Malawi 2012/13 mid-year budget statement by Minister of Finance, Ken Lipenga: Full Text

Motion

Mr. Speaker, Sir, and Honourable Members, I beg to move that this House debate the Supplementary Estimates of Recurrent and Development Accounts for the 2012/13 Fiscal Year and that the estimates be referred to the Committee of the Whole House, to consider them Vote by Vote, and that thereafter, they be adopted.

INTRODUCTION

Mr. Speaker, Sir, let me begin by wishing you and the Honourable Colleagues a Happy and Prosperous New Year. My humble duty this afternoon is to appraise this August House and the Nation about the budget performance for the first half of the 2012/13 financial year and present prospects to the end of the financial year.

Mr. Speaker, Sir, let me thank Her Excellency the President, Dr. Joyce Banda for entrusting me with the enormous task of leading the country’s economic management team at such a crucial time. My pledge to the President and the people of Malawi is that I will work in their best interest and to the best of my ability.

Lipenga: I beg to move

Lipenga: I beg to move

Let me also use this opportunity to thank all members of this House, and in particular, the Budget and Finance Committee, for their invaluable support and contributions to the budgeting process. Comments and constructive criticisms made by members of this House in the course of debating the Budget Statement or at any other time, are never and will never be taken lightly. And even if some members occasionally felt the need to be particularly vicious in the expression of their views, that too, is an important part of democratic discourse. As government, we do have a duty to listen to especially those who disagree with us and where possible take on board their views in the formulation of policy.

Mr. Speaker, Sir, our economy remains fragile due to the failure to make the tough economic decisions in the past. We are still grappling with these challenges and implementing austerity measures to stabilize the economy. We now anticipate that the annual growth rate in 2012 is 1.9 percent instead of the initial projection of 4.3 percent. Our import cover, though improving, remains precarious; and the general price level continues to trend upwards. It is, however, pleasing to note that there is confidence and optimism in the private sector, the engine for economic growth. We expect growth to rebound to around 5 percent in 2013.

Mr. Speaker, Sir, in order to correct the past mistakes and put the economy on a sustainable path to recovery, tough policy decisions – many of them painful and unpopular – had to be made

Mr. Speaker, Sir, I will be the first to admit that the challenges we face are real. Addressing these challenges and generating sustainable economic growth will require sustained commitment to the reform process. This Government has put the right policies in place. To echo the words of our President, “the foundation for recovery has been laid and if we work together, then together we will succeed.”

GLOBAL AND REGIONAL ECONOMIC OUTLOOK

Mr. Speaker, Sir, “ensuring that inflation returns to target in the medium term is our primary responsibility and objective. If we saw evidence that inflation expectations were not consistent with the target in the medium term and the rate increases were picking up to levels that we thought were inconsistent with achieving the target in the medium term, then we would have to tighten the policy.” Those, Mr. Speaker, Sir, are not my words, but rather the verbatim words of Sir Mervyn King, governor of the Bank of England, speaking only a few days ago. I quote him in order to highlight the fact that major economies in the world are grappling with lower than forecast economic growth. Indeed the theme of the October 2012 World Economic Outlook by the IMF focused very much on the issue of sluggish growth.

Global recovery is continuing but at a much slower pace than earlier projected in July 2012. In addition to homegrown weaknesses, low growth and uncertainty in advanced economies are affecting emerging markets and developing economies, through both trade and financial channels. Currently, the IMF has revised downwards growth forecasts for 2013 from 2 percent to 1.5 percent for Advanced Economies (AEs) and from 6 percent to 5.6 percent for Emerging Markets (EMs) and Developing Economies (DEs). This is depressing the global growth forecast to 3.6 percent for 2013, a downward revision of 0.3 percent from July 2012 estimates.

Mr. Speaker, Sir, these forecasts are underpinned by new setbacks. Generally, policies are not rebuilding confidence in the medium term because of such risks as the euro area crisis and uncertainty around the US fiscal cliff. The debt overhang is amplifying that uncertainty and financial conditions remain weak and fragile. As a result, growth will be depressed while unemployment is likely to remain elevated in many parts of the world.

Mr. Speaker, Sir, one major lesson we have learnt from the recent global financial crisis is that fiscal policy should always be consistent with monetary policy. This implies that we must contain expenditure within the approved budget in order to prevent the build-up of debt. Government borrowing crowds out private sector investment and leads to a growth in money supply which results in inflation and exchange rate depreciation.

Mr. Speaker, Sir, despite lower forecasts for advanced , emerging market and developing economies, the outlook for most of Sub-Saharan Africa is positive at a projected 5.7 percent for 2013.

