 250 percent excite duty imposed on liquor sold in sachets and plastic bottles in the 2012/13 budget, questioning if government considered that the increase in duty could encourage smuggled imports.
He said this has the potential to stifle the liquor industry while promoting the consumption of products not manufactured in Malawi.
“In this way, we have lost employment for the people locally. We have also lost foreign exchange because now it has to be imported and, locally, there will be a lot of tax evasion of liquor spirit because 250 percent duty is so huge,” said Changaya, stressing that it has been proven that the higher the duty rate, the higher the evasion.
He said the alternative of liquor in sachets is locally distilled alcohol (Kachasu), which is a health hazard, and wondered if at all government has an adequate budget to cater for people who may be affected by its consumption.
Changaya also called on government to analyse all the issues before coming up with any fiscal plan.
University of Malawi’s Chancellor College economics professor Ben Kaluwa, in an earlier interview, said it is critical for government policies and strategies to speak to each other.
He said, for example, before launching the NES, government could have also looked into the capacity of the Malawi Bureau of Standards (MBS) and other government agencies such as Malawi Revenue Authority (MRA) that could enhance the country’s export potential.
“The MBS should have the capacity to certify Malawi’s goods destined for the export market. Government should have also addressed the issue of imports that could stand in the way of the strategy,” said Kaluwa.
Malawi’s economy is sailing through a difficult patch characterised by galloping inflation, currently at 37.9 percent as of February, rising bank lending rates and soaring cost of living largely triggered by the devaluation of the kwacha and its subsequent floatation in May 2012.