Finance Minister Felix Mlusu is this morning set to unveil the Tonse Alliance government’s maiden budget at Parliament in Lilongwe.
The new fiscal plan–to cover the period between November 1 2020 and June 30 2021—may exceed the K2 trillion mark in nominal value, according to high level sources at Treasury.
It will build upon the K722 billion four-month provisional budget currently in force that was presented by Mlusu on June 30 2020. It is set to expire on October 31 2020.
Mlusu presents the budget at a time when a wobbling economy is facing a harsh atmosphere characterised by little domestic revenues—comprising tax and non-tax revenues—against a myriad of expenditure needs.
The fiscal plan is expected to cover a litany of promises that the Tonse Alliance made ahead of the June 23 Fresh Presidential Election as well as in President Lazarus Chakwera’s first State of the Nation Address (Sona) delivered in Parliament last Friday, such as the increase of the tax free band to K100 000 from K45 000 and increase in minimum wage to K50 000 from the current K35 000.
Considering that on average, monthly tax revenue collections have in recent months dropped from K90.8 billion during pre-Covid-19 period to a monthly average of K59.1 billion, representing a 35 percent drop, Mlusu has no space for luxury.
When contacted on Thursday, executive director for Centre for Research and Consultancy Milward Tobias warned the new government to tread carefully.
He said: “Covid-19 has caused a reduction in revenue and an increase in expenditure. Figures from Malawi Revenue Authority [MRA] confirm this. New demands to contain Covid-19, including Covid-19 risk allowance to frontline workers have a bloating effect on expenditure.”
Tobias said the Centre for Research and Consultancy expects that about three months in government, the Tonse Alliance has gotten grip with reality in terms of resource challenges.
Again, with public debt (domestic plus external debt) now pegged at K4.1 trillion as of June 2020, Mlusu should also be worried as it will be inevitable for him to increase his allocation towards debt and interest repayments in view of the increasing domestic debt-which now hovers around 57.3 percent of the total debt stock and 33 percent of the country’s nominal gross domestic product (GDP).
This is opposed to foreign debt whose repayment has mostly been deferred to the near future by donors in view of Covid-19.
External loans are usually cheaper as they are mostly concessional in nature as compared to expensive domestic debt.
In the 2019/20 budget, government allocated K243 billion for interest repayments, and that was even way above an allocation of K167 billion to the country’s agriculture sector. Indications are strong that the new budget will also allocate more towards interest repayments.
On Thursday we collaborated with the Centre for Research and Consultancy and attempted to gauge the cost of the Affordable Input Programme (AIP) and likely adjustment of a zero-rated tax band to K100 000.
Firstly, the targeted 4 279 100 beneficiary households at two bags each means 8 558 200 bags of 50kg will be subsidised. Using a conservative market price of K20 000 per bag and a K15 500 subsidy per bag (since farmer contribution is nearly K4 500) gives K132.6 billion as the total for this year’s fertiliser subsidy programme.
However, such a figure leaves out the cost of subsidising 21 396 tons of maize, sorghum and rice seeds as it also forms part of the AIP. The programme this year may likely cost over K160 billion, a huge rise from the K38.6 billion allocated in the 2018/19 budget and K35.5 billion in the 2019/20 budget for the Farm Input Subsidy Programme, albeit with lesser beneficiaries.
Similarly, our calculation shows that the increase of the tax income free threshold to K100 000 may see government foregoing tax revenue in the region of K80 billion to K90 billion a year, an amount that is enough to fund the Malawi Prison Services (MPS) for eight to nine successive financial years. MPS was allocated K10 billion in the 2019/20 budget.
Mostly likely, in the budget, government ministries departments and agencies (MDAs) will be pulling Mlusu left, right and centre in competing over who gets more or adequate resources from the budget.
For instance, the Ministry of Education will have to battle it out for a greater chunk of the national cake considering the possible re-introduction of Junior Certificate examinations, possible Covid-19 risk allowances for teachers and.an increase in enrolment in public universities from 36 000 in the 2019/20 academic year to 48 000 in the 2020/21 academic year.
In the Sona, Chakwera announced the construction of three teacher training colleges in Mchinji, Rumphi, and Chikwawa, which will also likely burden Treasury.
Generally, the budget needs to make Covid-19 compliance in education a priority, according to educationist Steve Sharra.
Again, the agriculture sector will need a large share of the budget, given the number of AIP beneficiaries increasing from the initial 3.5 million in the interim budget to 4.2 million.
Efforts to talk to Mlusu on Thursday proved futile as he was reportedly in crucial meetings that are key to the finalisation of the budget formulation.
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