FULL BUDGET RESPONSE BY DPP SPOKESPERSON ON FINANCE HON MWANAMVEKHA…”HYPOCRITAL AND DECEITFUL BUDGET THAT IS DEAD ON ARRIVAL”

INTRODUCTION

Madam Speaker, I wish to express my gratitude to you for giving the opportunity to the Democratic Progressive Party (DPP) to respond to the 2024-2025 budget statement delivered in this august House by the Minister of Finance and Economic Affairs, Hon. Simplex Chithyola Banda, MP on 23rd February, 2024. Before I proceed, allow me to thank my President, Professor Arthur Peter Mutharika for giving the people of Chiradzulu South, people of TA Nkalo, TA Mpunga and Sub-TA Maone to present the response on behalf of the mighty Democratic Progressive Party,

Let me preface my presentation by reiterating the fact that DPP always gives constructive advice and criticism that is intended to rescue Malawi from the many self-made economic challenges that it has experienced and continues to experience since June 2020. Madam Speaker, we do this because we do not want this economy to be destroyed by this current government when we know, with certainty, that the DPP is coming back in 2025.

It is common knowledge, Madam Speaker, that the Tonse government has failed to take Malawians to Canaan. If you ask Mr. Mulwafu in Chitipa, Mr Chirwa in Mzimba, Abiti Che Mussa in Mangochi, Mr. Phiri in Lilongwe, anambewe in Phalombe and Mbuya Dimingu in Nsanje, they will tell you they are suffering and experiencing unbearable pain, which they have never experienced since independence in 1964.

Madam Speaker, the 2023-2024 fiscal year has been an “Annus Horribis”; a horrible year for all Malawians as acknowledged by His Excellency Dr. Lazarus McCarthy Chakwera. On Page 3 of the 2024 State of the Nation Address, the State President said I quote “We gather here at the time when Malawi and its citizens are facing serious situation economically………..millions of Malawians are in a state of compounded pain’’ unquote. True to his words, Madam Speaker, Malawians are in a compounded pain and are suffering. DPP agrees with the State President that Malawians are indeed going through excruciating pain as the fiscal year 2023-2024 has been a difficult year for business as well as individuals. The Roman Catholic Bishops also agree with the State President. They have lamented the difficulties and failures of this government, which have left most Malawians losing hope in the Tonse Government and its leadership. The Bishops have lamented further that instead of taking Malawians to the promised land-Canaan, Malawians have ended up in Bagamoyo-a city on the east coast of Tanzania, which in those days of slavery, slaves would lose hope of being free again. Instead of taking us to the promised land, the Tonse government has taken us to the land of hopelessness, hunger, diseases, corruption, and poverty. Yes, Madam Speaker, the Tonse government has taken us back to dictatorship, where most state institutions notably the police service are captured.  Yes, Madam Speaker, I dare say that even our own Parliament is captured because how do you explain a situation where the leader of opposition is an independent member of parliament?  This is against Parliament’s own standing orders and yet Madam Speaker, here we are blaming another arm of Government, really, are we serious?   We know that this is a deliberate ploy by the Tonse Government to weaken the opposition and entrench dictatorship and one-party rule.  I wish to remind our colleagues in the Tonse Government that Malawians rejected one-party rule in 1994; and bringing it back through the back door will one day backfire. Madam Speaker, MCP is hell bent to take us back to those dark days. This is very sad, Madam Speaker.

Madam Speaker, living in Malawi is like living in hell. With the two major currency devaluations which puts the Kwacha at K 1,700/US$ on the official market and K 2,400/US$ on the parallel market; inflation at 35 percent; the policy rate at 26% coupled with foreign currency shortages and Government debt hitting as high as K 12.56 trillion. Life has become unbearable. 

Madam Speaker, millions of Malawians out there are disappointed with the way the economy is being managed by MCP and its Tonse partners. The Tonse Government is punishing the very people that voted them into government.  These people had hope for a better Malawi; but instead of realizing that hope, they are now contending with high prices of goods and services. They are looking forward to solutions that can lift them from poverty and hunger, which is biting very hard. Therefore, this response to the Budget Statement, Madam Speaker, will take an honest approach in pointing out budget areas that are not well thought-out; and offer workable solutions towards a people-centred budget.

