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MALAWI’S 2020/2021 BUDGET STATEMENT BY MINISTER OF FINANCE FELIX MLUSU

MALAWI’S 2020/2021 BUDGET STATEMENT BY MINISTER OF FINANCE FELIX MLUSU ON FRIDAY, SEPTEMBER 11, 2020

Madam Speaker, I beg to move that the estimates on the Recurrent and Development Accounts for the 2020/2021 Budget of the Malawi Government be referred to the committee of the Whole House, to be considered vote by vote, and thereafter be adopted.

Introduction

Madam Speaker, this is my first substantive Budget Statement since I was appointed as Minister of Finance by His Excellency the State President, Dr. Lazarus McCarthy Chakwera. Let me therefore take this opportunity to thank His
Excellency the President for the singular honour of entrusting me with this noble duty of managing the fiscal affairs of this great nation. Madam Speaker, this is an honour that I don’t take for granted.

Madam Speaker, in accordance with Section 21, Subsection 3, of the Public Finance Management Act of 2003, as Minister of Finance, I am duty bound to lay before the National Assembly a statement of the estimated receipts, grants
and all other revenue as well as Government’s proposal on how the available resources will be utilized in a fisca

Madam Speaker, this is a Budget for all Malawians. I therefore wish to urge the August House to support the Budget by constructively debating and contributing to the proposals that I and my team in the Ministry of Finance and with inputs
from other relevant stakeholders have put together. At the onset, however, let me inform the August House that this Budget supersedes the 2020/2021 fiscal budget which was presented by the previous Administration.

Madam Speaker, I also wish to invite Honourable Members to note that allocations in this Budget are in line with priorities outlined in the national development blueprint, the third Malawi Growth and Development Strategy. However, it is important to appreciate that this Budget has been formulated amidst Covid-19 pandemic which has negatively impacted on the
country’s economic performance.

Madam Speaker, under the Tonse Alliance Government, the 2020/2021 budget will focus on: achievement of sustainable and inclusive growth; macroeconomic stability; and sound financial management. These objectives will be pursued through transparency and accountability, rule of law, enhanced resource
mobilisation, efficient resource utilization and provision of relevant infrastructure. These are some of the promises that the Tonse Alliance made to the people of Malawi. As such, Madam Speaker, the 2020/2021 Budget has been developed under the Theme “Living the Promise”.

Madam Speaker, implementation of the 2020/2021 budget will be challenging as Government has not been spared by the impact of the coronavirus pandemic. Revenues have substantially declined amidst increased need for resources to
mitigate the effects of the pandemic. Madam Speaker, and Honourable Members, during the Covid-19 pandemic period, monthly tax revenue collections have dropped by almost 11.0 percent when compared to revenue collections during the
pre-Covid-19 period.

Madam Speaker, the Ministry of Finance will work closely
with the Malawi Revenue Authority and all revenue collecting
Ministries, Departments and Agencies to enhance revenue
mobilisation efforts as one way of countering pressures on the
budget. Government will emphasise on efficiency in revenue
mobilisation through improved governance and reforms at MRA;
financial discipline, compliance and transparency in handling
public resources. Furthermore, Madam Speaker, Government
will focus on minimizing non-essential spending by State Owned
Enterprises to ensure that all public resources in form of
surpluses and dividends are channeled to the Malawi
Government Consolidated Account.

Madam Speaker, through the leadership of His Excellency
the State President, Government has already reached out to the
donor community for budget support and debt restructuring. I
therefore wish to thank all cooperating development partners
who have responded positively to this call and expect others to
also respond favourably.

It is also important, Madam Speaker to put into context
that the fiscal situation that the Tonse Alliance Government
inherited is one that is characterised by:
i. very high proportion of statutory expenditures in form
of wages; pension and gratuities; and public debt
payments that cannot be deferred, reduced or cut in
the event of revenue shortfall. In total these
expenditures represent 91.7 percent of domestic
revenues, 68.8 percent of recurrent expenditure and
52.8 percent of total budget;
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ii. huge public sector debt stock, estimated at
K4.1 trillion, which has significantly reduced this
country’s new debt carrying capacity; and
iii. existence of public sector payment arrears, which are
slowly becoming a fiscal risk to the smooth
implementation of the national budget.