THE MALAWI ECONOMY

Mr. Speaker, Sir, in order to put my report on our economic performance into perspective, allow me to quote the French political thinker and historian, Alexis de Tocqueville, “When the past no longer illuminates the future, the spirit walks in darkness.”

This quote Mr. Speaker, Sir, is very important in our context. In order to understand where we are, we must first appreciate where we are coming from.

Mr. Speaker, Sir, at the turn of the 2012/13 fiscal year, the economy was in severe internal and external disequilibria. This resulted from an overvalued exchange rate and administrative controls which caused the worst Balance of Payments crisis in our country’s recent history. As a nation, we were struggling to import basic necessities including fuel and drugs.

Fiscal policy was loose while monetary policy merely accommodated the fiscal excesses. As a result, the budget deficit sharply widened and domestic debt spiked. Furthermore, subsidies on fuel and artificially low utility tariffs put pressure on the Budget and diverted scarce resources from priority investments in growth and poverty alleviation.

Mr. Speaker, Sir, under this difficult economic situation, we were faced with two policy options, one easy and the other difficult: the easy one was to continue with the status quo, and the difficult one was to implement economic reforms to address the underlying crisis.

Mr. Speaker Sir, this Government chose the difficult path of implementing tough economic reforms. The Budget I presented to Parliament in June was aimed at restoring macro-economic balance and a market based economy to provide the foundation for sustainable economic growth. Key economic reforms implemented by this Government included the liberalization of the foreign exchange regime and the removal of price controls on fuel and utilities. The removal of price controls was necessary to reduce the burden of subsidies on fuel and utilities in the Budget.

Mr. Speaker, Sir, the decision to remove subsidies on fuel and utilities was correct as it freed resources within the Budget for priority investments for growth and social protection. Let us be clear. When we refer to the automatic fuel pricing what we are really talking about is putting an end to a very expensive subsidy that benefits a few at the expense of the many. It is a rejection of the idea that the rural Malawian in her/his village must pay for an expensive fuel subsidy for a minority. We ended the subsidy so that 85% of rural Malawians could benefit from policies that are targeted to the poorest of the poor.

It would be most undemocratic if policies were to be made in favour of only those who complain the loudest. Every policy change produces winners and losers. The policy changes that this government has embarked on are also for the benefit of those who are not heard – the voiceless, those who work hard every day just to feed their children and send them to school.

Subsidies on fuel, Mr. Speaker, are very costly. In 2011, the cost was K10.5 billion. If this Honourable House had not adopted the Automatic Pricing Mechanism (APM) in May 2012, the cost of fuel subsidies by the end of the year would have been K36 billion. This would have had to be paid for by the government through cuts elsewhere in the Budget or through increased borrowing, with disastrous results.

Mr. Speaker, Sir, Government has limited resources and has to prioritize where to invest. As I have already said, untargeted subsidies, including those on fuel and utilities mainly benefit the rich. In this Budget, we have targeted resources towards scaling up programmes in Social Protection for the poor.

Mr. Speaker Sir, Government is grappling with the difficult challenge of financing universal services from a limited revenue base. Some services should be provided universally and free of charge, other services require some contribution from beneficiaries while others including fuel and utilities should reflect the full market prices.

For those of you who listened to the broadcast of the meeting Her Excellency the President Dr. Joyce Banda had with the medical profession, you will recall what one hospital administrator said about subsidies in Health services. He pointed out that it is really the rich that reap the benefits of subsidies to the Health sector, with the poor getting very little. I was heartened to hear one brave opposition member of this August House echoing this observation. This suggests a willingness to acknowledge the reality that those who are better off in society should contribute some user fee for public services in order to help the poor. If we all put politics aside it would be easy to implement this idea with the overwhelming support of our people.

Mr. Speaker, Sir, the other key reforms included allowing the Kwacha to be more market determined through an initial significant devaluation and subsequent floatation; maintaining a tight fiscal policy regime through commitment to a fiscal anchor of No Net Domestic Financing (NNDF); implementing a complimentary tight monetary policy regime by keeping broad money growth in line with growth in nominal GDP to contain inflation; and an interest rate policy that is responsive to monetary developments.

I must state here that in implementing the tough and painful economic reforms, we drew on lessons from East Asia, Latin America and Africa, about how Balance of Payments (BOP) and currency crisis episodes unfold and unwind. We know that without exception, all currency pegs in history have broken as reserves get close to zero. Ultimately, the market will determine the cost of any nation’s currency.

Mr. Speaker, Sir, in implementing our reforms, I must also mention that we were equally aware that a large devaluation coupled with a more flexible exchange rate regime in the context of low reserves might cause the exchange rate to overshoot and inflation to spike because of a high pass-through.