Budget Assumptions

Madam Speaker, let me now turn to the underlying economic assumptions of the 2024/2025 budget as presented by the Minister of Finance and Economic Affairs. To begin with, the assumption that the economy will grow by 3.6 percent in 2024 and 4.8 percent in 2025 is unrealistic and overly optimistic. As reported by FEWS NET the current rainy season has been influenced by El NINO such that there has been a delay in the start of the rainy season and most parts of the country have experienced severe dry spells mainly in southern region, lakeshore areas and in Karonga. As such, it is expected that the country’s crop production will be reduced significantly and the number of food-insecure households will increase. Furthermore Madam Speaker, according to the January, 2024 World Economic outlook (WEO), the global economic growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, in emerging and developing economies, respectively.

Madam Speaker, it is therefore unrealistic and overly optimistic to believe that Malawi will be an exception especially considering that most companies in Malawi are scaling down production due to falling domestic demand – caused by dwindling disposable income. It is overly optimistic Madam Speaker, to believe that the Malawi economy will grow as projected despite the prevailing high interest rates.  Which companies (both manufacturing and trading) are going to borrow at those high rates, madam Speaker?  The prevailing shortage of foreign exchange will continue to weigh down economic activities in the manufacturing and trading sectors such that even though there is a slight improvement in the availability of foreign exchange, most of the manufacturing companies and traders will continue to face difficulties in accessing foreign exchange because of an increase in foreign exchange demand emanating from elections related imports. 

Madam Speaker, the demand for foreign exchange is expected to increase in the short to medium term as Malawi Electoral Commission (MEC), political parties and aspiring candidates intensify the importation of election-related campaign materials in preparation for the September 2025 general election. Furthermore, it is important to note, Madam Speaker, that the Geo-political tension in the Middle East is still continuing and this will negatively affect the global supply chain logistics which may also affect the price and importation of the country’s critical imports such as pharmaceuticals, fuel and fertilizer for the next crop growing season.

Madam speaker, if you sum up all the foregoing developments, it is unrealistic to make us believe that the country’s economy will grow by 3.6 percent in 2024, let alone 4.8 percent in 2025.

Public Debt and Expenditure

On public expenditure, Madam Speaker, the DPP is deeply concerned with the expenditure projections that the Minister of Finance has made in the 2024/2025 budget. The figures are hypocritical and very unrealistic.  It is apparent, Madam Speaker, that the Tonse Government wants to paint a rosy picture and make us believe the economy is on a positive trajectory and is rising from gloom. Madam Speaker this is a lie. I will present all the evidence based on the figures presented by the Minister of Finance and I will also show this august house the fiscal policy inconsistences which make this 2024-2025 budget a pack of fiscal lies.

Firstly, Madam Speaker, this government has been implementing austerity measures that are inconsistent and hypocritical. In 2022, the State President announced a series of austerity measures including unnecessary local and foreign travel; however, it is disappointing that it was the President himself and top government officials who were the first to break the austerity measures, by engaging in unnecessary extensive local and international travel.

Madam Speaker, this government is not serious with budget implementation and cutting down public expenditure. If you go back three years, you will notice that government has been over-spending by large sums of money over and above the budgets approved by this August house. For example, in 2020/21 budget this August house approved a budget amounting to K2.2 trillion but by the end of that year government had over spent by a whooping K157 billion just in a single fiscal year. This madam speaker puts to question the credibility of the budgets that we approve in this august house and this also casts doubt on achievability of 2024-2025 budget.

Madam Speaker, the hypocrisy with this 2024-2025 budget is that it pretends to achieve budget targets in the context of high and still rising public debt. The budget statement acknowledges the existence of a huge debt standing at K12.56 trillion and the pressure government has in order to service the same. While the Minister has said the Government is working hard to make the debt sustainable through significant debt restructuring and fiscal adjustment the Government is bent on increasing unnecessary public expenditure through increased travel and leakage through corruption and mis procurement. The increase in allocations to State Residences and Office of President and Cabinet (OPC) are examples of unnecessary and wasteful public expenditure that is inconsistence with the purported fiscal adjustment. For instance in fiscal 2020 when Professor Arthur Mutharika was leaving State House, the budget for State Residences stood at K4 billion but as we speak today, as provided for in the 2024/25 budget, the figure has jumped more than ten times and it is projected to stand at  K43 billion in 2024. With this kind of expenditure, Madam Speaker, can we say that this government is really serious with cutting down of expenditure? The answer is no.

