Presidential aspirant Milward Tobias tears 2024-2025 national budget apart: “Its assumptions are unrealistic and weak”

Presidential aspirant and leader of Nzika Coalition, Milward Tobias, has torn apart the 2024-2025 national budget, arguing the fiscal plan was formulated on unrealistic and weak assumptions.

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In economics, assumptions are like pillars to a building whose chance of standing firm depends on the strength of the pillars it rests on. Assumptions in the budget statement are not just mere text to fill the page, they serve to hold or anchor the projections in the budget framework.

Speaking in an interview on Saturday, Tobias has criticized the government for basing its budget statement on assumptions that are unrealistic and weak.

He further argued that the inflation target of 23.4 per cent is unrealistic given the gross mismanagement of the economy manifested in continued depreciation of the kwacha against major trading currencies as well as lack of policy coherence between fiscal policy and monetary policy.

“Additionally, dry spell and floods that have affected 23 districts are likely to cause food insecurity and in turn drive inflation further upwards. Conspicuously missing in the assumptions, is exchange rate, which contributes a lot both to inflation trajectory and budget delivery since most of the goods the budget buys are from outside the country i.e pharmaceuticals, fertilizers etc. Although the exchange rate is freely determined by market forces – another policy anomaly for Malawi economy, it needs efforts to guard it to remain up to a set limit otherwise Malawians will continue suffering from high cost of living,” he said.

When he presented the budget statement in the National Assembly, the Minister of Finance and Economic Affairs, Simplex Chithyola Banda, disclosed that total revenue and grants are projected at K4.55 trillion and total expenditure and net lending are projected at K5.98 trillion thus a budget deficit of K1.43 trillion.

This deficit is to be financed largely through domestic borrowing to the tune of K1.28 trillion and a small part from foreign borrowing to the tune of K150 billion.

But Tobias observed that this is ‘very illogical and contradictory of economic policy.

“The Reserve Bank of Malawi raised policy rate from 24 to 26 per cent in January this year. The objective, we were told, being to contain inflation. The raising of policy rate aimed at limiting or discouraging borrowing as such containing money supply on the market in what economists call ‘contractionary monetary policy position’.

“Three months later, here comes a Minister of Finance who is in charge of economic policy, overseeing that fiscal policy and monetary policy are not conflicting each other but are complementary to each other and are coherent.

“Unfortunately, the Minister of Finance has planned an expansionary fiscal policy that will sweep K1.28 trillion from the money lending institutions and pump that money into the same market that the Reserve Bank of Malawi wanted to limit money supply. And the Minister of Finance still expects to contain inflation! That the monitory policy orientation pursued by the Reserve Bank of Malawi is counterproductive is a discussion for another day. The incoherence between fiscal and monetary policies is what is an issue at the moment,” he narrated.

Tobias warned that there is more to worry about than the policy incoherence problem, saying the sweeping of K1.28 trillion in 12 months means crowding out private sector investment yet policy documents state that we want a private sector-led economy.

He reminded Malawians that one of the pillars of Malawi 2063 is industrialization and one of the enablers of Malawi 2063 is private sector dynamism.

He wondered how such a harsh environment for doing business can promote private sector dynamism and industrialization.

“Reserve Bank of Malawi raising policy rate and consequently triggering a rise in lending interest rates in commercial banks was too bad for private sector. But as if that was not enough, Treasury is sweeping the liquidity that otherwise would have been available for private sector to access as loans to finance establishment or expansion of businesses though at high interest rate. Yet we still have to dream of achieving economic growth and become a middle income economy by 2030. It is unrealistic and simply not possible. And on a light note but still consequential and relevant, documents submitted to this August House must be of high standard. Right Thirdly, is the issue of public debt.

“Tonse Alliance administration is well-known for economic mismanagement. It is an administration that has devalued the currency twice within four years. It is an administration that has overseen continued rise in inflation rate. Food inflation has been as high as 43.5 per cent condemning many Malawians to hunger, malnutrition and misery because they cannot afford to buy food.

“That is not all, Tonse Alliance administration has a huge appetite for spending what is not available. In the last four years, public debt has grown to K12.56 trillion. In the 2024-25 fiscal year, government will repay K1.46 trillion in interest debt charges and go back to the market to contract new debt of K1.43 trillion. Of the total debt repayment, K1.38 trillion representing 94.5 per cent is on domestic debt and the remainder is on foreign debt. What this implies is that efforts to restructure debt or ask for debt relief are less impactful as Malawi’s debt burden is largely domestic yet restructuring and negotiating for debt relief often concern foreign debt,” he argued.

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