Mr. Speaker, Sir, our analysis affirmed that even with low reserves, a large devaluation and moving to a market determined exchange rate was the right policy. If we had persisted with an overvalued exchange rate, we would have precipitated a Balance of Payments and possible currency crisis of seismic proportions.

Almost ten months down the line, we are beginning to see hopeful signs. Although inflation is currently high, the projections are showing a downward trend buoyed by significant fiscal consolidation and a tight monetary policy stance. The outlook for growth is equally showing an upward trend. Reserves too, though not still at desired levels, have also improved allowing the country to import most of the necessities.

Mr. Speaker, Sir, although monetary policy is very tight for the time being, we remain confident that we will be able to create the fiscal space to allow for some easing in monetary policy to stimulate growth and rebuild a more robust reserve position.

Mr. Speaker, Sir, government is committed to the economic reform programme. The reforms are based on economic fundamentals and realism, and they are also necessary to stimulate growth and investment. Indeed these reforms have led to increased confidence by the local private sector and our development partners leading to a significant increase in aid.

Mr. Speaker, Sir, the Ministry of Finance is responsible for the implementation of the Budget and I know that the Honourable Members of the House are eagerly awaiting an update on the performance of the economy and the Budget during the first half of the fiscal year.

MACROECONOMIC PERFORMANCE

Real Sector

With regard to the real sector, we are all aware that owing to sharp contraction in agriculture output and manufacturing, growth for 2012 was revised downwards to 1.9 percent from an initial forecast of 4.3 percent. This was due to a combination of exogenous factors and economic policies prior to April 2012.

Lower than expected rainfall affected the output of many crops while the overvalued exchange rate also induced a policy shock which led to the smuggling of major cash crops especially tobacco to neighboring countries like Mozambique and Zambia. These events caused a scarcity of foreign exchange in the formal market, which in turn affected the ability of industry to import raw materials for production. Though Malawi remains vulnerable to exogenous shocks, we are optimistic that growth should rebound to 5.5 percent in 2013.

External Sector

Mr. Speaker, Sir, we are beginning to see some hopeful signs on our external position. As at end-December 2012, gross official reserves stood at US$215.4 million, which compares with the US$82.9 million recorded at the end of the previous fiscal year. This increase of US$142 Million is, from any point of view, an impressive achievement.

This improvement in the reserves’ position, Mr. Speaker, Sir, is not accidental, rather a direct outcome of the reforms that we are implementing. Out of US$463.6 million sourced by the Reserve Bank during the period July-December 2012, foreign exchange purchases from the market amounted to US$92.0 million, despite it being a lean period. This implies that the private sector was able to generate foreign exchange. Most of the resources (around US$350.0 million) were from our development partners. Of this amount, almost US$130.0 million was in the form of project funds, whilst the remainder of US$220 million was in the form of Budget and Balance of Payments (BOP) support.

Mr. Speaker, Sir, the intention of the reforms is to enable the country to progressively generate more of its foreign exchange through the private sector from export promotion and diversification, and to gradually reduce donor dependence.

In terms of import cover, the US$215.4 million gross official reserves as at end-December 2012 represented 1.1 months of prospective imports. Gross official reserves as at end-June 2012 corresponded to 0.7 months of import cover. The modest improvement in the import cover reflects an increase in the monthly import requirement from US$129.0 million in June 2012 to US$188.1 million from July 2012.

Mr. Speaker, Sir, going forward, prospects for foreign exchange reserves are encouraging as the favorable tobacco prices fetched in 2012 have led to increased production in 2013. Although increased production may depress prices somewhat, the reforms implemented in tobacco production should lead to improvements in quality which should result in higher prices in the auction floors.

Moreover, the successful implementation of the ECF program should help galvanize additional support from our cooperating partners and further improve our reserve position for 2013.

Monetary Sector

Mr. Speaker, Sir, I now turn to the monetary sector developments and prospects to year end. During the first half of the 2012/13 fiscal year, the primary focus of monetary policy was to restore macroeconomic and financial system stability in order to preserve investors’ confidence.

In a bid to restrain inflationary pressures, the thrust of monetary policy was consistently tight throughout the period. The RBM raised the Bank rate to 21 percent in July 2012. This was not sufficient to contain inflationary pressures so it was followed by another upward adjustment to 25 percent in December 2012.

Mr. Speaker, Sir, because of this tight monetary policy stance, money supply growth receded sharply from an average year-on-year growth rate of 32.4 percent during the first six months of 2012 to 22.9 percent by December 2012. This compared favorably with the projected nominal GDP growth of 22.0 percent for 2012.