Madam Speaker, when DPP left office in 2020, the stock of public debt was MK4.3 trillion. As at end 2023, public debt hit a record high of K12.56 trillion. It is sad, Madam Speaker, that just within 3 years Malawi’s public debt has more than tripled.  Madam Speaker, at the rate the Tonse Government is borrowing, we project that public debt will hit K14 trillion by December this year. Madam Speaker, let this August house know that this budget runs on huge and unsustainable debt. This fact has also been accepted by the Minister of finance himself on page 66 where he says I quote “…….the country’s fiscal position remains challenged by the expenditure  pressures that far outpace our revenues” unquote. This budget, Madam Speaker, is dead on arrival. Akanakhala mwana tikanati wafera m’chikuta.

Madam Speaker, in three years alone, this government has borrowed a whooping K10 trillion yet there is nothing on the ground to show for it. One wonders what this money has been used for because road infrastructure is crumbling across the country.  Could this be the money that has gone into capturing state institutions as alluded to above or plundered one way or the other through unnecessary consumption as well as local and foreign travels? This is sad Madam Speaker.  We should be using these borrowed funds to invest in good roads across the country not only in Lilongwe, but across the country.  We should be using this money to build schools and hospitals to ensure a productive citizenry in future.  We should not be using these borrowed funds for corruption and funding clandestine activities aimed at bringing back one-party rule.  Posterity will judge us harshly. 

Madam Speaker, this huge borrowing has crowded out the private sector, and has eaten away every single dollar the DPP left in foreign reserves in 2020.

Revenue Projections

Madam Speaker, allow me now to turn to revenue projections. The 2024-2025 budget presents revenues that are rising astronomically without a convincing explanation on the sources of such revenue. For example, total revenue is projected at K4.5 trillion. The DPP is worried because much of this revenue is based on an increase in tax collections by Malawi Revenue Authority (MRA) which in turn is based on the unrealistic growth projections of 3.6 percent in 2024. As alluded to above, this growth projection is not attainable which in turn renders the MRA revenue projections unrealistic.

Madam Speaker, in 2023-2024 fiscal year, revenue and grants were pegged at K 2.55 trillion and were revised upwards to K 3.04 trillion at midyear budget review. However, the outturn by the end of the year is expected to be K 2.99 trillion. While total revenue and grants were revised upwards, tax revenue was revised downwards from K 2.247 trillion to K 2.198. The reason is that Malawi Revenue Authority (MRA) was struggling to reach its target because of slow economic activity. Why should we then expect MRA to perform wonders in 2024?

Madam Speaker, it is therefore strange that, while the Minister is aware of the tax collection challenges, the Minister has pegged revenue and grants collection at K 4.55 trillion in 2024-2025 budget. More strangely, Madam Speaker, MRA which failed to collect K 2.24 trillion is being asked to collect K 3.26 trillion. DPP finds this to be unrealistic and unreasonable on the part of Minister of Finance taking into consideration the proposed tax measures the Minister has outlined as part of the resource mobilization strategy.

Madam Speaker, this will be a tall order for MRA especially with the fact that we are coming from a GDP growth of 1.5% and the anticipated growth of 3.6% is also unrealistic. What this means is that MRA will continue to squeeze the already struggling taxpayers and MRA’s core values and basic principles of taxation such as fairness, efficiency, and legitimate trade facilitation will be compromised. This approach in the end will cripple the private sector further leading to low productivity and massive retrenchments. In addition, the K 1.1 trillion projected inflows from grants is subject to our readiness and capacity to absorb. Based on the existing absorption capacity, the K 1.1 trillion may not wholly find itself into the economy.

