Donor freeze haunts Malawi, cuts farm inputs subsidy budget with K10bn

Malawi Government has disclosed that it is having trouble coming up with the 2015/2016 national budget following the suspension of aid by some of the country’s partners.

The country’s Minister of Finance, Economic Planning and Development Goodall Gondwe has said following the hiccup and numerous other problems government will this year trim down the cost of the Farm Input Subsidy Programme (Fisp) from last year’s K60 billion to K50 billion.

The Minister was speaking during the first pre-budget consultation meeting held in the country’s commercial capital where he disclosed that this year’s national budget is expected to rise to K743 billion (US$1 790 361 446), a 16 percent jump compared to the previous K640 billion (US$1 542 168 675).

“We hope that some of the donors will support us. We are also looking at donors providing some support to some of the activities without directly supporting the budget. If the resources are tight we will have to select some activities that will not be carried out,” said Gondwe without going into details of other activities that would suffer.

Gondwe: Budget cuts
Gondwe: Budget cuts

He said apart from the aid suspension government is grappling with other issues in the preparation of the budget, including a domestic debt of K340 billion (US$819 277 108) and payment of arrears of K173 billion (US$416 867 469).

Gondwe said the initial budget figures provide for K665 billion with donor support from some partners including the European Union (EU), the World Bank and the African Development Bank (AfDB) of about K43 billion.

The Minister also admitted that the 2015/2016 would lean more towards external borrowing to cover a looming fiscal deficit.

However, he did not say whether Malawians should expect an increase in taxes or introduction of new ones, arguing the budget figures have not been presented to Cabinet.

During the meeting Gondwe also announced that the Fisp will no longer be directly administered by government through the Ministry of Agriculture but will be moved to the Smallholder Farmers Fertiliser Revolving Fund of Malawi (SFFRFM).

“The administration of Fisp will be moved to the SFFRFM which will lead into an expenditure of K50 billion, a cut from the previous K60 billion,” said Gondwe

He, however, insisted that Malawians should expect a normal budget with a development budget of about K162 billion.

Commenting on Gondwe’s statement, Chancellor College professor of economics Ben Kaluwa said it was clear that Malawi’s economy is unnecessarily stressed because government is patronizing through subsidies.

“The government is willing to do for people what they themselves are able to do on their own,” said Kaluwa referring to Fisp as a good example where government is putting itself unnecessarily under pressure.

In his contribution, Institute of Chartered Accountants in Malawi (Icam) chairperson of taxation committee Andrew Chioko suggested that the pay as you earn (Paye) free tax band be increased to K35 000.

“Although we would want a higher free tax band we are aware of the implications on the tax base. We, therefore, suggest that authorities should increase the tax base by bringing in more taxpayers,” said Chioko.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) public private sector dialogue manager Hope Chavula said the country needs to look seriously on several weak fundamentals which the economy is resting on such as high interest and inflation rates, and volatile exchange rates and supply. 

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