Mr. Speaker, Sir, with regard to the nominal exchange rate, the kwacha closed the mid-year of the 2012/13 fiscal year at K335.1267 per US$, compared to K272.3771 per US$ recorded at the end of the previous fiscal year, representing a 23 percent depreciation. With good prospects for tobacco foreign exchange earnings in 2013, pressures on the kwacha and, therefore, the rate of inflation, are likely to ease and may allow monetary policy accommodation in the near term, as I indicated earlier.

FISCAL PERFORMANCE

Mr. Speaker, Sir, as I announced in the budget statement delivered in this House on 8th June, 2012, our main fiscal anchor for the 2012/13 fiscal year was No Net Domestic Financing (NNDF) meaning that by the end of June 2013, net domestic borrowing should be zero.

Mr. Speaker, Sir, as a result of pressures resulting from an exchange rate that has depreciated more than expected and translated into increasing inflation because of a significant pass-through, we have further tightened our fiscal anchor. We are now targeting a minimum net repayment of domestic debt of K5billion equivalent to 0.5 percent of GDP.

Revenues

Mr. Speaker, Sir, let me now turn to the revenue performance of the first half of the 2012/13 fiscal year. You may recall that in the last Budget Session of Parliament, the House approved the 2012/13 National Budget comprising Total Revenues and Grants amounting to MK394.9 billion.

Mr. Speaker, Sir, domestic revenues were projected at K270.4 billion comprising K236.5 billion tax revenues and K33.9 billion non tax revenues. The Mid-Year revenue target was K130.0 billion consisting of K113.5 billion tax revenues and K16.5 billion non-tax revenues.

I wish to report to the Honourable House that we have surpassed this target. At the end of the first half of the fiscal year, actual outturn for domestic revenues was K133.8 billion of which K120.9 billion and K12.9 billion were tax and non-tax revenues, respectively, representing an over-performance of K3.9 billion.

Tax revenues over-performed by K7.5 billion while Non tax revenues underperformed by K3.6 billion. Mr. Speaker, Sir, tax revenues over-performed largely on account of the macro-economic factors such as the exchange rate adjustment and price increases coupled with efficiencies in the tax administration system by the Malawi Revenue Authority. Non-tax revenues underperformed largely on account of shortfalls in fuel levies.

Mr. Speaker, Sir, in terms of prospects to year end, Total Domestic Revenues and Grants are now projected at MK461.4 billion representing an upward revision from the MK 394.9 billion Approved Budget.

Mr. Speaker, Sir, Domestic revenues have been revised upwards to K278.9 billion from MK 270.4 billion approved in the Budget. The revised targets comprise K243.8 billion tax revenues and MK35.1 billion non tax revenues. This revision is due to revisions in the growth projections, exchange rate and inflation and efficiency gains in tax administration system. Furthermore, Mr. Speaker, Sir, if the seamless fuel supply will be maintained, we anticipate a significant improvement in fuel levy collections. In addition, Mr. Speaker Sir, the Ministry of Finance intends to intensify its oversight role in monitoring the different Ministries and Government Departments to ensure that revenues are properly accounted for and managed in line with the Public Finance Management Act of 2003.

Mr. Speaker, Sir, I also wish to report that Government has fully implemented all the tax and non-tax policy measures that were announced in the 2012/13 National Budget. Through my continued dialogue with different stakeholders, I am pleased to report that the private sector supports the tax reforms because the measures are helping in reviving businesses. This, Mr. Speaker, Sir, reflects the importance of the inputs from the Pre-Budget Consultations processes.

GRANTS

With regards to grants, Mr. Speaker, Sir, in the first half of the 2012/13FY, they were projected at K109.6 billion comprising K50.6 billion Program Grants, K37.4 billion Dedicated Grants and K21.6 billion Project Grants.

Grants under-performed by K5.6 billion largely on account of lower receipts from dedicated grants to NAC and Education sector Support as well as Project Grants. Against the projection of K109.6 billion, a total of K104.0 billion was received, of which K56.6 billion were Program Grants, K29.4 billion were Dedicated Grants and K18 billion were Project Grants.

Under Program Grants, the Development Partners who disbursed their Budget Support Resources were as follows: the World Bank (K13.7 billion); the African Development Bank (K10.7 billion); the United Kingdom (K10.3 billion as emergency budget support); the European Union (K17.5 billion); and Germany (K2.1 billion, also as emergency budget support). The Norwegian Government re-allocated the programmed budget support for the replenishment of the Strategic Grain Reserves.