Budget misalignment with Malawi 2063

Madam Speaker, this budget is not aligned to Malawi 2063 where the main three pillars for economic growth have not been provided with adequate budget allocations. The three key pillars are Agriculture, Industrialisation and Urbanisation. Out of the K5.83 trillion total expenditure, Agriculture has been allocated K497 billion representing only 8 percent. This is high level hypocrisy for an economy that is touted to have agriculture as its backbone. The Industrialisation Pillar has been allocated a miserable K64 billion which represents one percent of the total budget.  The Urbanisation Pillar has been allocated K155 billion or 2 percent only of the total budget. With a combined allocation of K716 billion, which translates to a meagre 12 percent of the overall budget, we should not expect industrialisation and urbanisation to start happening in a meaningful way soon and this will mean failed wealth creation and employment generation.

False claims on economic recovery

Madam Speaker, allow me to turn to the purported economic recovery. The 2024-2025 Budget is themed around Economic Recovery. This apparently is in line with the State of the Nation Address which also claims about Progress Towards Economic Recovery and Resilience.

Madam Speaker, the Malawi economy is on a deathbed. Unemployment rate is 91 Percent and rising. Over 70 percent of Malawians are poor and living below one US Dollar a day. Food inflation is at a frightening 44.9 percent as of January, 2024. Policy rate is at a prohibitive 26 percent and the exchange rate is at K1700 to one US Dollar. Over 4.4 million Malawians have no food and the cost of living is rising everyday thereby pushing more people into poverty. Madam Speaker, considering the foregoing, economic recovery will not going to happen and the economy will remain in ICU, and the choice of the budget theme is totally out of place.

The forex challenges

Madam Speaker, government has missed the real fundamentals behind the forex market in Malawi. It is important for the house to note that government and not the private sector, is the major consumer of forex in Malawi. Therefore, by increasing government expenditure, this budget is digging its own grave where consumption expenditures will continue to rise, and with it more foreign currency demand which, in the face of limited foreign exchange supply, which will result in increasing pressure on the Malawi Kwacha to depreciate further.

Madam Speaker, the forex problems will be compounded further by the impotent and weak monetary policy being pursued by the Reserve Bank of Malawi. With the official US Dollar exchange rate at K1,700 against the parallel rate of K2,400/US Dollar, and policy rate at 26 percent against inflation rate at 35 percent, this means that monetary policy is weak and is incapable of containing inflationary pressures. The current exchange rate controls and the unfriendly monetary and exchange rate policies will not help matters either. Madam Speaker and the August House, we should expect continued depreciation of the Malawi Kwacha and increase in inflation and interest rates in the short to medium term. The 2024-2025 Budget has not sufficiently addressed the supply side and demand side constraints in the foreign exchange market.

ATM strategy

Madam Speaker, the so-called ATM strategy is laughable and makes no sense, just like the SOSISO thing which the Minister of Finance talked about the other day.  ATM is just a mere rhetoric. It is lip service because allocating only K13 billion to the tourism sector is pathetic. Agriculture is experiencing dry spells and floods with no significant allocations to irrigation. AIP is poorly managed, politicised and benefitting a few politically-connected people. It is sad, Madam speaker that the whole ATM strategy is allocated K 485.0 billion only, out of the K 5.83 trillion which is barely 8% of the total budget. With agriculture taking the lion’s share of K 466.8 billion, Tourism and Mining only share K 18.2 billion which is half of OPC’s allocation. This is clear indication that the Tonse Government lacks seriousness in getting the economy back on its feet.

Tax policy measures

Madam Speaker, the tax base is not broadened using import duty but through elimination of tax expenditures such as deductions, exemptions and preferential treatment of capital income over labor income and improving tax enforcement and auditing.  The DPP wishes to enlighten the Minister of Finance that fiscal dependence on trade taxes is decreasing drastically as the world economy is becoming more open.

Madam Speaker, the tax measures outlined by the minister will exacerbate the imbalance in the business tax system where a few companies contribute a high percentage of the taxes while most businesses and sectors pay less because of generous deductions, tax avoidance and evasion. With the status of our ailing economy aggravated by the government’s big appetite to spend, a rebalancing business tax regime that combines broadening of the tax base with a revision of tax rates will be desirable.

