27 April 2018
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MID YEAR 2017-2018 BUDGET REVIEW BY FINANCE MINISTER: FULL TEXT

Written by  Goodall Gomdwe

 

1. Mr. Speaker, Sir, since 2005, we have continued with

the tradition that requires reviews of the budget after
completing the first half of the financial year. There is no
legal requirement that this must be done; but the practice
has served us well because it enables us to examine the
continued pursuance of sound fiscal management. This
year as it will be the case henceforth; the reviews will
ensure the maintenance of the hard won macroeconomic
stability and a rebounded economy.

2. Mr. Speaker, Sir, my statement will be short and
will merely introduce the facts and figures contained in
“The 2017/18 Mid-Year Budget Review” document that
will be distributed to honourable members shortly.
We have concentrated on preparing documented
material for the study of honourable members.

3. It is also important to mention to the house that
this year the review has been conducted in parallel
with the International Monetary Fund mission that has
just completed its work in Malawi. The IMF has
released a press briefing to the public on which the
media has commented profusely. I therefore hope
that members are already aware of what am likely to say. Mr. Speaker, Sir, I would therefore like to
encourage my honourable colleagues to study our
document as intensively as they normally do.

4. The data we have used is as at the end of the first half
of 2017/18. The needed adjustments have been made in
response to the obstacles that the budget has encountered
during the first half of the financial year and which could
have deflected the attainment of the budgetary targets
that underlied the macroeconomic stability that has been
maintained.

5. These obstacles include the Government’s bailing out
of ADMARC with an amount of K45.2 billion to commercial
banks that extended loans to that institution to purchase
maize and other crops. The second setback was an
unbudgeted excess of wage expenditure of just over K5
billion by the Police Service and the Defence Force. The
third set back was the slowdown of revenue collection by
the Malawi Revenue Authority.

6. At the end of the first half of 2017/18, the under
collection of revenue amounted to K45.9 billion of which
K38.1 billion was tax under collection and K7.8 billion was
the non-tax revenue under collection.

7. These three main budgetary setbacks were the major
setbacks that could have derailed the achievement of the
financial targets that were set to anchor the maintenance
of the hard won macroeconomic stability and the
economic rebound.

8. Mr. Speaker, Sir, before I go too far into these matters,
let me quickly comment on our maize situation. As
ADMARC could only sell a small tonnage of the maize that
it purchased last season, a total of approximately 90 metric
tonnes of maize remains unsold and now constitutes part
of the food reserve that is available to the country.
Together with the amount of 182,000 tonnes that was
purchased by the NFRA, we have a total maize reserve of
272,000 metric tonnes. This is the highest level of food
reserve the country has ever had. Furthermore; it is also
estimated that 68,000 tonnes is available around the
country.

9. In discussing the current food situation, it must be
borne in mind that as of now there is no food shortage in
Malawi and that the calamitous effects of dry spells and
the fall armyworms Malawi is experiencing could impact
on the country much later. All that could be said now is
that food shortages will occur in a number of areas in
Malawi and that we should prepare measures to mitigate
this likely food disaster.

10. We have therefore set aside money to purchase a
further 200,000 metric tons of maize that could enable
ADMARC and NFRA to start purchasing available maize
stocks immediately and resources for the logistics to
transport maize within the country.

11. The bailout has created an ADMARC indebtedness to
the Government and therefore the 90,000 tonnes of maize
could be used to part pay this indebtedness of K45.2 billion
to the Government. Arrangements for the payment of the
balance will be worked out later.

12. Mr. Speaker, Sir, let me now explain to the house how
the review exercise has been conducted.

13. On the Development Budget; the Government
selected (15) projects out of (85) that are shown in annex
IV A of the document referred to earlier that will be
distributed to honourable members at the end of my
statement. These 15 projects must be completed at the
end of this financial year. His Excellency the President has
constituted a Cabinet Committee which I chair, to review
the implementation of these projects monthly and to
report to him any hindrances that may occur.

14. A further group of (26) projects Annex IV B must be
implemented to a stage where each is visible. Another
group of (15) projects Annex IV C that are funded almost
wholly by development partners will also continue to be
implemented during the second half of the financial year.
The remainder group of (29) projects Annex IV D will be
pended into the next financial year. To ensure that the
designated projects that will continue to be implemented
during the second half of financial year have adequate
funding, some resources from the pended list of projects
have been transferred to the prioritised projects i.e. the
list of projects in Annex IV A and Annex IV B. As part of the
adjustment exercise, the balance of resources of approximately K34 billion have been transferred to repay part of the accumulating domestic debt.

15. While I am on the issue of domestic borrowing, let me
react to comments that have been made by the public and
orchestrated by some honourable members. The
Government, like most honourable members, strongly
believes, that the accumulated domestic debt has to be
reduced by repaying some of it and by progressively
reducing the annual additions to the domestic debt so that
the required ratio of domestic debt to GDP can be reduced
from the present ratio of 25 percent to an internationally
accepted level of 20 percent. We believe that at the rate
that the annual borrowing is being reduced, and the rate
at which nominal GDP is growing, this ratio can be reached
in about three years’ time.

16. Mr. Speaker, Sir, furthermore, the indictment that has
been levelled against the Government that it has an
“appetite” for domestic borrowing does not resonate with
the facts, at least since 2014. This indictment about the so
called “appetite” for domestic borrowing overlooks the
fact that this Government’s annual domestic borrowing
has steeply declined from K94 billion in 2014/15 down to
K37 billion in 2016/17 and to a planned figure of K28
billion in 2017/18. Surely, these figures do not reflect a
Government that has an appetite for domestic borrowing.