Programme grants in the first half of the Financial Year were further buoyed by receipts from proceeds of fuel donations from Zambia and South Africa. Major partners who disbursed resources under Dedicated Grants included DFID which disbursed K15.4 billion of which K5.2 billion was for the Health sector SWAP, K6.8 billion Education sector SWAP and K3.4 billion Agriculture sector support. World Bank also disbursed K1.4 billion for the National Aids Commission (NAC). Norway and Germany also disbursed K2.4 billion and K1.4 billion respectively for the Health sector SWAP. In the second quarter however, K7.9 billion was disbursed towards food security accounting for 63 percent of all the dedicated grants in the quarter.

Mr. Speaker, Sir, I acknowledge that we continue to experience absorption problems mainly because some line Ministries delayed in meeting the preconditions for the release of donor resources. An additional MK5.6 billion would have been released to the budget had line Ministries fulfilled all the conditions agreed at the inception of the projects and programs.

Mr. Speaker, Sir, I can assure this august House that the Ministry of Finance is working with the line ministries to improve their capacities to absorb donor resources.

Mr. Speaker, Sir, prospects for grants for the rest of the year are projected to amount to K183.5 billion of which K80.1 billion is for Budget Support, K67.1 billion is for Dedicated grants while K35.3 billion is for Project grants.

Expenditure and Net Lending

Mr. Speaker, Sir, let me now turn to the performance of expenditures in the first half of the financial year.

Mr. Speaker, Sir, as you may recall, in June last Year, the august House approved a Budget for the 2012/13 Fiscal Year with Total Expenditures and Net Lending of K408.4 billion, comprising K332.2 billion Recurrent Expenditures and K76.2 billion Development Expenditures. In the first half of the financial year, the plan was to spend K249.8 billion of which K195.1 billion and K54.7billion would be Recurrent and Development Expenditures, respectively.

Mr. Speaker, Sir, I am delighted to report that actual expenditures were within target and amounted to K242.6 billion, comprising recurrent expenditures of K191.3 billion and development expenditures of K51.3 billion. Recurrent Expenditures were below the targeted expenditure by K3.8 billion largely on account of reduced interest payments on Domestic Debt as a result of reduced Government borrowing in the period under review. Development Expenditures also fell short of the target mainly on account of low Donor disbursements for Donor Funded Projects.

In terms of selected expenditures of the Budget Mr., Speaker, Sir, I wish to report to the Honourable House that some expenditure lines experienced pressures in the First Half of the Financial Year on account of the depreciation of the exchange rate which was passed through into higher prices. These included procurement of Drugs and Medical Supplies, purchases of Teaching and Learning Materials, payment for Subscriptions to International Organizations, operations of Foreign Missions Abroad and resources for implementing the Farm Input Subsidy Programme.

There was also pressure on the subventions to Statutory Corporations Vote as a result of more than planned increases in salaries and wages in the Public Universities and the Judiciary.

I have accordingly made proposals to adjust specific budget lines to ensure that there is smooth delivery of programs to the end of the Financial Year.

As such, Mr. Speaker, Sir, Total Expenditure and Net Lending is now projected to rise from the Approved Budget estimate of K408.4billion to K475.8billion. Recurrent Expenditures are expected to increase from the original estimate of K332.2billion to K381.3billion. Development Budget Expenditures are expected to increase from K76.2billion to K94.5billion. Domestic Debt repayment is projected at K18.8billion which will reduce domestic debt stock to K170.0 billion from K188.8 billion representing domestic debt repayment of 1.7percent of GDP and hence surpassing the set minimum target of 0.5 percent of GDP.

Mr. Speaker, Sir, this is the best that we can do if we are to remain within the budgetary ceiling and achieve what we have planned in the Economic Recovery Programme. Any further upward adjustment must be followed by a corresponding cut elsewhere to ensure that we meet our fiscal objective of net repayment of domestic debt.

SELECTED ACHIEVEMENTS IN THE FIRST HALF OF FISCAL 2112/13

The Farm Input Subsidy Programme

I wish to report to the Honourable House Mr. Speaker, Sir, that the implementation of the Farm Inputs Subsidy Program (FISP) for the 2012/13 agricultural season progressed very well in the period under review. In total, the programme has distributed 154,400 metric tons of Fertilizers comprising 77,200 metric tons of Urea and 77,200 metric tons of NPK to 1,544,400 farm families across the country at a subsidized price of K500 per bag. By the end of December, 2012, 99.9% of the fertilizers had already been distributed to all the depots across the country for distribution to the intended beneficiaries. Mr. Speaker, Sir, this year, every village established market committees and they were notified of when to redeem their coupons at the market. This proved a successful innovation that reduced delays and malpractices at the market place.