Madam Speaker, DPP wishes to remind the Minister of Finance that tax incentives should be cost-based and better targeted; MRA’s verification, audit and enforcement functions should be strengthened to widen the tax net thereby shrinking the informal sector. DPP believes that tax incentives should be reviewed and streamlined in order to expand the tax base and also balance our business tax system.

Madam Speaker, DPP believes that the 35 percent Pay As You Earn (PAYE) should apply to incomes above K10million and not K2.55million considering the current real value of our currency.

Furthermore, in order to improve water, sanitation and hygiene, DPP is of the view that borehole drilling should be 100% tax deductible to encourage companies to contribute to the provision of safe and portable water to all communities in Malawi.

Furthermore, Madam Speaker, DPP suggests that mobile money agents should not be charged Withholding Tax (WHT), as these are mostly poor women and youth earning much less than the banks. The small entrepreneurs cannot compare and compete with big corporate entities.

Budget Allocations to MDAs

Madam Speaker, I now wish to turn to allocations to various sectors of budget expenditure as proposed by the Minister.

Madam Speaker, DPP’s analysis of the budget reveals that there is not much investment in the much-talked about mega farms under the agriculture sector. DPP therefore wonders how the agriculture sector and the economy can grow with little investment in the sector.

Civil Servants allocation

Madam Speaker, the Tonse administration pays lip service to the welfare of civil servants. The 2024-2025 Budget is silent on the salary increment for civil servants. This is sad considering the rise in cost of living especially in the aftermath of the 44 percent devaluation. DPP therefore proposes an increase in Civil Servants salaries by not less than 50 percent in order to cushion them from the effects of the 44 percent devaluation and ever-increasing cost of living.

Allocation to Maize purchase  

Madam Speaker, the DPP believes in food security and ending hunger. However, Madam Speaker, we are deeply concerned with the small allocation of K12 billion for maize purchases. This is too little in view of the serious hunger situation mostly in the Southern Region and other parts of the country.

Allocations to State Residences

Madam Speaker, the allocation to state residences has been increased from K4 billion in 2020 to K43 billion. This is inhuman and insensitive to the plight and suffering of Malawians who are exposed to vagaries of hunger, diseases and poverty. There is need for the Minister to explain this increase especially considering that the economic growth sectors have received 12 percent increase only. Why should State Residences’ budget have K42 billion when maize budget is only K12 billion?  Where are our priorities, Madam Speaker?

Selective allocation for development projects

Madam Speaker, the DPP observes with serious concern the selective allocation of funds for development projects under this 2024-2025 budget.  There is a deliberate over-concentration of road projects in one region. We have observed a sad trend where the Northern Region has been side lined since June 2020. Important roads for the North have been ignored. Why is this, Madam Speaker? The minister is expected to make an explain on this.

Fiscal Indiscipline by Tonse Government

Madam Speaker, the problem with the MCP administration is that they don’t seem to care. Government wants to continue with wanton expenditure. It is obvious that the Tonse administration does not know how to restructure the debt and have no plans to stop careless consumption expenditure patterns. The Tonse Government wants to continue spending through concessionary debt without cutting on unnecessary expenditure.

Sham budget

Madam Speaker, the DPP can safely conclude that revenue plans suggested by the Minister are a sham. Budget expenditures are over ambitious and are a disaster waiting to happen. They will not wholly materialize, and this will cause a serious fiscal crisis as the budget will fall apart during implementation. In addition, overreliance on domestic borrowing will come at a high cost which will haunt government even more, bearing in mind that currently, there is already a huge domestic debt stock.

Conclusion

Madam Speaker, I would like to conclude by saying that  the 2024-2025 budget is hypocritical and deceitful. It is a sham. As alluded to above, it is over-ambicious and unrealistic as most of the targets and assumptions will not be achieved.  The budget contains a lot of contradictions. fiscal and monetary inconsistencies and it is a ticking bomb awaiting to explode.

Madam Speaker, with these remarks, I wish to assure Malawians not to despair. In 2025 DPP will take you back to Canaan from Bagamoyo where the Tonse Government has put you. DPP will rescue Malawians and the economy from the current economic and social crisis.

Madam Speaker, I beg to move.

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