17. After all, the rise in domestic borrowing was
“cashgate” created problems including the donors’
withdrawal of budgetary support that reduced available
resources to the budget by 10 percentage points. If the
country was to continue with an acceptable level of social
welfare, recourse to domestic borrowing was necessary to
plug the whole. However, through yearly budgetary
adjustments, this is being reduced aggressively as
demonstrated by the data.

18. Mr. Speaker, Sir, another uncharitable accusation is
that the Government borrows to fund consumption.
Honourable members will see from the budget figures that
consumption which is synonymous with Recurrent Budget,
is completely covered by domestic revenues and
designated external grants. It follows that the extra
available resources from external grants, domestic
revenues and borrowing must be funding the
Development Budget. That being the case, this indictment
that domestic borrowing in Malawi is needed to satisfy the
consumption segment of the budget is a falsehood.
Without a revenue substitute, a reduction of either
external or domestic borrowing will impact negatively on
the Development Budget.

19. The attention of the house is called to the fact that
since 2005 apart from the period 2013-2015, more and
more of our Development Budget is funded by local
resources. This year for example, 38 percent of
development budget is being funded by local revenue and
borrowed resources.

20. And now Mr. Speaker, Sir, let me deal with the
budgetary adjustments within the Recurrent Budget to
realign the budget with the budgetary targets as
originally designed. As been pointed out, the budget
has suffered two main traumas, the first being the
excess in expenditure as a result of the ADMARC
bailout of K45.2 billion and the second is the huge
under performance in the revenue collection of close
to K45.9 billion in the first half of the year that would
also have derailed the budget if the trauma continued
into second half of 2017/18.

21. It is believed that with a number of economic
measures that will eliminate power outages, tax
collection will be normalized in the second half of
2017/18 and yield roughly K70 billion more than was
collected in the first half of the year. It is also expected
that Malawi will receive a budget support of K60.0
billion from the World Bank in the course of the second
half of the year. In the event therefore, for the whole
2017/18 total revenue plus grants would be K1,130.3
billion which is a little higher (2.6 billion) than originally
budgeted at K1,127.7 billion.

22. As regards the reviews of expenditures within the
Recurrent Budget, the adjustments have concentrated
on reductions of travel related budgetary lines within
the “Other Recurrent Transactions”. Although it will be
seen at the end of Annex II that it forecast that the
total ORT will increase from K660.2 billion to K686.9
billion. In fact the increment could have been much
larger if budgetary reductions were not made in a
number of votes.

23. The adjustments have concentrated in the
reduction of travel related budgetary lines in a number
of votes as can be seen from Annex II. The measures
that will anchor these reductions are being discussed
and confirmed by the Chief Secretary and Secretary to
the Treasury; they are likely to include a reduction of
10 to 20 percent of fuel allowances across the board.

This should also help to reduce Malawi’s overall
demand for fuel. A deep cut in the number of
personnel that are now provided unofficially with
motor vehicles. The Government will not pay for the
maintenance of such motor vehicles. Business class
travel could be curtailed and a limited number will use
it as has been done in our neighbouring countries. In
general these measures merely supplement the fact
that Responsible Controlling Officers in response to
the cuts in travel budgetary lines will reduce the
number of official missions in response to the cuts that
have been made to their votes. It will also be seen
from the table that wages are programmed to be
increased somewhat by an amount close to K6 billion.
This figure would have been much larger were
vacancies not frozen by eliminating as can be seen
from the table.

24. The Budget therefore has been subjected to a
rigorous adjustments than the figures show.

25. In sum, therefore as will be seen, the review will
result in a small reduction of the budget by
approximately K9.3 billion (or 0.7 percent of GDP),
while total revenues and grants will register a small
increase of K2.6 billion from the original budgeted
figure of K1,127.7 billion to K1,130.3 billion.

26. In terms of overall budget, after these budgetary
adjustments, it will be seen that the budget deficit is
programmed to improve from K195.6 billion down to
(K183.6 billion). The domestic borrowing will move a
minimal figure from K27.8 billion to K33.7 billion.

27. These figures show that the review exercise has
succeeded to retain the essence of the budget and will
not lead to macroeconomic instability in form of a
higher rate of inflation but will maintain the
downwards trajectory of the rate of inflation. It is
therefore confirmed, as IMF also did, that the
estimated inflation figure this year will be 11 percent
as against 20 percent in 2016.

28. Thus the purpose of the exercise to retain financial
targets that will maintain macroeconomic stability and
the economic rebound that has been achieved is
assured.

29. Mr. Speaker, Sir, the more interesting statistics
figures that the IMF have left behind is their strong
forecast that if the macroeconomic is managed well as
it is now, the economy, as we have emphasised before,
the average economic growth rate of Malawi could
reach 7 percent. This should give honourable
members confidence that the economy is being
managed as well as it should. They state that in the
medium term (3 to 5 years), growth rates could be
high in Malawi. This is the Government’s goal. We are
determined to emerge out of a group of poorest
countries in the world within the medium term. Yes,
Sir, we can and will.

30. Mr. Speaker, Sir, and honourable members, I thank
you for this opportunity to give you this financial report
of the Mid-term review.

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