As the honourable Members of the House may note, the programme distributed an additional 4,400 metric tons of fertilizers to 44,400 additional beneficiaries identified by the Ministry of Agriculture.

Promotion of Legume Production

On the Presidential Initiative on Promoting of Legume Production, I wish to report to Honourable House, that a total of 1,570 metric tons of Legume Seed was procured from Seed Traders Association of Malawi (STAM) and the International Crops Research Institute for Semi Arid Topics (ICRISAT) for distribution to over 100,000 famers across the country. The programme, Mr. Speaker, Sir, is aimed at boosting production and export of legumes so that the resultant foreign exchange from the sale of these legumes can assist in reducing our Balance of Payment deficit.

 Maize Purchases by ADMARC

Let me report, Mr. Speaker, Sir, that out of the allocation of K1.3 billion this House approved to be used to purchase maize from smallholder farmers for purposes of the Strategic Grain Reserve. ADMARC procured a total of 18,442 metric tons of maize at an average cost of K66,000 per metric tonne including handling and logistical costs for a total cost of K1.217 billion resulting in a saving of K82.3 million which will be retained for purchases next season. I must also report Mr. Speaker, Sir that rather than delivering the maize to the Strategic Grain Reserves, the maize was sold by ADMARC during the lean period in order to fulfill Government’s price stabilization role and dampen the increase in maize prices.

 Green Belt Initiative

On the Green Belt Initiative, Mr. Speaker, Sir, I wish to report that a total of 950 hectares have been put under irrigation in the period under review. This is through three Government and Donor Supported Projects of Smallholder Crop Production and Marketing Project, the Medium Scale Irrigation project and Malawi Irrigation Development Support Programme. In addition, progress is at advanced stage on the Chikwawa Irrigation Scheme in Salima where 530 hectares of land will be irrigated.

Responding the Humanitarian Needs

Mr. Speaker Sir, as you are aware, the Malawi Vulnerability Assessment Committee has highlighted the fact that 1.9 million Malawians will require food assistance in the lean season. Government moved quickly to secure funds from Development Partners to provide logistical support and complementary foods, while the Government has approved the drawdown of 75,000 metric tones of grain from the Strategic Reserves for the Humanitarian Relief Programme. It is being implemented as planned and will help the poorest and most vulnerable members of our community from having to rely on destructive coping mechanisms. Government has also secured funds from Norway and Ireland to replenish the Strategic Grain Reserve.

 Education, Science and Technology

Mr. Speaker, Sir, in the area of Education, Science and Technology, there is good progress on provision of Teaching and Learning Materials (TLMs). So far, 1,537 schools have received 60,000 double seater desks. In addition, Government has distributed 9.7 million text books, 32 million exercise books; 300,000 slates, 75,000 flip charts, 127,000 schemes and records, 236,000 boxes of white and colored chalks, 3,000 portable chalk boards, 15,000 attendance registers and 390,000 teachers guides across the country.

Under Complementary Basic Education (CBE), 840 centers are now operational country wide and preparations are underway to open a further 840 centers at the start of the 2013/14 financial year. In addition, 8,000 adult literacy centers are operational. In the area of Special Needs Education (SNE), 300 learners that benefitted from the program have been selected to Secondary Schools and 370 Hearing Aids and Audiometers have been distributed.

Under Secondary Education, Mr. Speaker, Sir, there is also progress in the provision of Teaching and Learning Materials. Government has so far distributed 20,000 single seater desks and chairs, 9,967 mattresses and 313,210 text books. On the Secondary Bursary Scheme, Government continues to assist needy students. In the past six months, 9,000 bursaries have been extended to form 2 and 4 students and the selection process for form 1 bursary beneficiaries was concluded in December, 2012. In addition, Government has supported 120 students enrolled to study at Kamuzu Academy.

Mr. Speaker Sir, Government is committed to girls’ education and to retaining girls in school. Eight Girls Hostels have been completed at Chamakala in Kasungu, Kasiya in Lilongwe, Wenya in Chitipa, Lukalazi in Nkhata Bay, Gawani and Chikhwaza in Mulanje, Nachitheme in Ntcheu, and Mbenjere in Machinga. Under the African Development Fund (ADF) V Education Project, 15 classroom blocks have been constructed in 15 Districts, representing 83.3 percent progress. The beneficiary districts include Zomba, Chitipa, Mzimba, Rumphi, Dowa, Lilongwe, Nkhotakota, Ntcheu, Salima, Balaka, Blantyre, Chiradzulu, Mulanje, Mwanza and Thyolo. Under the ADF IV, construction of 2 Community Day Secondary Schools (CDSS) in Chikhwawa and Mulanje has been completed.

