Opinion: Finance Minister Simplex Chithyola is committing fiscal suicide
In this article, renowned economist Mabvuto Bamusi argues that Minister of Finance and Economic Affairs Simplex Chithyola-Banda has presented a suicide budget and has prepared a rope on which to hang the Malawi economy–the hallmark of fiscal suicide.
I define fiscal suicide as a dangerous budget plan that risks plunging an economy into a crisis. Fiscal suicide is committed when a budget has exponentially high expenditures that are backed with dwindling revenue sources. The budget operates in a volatile economy experiencing slow productivity.
The finance minister is dangling a noose around the necks of Malawians, majority of whom already cannot breathe. I explain how.
First, the 2024/2025 budget plans to spend K5.9 trillion. This is a sharp rise in expenditures compared with K4.3 trillion in the previous budget. This means that expenditures have risen astronomically by an additional K1.6 trillion. The Minister of Finance is not explaining how the economy will generate additional money to cover the rising expenditure.
This question should be answered in the context of the earlier observation that sources of economic growth are dwindling. For example, revenue from tobacco sales can no longer sustain expenditure needs for the whole year.
To explain my point further, let me move to the second reason why I think that Chithyola is committing fiscal suicide. The 2024/2025 budget has a worrisomely wide deficit. The K5.9 trillion budget is expected to be funded by total revenue projected at K4.5 trillion. Clearly, Chithyola’s budget is living dangerously with a budget deficit of K1.4 trillion.
Sadly, the Minister of Finance thinks this deficit will be filled with borrowed money. Well, therein lies another contradiction because Government is already trapped in an unsustainable debt. As a matter of concern, Malawi has been categorised among countries that are in debt distress. I will explain this debt crisis issue in a moment.
Suffice to say that the K5.9 trillion expenditure represents the Government’s insatiable appetite to spend money which it does not have. It represents failure to live by principles of fiscal discipline, and it translates into failure to implement austerity measures.
Thirdly, Chithyola is committing fiscal suicide because he is putting too many eggs in one basket. He is expecting too much from tax revenue from Malawi Revenue Authority (MRA). It needs no reminding that MRA does not generate revenue, but only collects revenue which has to be generated by the economy.
Of the K4.5 trillion revenue projection, MRA has been given an astronomically high target to collect K3.2 trillion. This means that 71.5 percent of all revenue is expected to come from taxes. This also means that taxpayers should brace for a tougher ride as MRA will engage in overdrive to squeeze every penny from Malawians and businesses who are already shouldering a heavy tax burden.
Fourthly, and in continuation of the revenue conundrum, is that MRA target of K3.2 trillion is compared to a target of K2.1 trillion in the current financial year of 2023/2024. MRA is, therefore, given an uphill task to collect K1.4 trillion more in tax revenue to satisfy government’s high-spending appetite.
Again, the question relates to where Chithyola thinks the extra revenue will come from given that the economy is stagnant. Clearly, the political machinery will pressurise MRA to squeeze and milk the already thin cow because the tax base is still narrow.
Lastly, is the big question of public debt. Chithyola is committing fiscal suicide by planning a budget that is premised on continued borrowing. The budget plans to spend a staggering amount of K1.4 trillion on interest payments for maturing public debt.
Much of this debt is arising from the government’s appetite to borrow for consumption. As we speak, total public debt has crossed the K13 trillion mark. This is fiscal suicide, and Malawians cannot breathe.
*This article first appeared in Weekend Nation newspaper*
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