Malawi Finance Minister Lipenga defends Fuel Automatic Pricing Mechanism: Saves government K36 billion

Malawi Finance Minister Dr Ken Lipenga says by adopting the Automatic Price Mechanism (APM) on fuel in May 2012, it has saved K36 billion an amount which could cut into the Budget or incur increased borrowing.

Lipenga disclosed this on Friday when he presented the Mid-Year Budget Review statement in Parliament, Lilongwe.

The Minister said the removal of price controls was necessary to reduce the burden of subsidies on fuel and utilities in the Budget.

“Subsidies on fuel are very costly,” said the Finance Minister, “In 2011, the cost was K10.5 billion and 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.

Lipenga: Presenting a mid- term review on budget. - Photo by Lissa Vintula/Mana

Lipenga: Presenting a mid- term review on budget. – Photo by Lissa Vintula/Mana

“This would have had to be paid for by the government through cuts elsewhere in the Budget or through increased borrowing, with disastrous results.”

He, therefore, observed that 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.

“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,” said Lipenga, adding, “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 percent of rural Malawians could benefit from policies that are targeted to the poorest of the poor.”

He said that it would be most undemocratic if policies were to be made in favour of only those who complained the loudest.

Lipenga added that since every policy change produces winners and losers, the policy changes that the current government has embarked on ought to also benefit the voiceless who work hard every day just to feed their children and send them to school.

The Minister further said with limited resources that government has, it has to prioritize where to invest.

He observed, “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.”

The Minister referred to the recent meeting President Dr. Joyce Banda had with the medical profession where one hospital administrator said something about subsidies in Health services.

The administrator had pointed out that, “It is really the rich that reap the benefits of subsidies to the Health sector, with the poor getting very little” – a statement which Dr. Lipenga said was echoed by Mwanza West parliamentarian, Paul Chibingu.

“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,” said Lipenga, adding that if all members of the public put politics aside, it would be easy to implement the idea.

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