Mr. Speaker Sir, 8,391 Conventional Primary School Teacher Trainees have enrolled at various Teacher Training Colleges (TTCs) in the country and 11,587 Open Distance Learning (ODL) students have also been enrolled at TTCs. It is expected that once these Trainee Teachers qualify, the Teacher to Pupil Ratio will be reduced which will result in increased quality education.

 Transport Infrastructure

Mr. Speaker Sir, Honourable Members, on the road sub-sector; I would like to report to the Honourable House that a number of road projects have been completed and officially opened. These include Karonga – Chitipa Road, Chikwawa-Ngabu Road, and Ekwendeni – Ezondweni Road. Roads completed and awaiting official opening include the Bunda-Mitundu Road, and Mchinji – Kawere Road. In addition, the rehabilitation and maintenance of the Lilongwe – Dedza – Nsipe stretch has been substantially completed.

Public Health

Mr. Speaker, Sir, let me now turn to the area of Public Health. First and foremost, allow me to comment on the drug and Medical Supplies shortages which have affected our Referral and Districts Hospitals.

I wish to report that following the recent revelations on the matter, Government moved swiftly to review the mechanisms and systems for procuring and supplying drugs in our Hospitals. We have begun to implement reforms to address the outstanding issues.

The solutions are not easy ones. The calls for simply increasing budget line items are overly simplistic to the underlying causes of some of our more fundamental problems. Sadly, doubling the budget for drugs would not necessarily correspond to a doubling of drugs available to sick patients. Therefore, we need to do better to use the resources that we currently have than just simply thinking that increasing the budget is the answer to all the country’s problems. We need to find tangible solutions to the problems of bureaucratic inefficiency. Recently, the President met with the doctors immediately upon her arrival from abroad – the first time a president has ever met with the doctors – and she listened. These doctors understood that although more money is always desirable – and they didn’t hesitate to ask for more – they indicated that the major reforms needed are institutional reforms. I suspect that the same is true throughout many of the line items of this budget. This is why the mid-term review focuses not only on increases but also on measures to increase efficiency.

The review of the systems and mechanisms for procuring and delivering drugs revealed a number of systemic weaknesses and challenges. Notably, the review has established that there are major accountability and management challenges across the supply chain. As a result, there is a lot of drug pilferage, misuse and thefts.

This is compounded by the fact that there is weak legislation and mechanism for dealing with the culprits caught in these malpractices. There are weaknesses in Police investigation and in prosecution processes. As a result, few cases result in convictions. Furthermore, when a suspect has been found guilty, the penalties are too lenient to act as a deterrent to other would be offenders.

Against this backdrop, Mr., Speaker, Sir, I wish to report to the Honourable House that Government now intends to tighten legislation surrounding this matter as well as to improve police investigation and prosecution in order to increase the probability that offenders will be convicted and that their sentences will be appropriate to the gravity of the offense and provide adequate deterrence to others.

One of the initiatives will be to ensure that all drugs and medical supplies dispersed through our Hospitals are properly labeled as Malawi Government Property. This should deter those who sell or exchange them outside our formal health system. Mr. Speaker, Sir, at the appropriate time, these proposals will be brought to this House for debate and passing into Law.

The review also highlighted the challenge that some health facilities are buying drugs from private suppliers. Some of these are vendors who sell at exorbitant prices which in some cases are two to three times higher than those supplied by the Central Medical Stores. The problem of excessive profits for vendors and middlemen results in drug budgets to be exhausted quicker than anticipated. Vendors do not handle drugs properly – and indeed some of the drugs may be counterfeit. Furthermore, drugs require careful storage conditions in order to be effective.

Moreover, district hospitals had accumulated arrears of K230 million while Central and Referral Hospitals had arrears of MK750 Million. I am pleased to inform the House that Government has cleared these arrears. In January 2013, the Ministry of Finance provided K876 million to clear arrears for the Central Hospitals, while the National Local Government Finance Committee was given K300 million to clear the arrears of the District Hospitals.

Other problems include the fact that some Hospitals were using resources meant for drugs for paying locums or other allowances.

The review also revealed that some hospitals managed their drug budgets optimally and there were no problems in the drug supply chain. These successes were due to strong management and integrity. It is important to reward star performers and to punish poor performance.

Mr. Speaker Sir, Government is implementing comprehensive reforms to the Drug Supply Chain to prevent such abuses recurring in the future. Government will recapitalize the Central Medical Stores so that they are a sole supplier of drugs and medical supplies for all public sector Hospitals across the country.

At present, the Central Medical Stores has K3.6 billion (US$ 10 million). These resources will be used to complement the Essential Drugs Programme which is funded by Development Partners and provides Primary Health Drugs directly to the District Hospitals.

In addition, the Department for International Development (DfID) will purchase directly and airlift drugs valued at US$27 million or K9.5 billion for the Central Hospitals. In the 2013/14 Financial Year, we plan to allocate an additional K3.2 Billion (US$9 million) for re-capitalizing Central Medical Stores. The programmed resources for the Central Medical Stores will be used to procure sufficient Drugs and Medical supplies for all the Referral, District Hospitals and Health Centers over the next eighteen months. The Honourable Members of the House will be pleased to note that the Central Medical Stores is now an autonomous Trust and that there is consultancy support to strengthen capacity in drugs supply chain management.

Mr. Speaker, Sir, under the planned reforms to the Central Medical Stores, hospitals will submit their requirements to the Central Medical Stores, and once delivered, payments to Central Medical Stores will be done centrally either by the Ministry of Health or the Ministry of Finance within the allocations of the hospitals. In this way, we will ensure the integrity of the supply chain; prevent purchases from vendors and the accumulation of arrears and improve the quality of health care in the country.

As regards to the other areas of the Health Sector, Government has embarked on the rehabilitation of major Hospitals in the country to create a conducive environment for patients and Medical Personnel. The rehabilitation works at Zomba and Kamuzu Central Hospitals are well advanced. Other rehabilitation works include Nsanje District and Queen Elizabeth Central Hospitals. With regard to the construction of new Hospitals, there is good progress at Nkhata-Bay Hospital where over 70% of the works has been completed.

Mr. Speaker Sir, Honourable Members will recall that in the last sitting of Parliament, Honourable Members approved a loan of US$7 million from the Arab Economic Development (BADEA) for the construction of the proposed Phalombe District Hospital. However, construction could not start until additional financing amounting to US$15 Million from the Saudi Fund for Development was secured. I am now pleased to report Mr. Speaker Sir, that the Board of Directors of the Saudi Fund for Development approved the proposed loan to supplement funding from BADEA for the construction of the hospital. Very shortly the Malawi Government will meet the Saudi Fund for Development to negotiate the terms of this loan and I shall be submitting to this August House a loan authorization bill for approval before signing the agreement.

On the Umoyo Housing Project, Government is continuing with construction of houses for its Health personnel throughout the country. During the period under review, Mr. Speaker Sir, Government handed over 95 of the remaining 135 new houses constructed while 90 of the targeted 117 houses have also been rehabilitated.

CONCLUSION

In conclusion Mr. Speaker, Sir, I am proud to state that the Budget is on track – we have contained expenditures within the budgetary ceiling, while our targets for revenue and debt repayment are on track. We remain on track with the IMF Programme and continue to enjoy strong support from our Development Partners. Mr. Speaker Sir, allow me, on behalf of Her Excellency Dr. Joyce Banda and the Government and people of Malawi to thank all our cooperating partners for supporting us in our Economic Reform Programme. We can never overemphasize our appreciation for the support we continue to receive from the World Bank, the African Development Bank, the United Nations system, the UK through DFID, the EU, Germany, the United States, the Peoples Republic of China, Norway, Ireland, Flanders, Iceland and Japan.

The successful implementation of the first half of the Budget is an important achievement against the difficulties we continue to experience. On behalf of President Banda, I thank the dedicated men and women working for the public sector throughout Malawi for these successes. I can assure all Members of this Honourable House that we remain committed to the economic reforms outlined in the Budget Statement and to further strengthening Public Financial Management in order to ensure that there is accountability for scarce public funds.

While I am pleased with the Mid-Year Budget Performance, I acknowledge that there is no room for complacency. We must reaffirm our commitment to the economic reform programme in order for it to bear fruit and for us to achieve our vision of a peaceful and democratic nation where all can realize their full human potential.

Mr. Speaker Sir, we have made some progress, but there is still a lot more to do. In this very House, I have heard an MP saying, in an echo of late US President John F. Kennedy that we should ask ourselves what we can do for our country and not what our country can do for us. That’s heartening. I have heard other fellow MPs say we should all rededicate ourselves to the service of the nation. That is reassuring. President Banda herself has spoken of the need to forge ahead with sense of unity and purpose and break through the stormy weather of an economy that was almost shattered. That is uplifting.

With the Almighty God’s grace, let posterity declare that we, as a people, were tested but refused to give up on our future.

Mr. Speaker, Sir, I Beg to Move

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