Madam Speaker, Government is actively addressing these
challenges, however it must be appreciated that some of these
fiscal risks will take time to resolve.

Madam Speaker, despite the negative effects of the novel
coronavirus, Malawi has recorded relatively low and stable
inflation rate. Headline inflation rate declined to 8.0 percent in
July 2020, from a peak of 11.5 percent in December 2019. Going
forward, Madam Speaker, Government through the Reserve
Bank of Malawi will pursue a low inflation agenda with a target
rate of inflation at 5.0 percent by 2025. The Reserve Bank
maintained the policy rate at 13.5 percent during the
2019/2020 fiscal year and the official exchange rate has also
remained stable at around K750.00 per US dollar.

2019/2020 BUDGET PERFORMANCE
Performance of Revenues and Grants

Madam Speaker, the approved estimates of inflows of
revenue and grants for the 2019/2020 financial year were
K1.575 trillion. Of this amount K1.425 trillion was domestic
revenue while K150.1 billion were grants. However, actual
domestic revenue collection at the end of the year was K1.226
trillion. Grants amounted to K127.1 billion, representing an
underperformance of 15.3 percent on account of
non-disbursement of project grants by Foreign Governments.

Performance of Expenditure

Madam Speaker, in June 2019, this August House
approved total expenditure of K1.737 trillion (27.7percent of
GDP) comprising K1.299 trillion for recurrent expenditure and
K438.2 billion for development expenditure. At the end of the
fiscal year, total expenditure was recorded at K1.781 trillion of
which K1.414 trillion is recurrent expenditure and K367.4
billion is development expenditure.

Overall Balance and Domestic Borrowing

The 2019/2020 financial year closed with a deficit of
K555.6 billion. Domestic borrowing increased from K52.3 billion
to K496.7 billion while net foreign borrowing reduced from
K109.7 billion to K58.9 billion. Madam Speaker, the Honourable
House should therefore note that, the fiscal actions during the
last fiscal year alone added K555.6 billion to the country’s
already high debt stock.

WORLD AND REGIONAL OUTLOOK

Madam Speaker, let me now turn to the current economic
developments as well as economic outlook at the international,
regional and national levels. This Madam Speaker is very
important as it lays down the context in which the national
budget has been formulated and allows Honourable Members to
fully understand the assumptions underpinning this Budget.

Madam Speaker, according to the June 2020 World
Economic Outlook Report of the International Monetary Fund,
global economic growth is projected at negative 4.9 percent in

Covid-19 pandemic, started as a healthy crisis but
quickly became an economic crisis like no any other before.The
impact of the pandemic was severe during the first half of 2020
and economic recovery is projected to be gradual than previously
forecast. In 2021, global growth is projected at 5.4 percent.
These projections, Madam Speaker, are however shrouded with
high degree of uncertainty.

In advanced economies, Madam Speaker, growth is
projected at negative 8.0 percent in 2020. Synchronized deep
downturns are projected in the United States at negative 8.0
percent; Japan at negative 5.8 percent; the United Kingdom at
negative 10.2 percent; Germany at negative 7.8 percent; and
France at negative 12.5 percent.

Madam Speaker, in 2021 growth rate in advanced
economies is projected to strengthen to 4.8 percent, which is
higher than 4.0 percent registered in 2019. In emerging markets
and developing economies, overall, growth is forecasted at
negative 3.0 percent in 2020.

Madam Speaker, economic growth in China is projected at
1.0 percent in 2020 while in India, it is projected to contract by
4.5 percent. In Latin America, where most countries are still
struggling to contain coronavirus infections, the two largest
economies, Brazil and Mexico, are projected to contract by 9.1
and 10.5 percent, respectively.
Sub-Saharan Regional Economic Outlook

Madam Speaker, GDP growth in Sub-Saharan Africa has
also been slushed down from pre-pandemic growth rate of 3.1
percent to negative 3.2 percent in 2020. The region is however
expected to recover in 2021 and record a growth rate of 3.4
percent. South Africa, Malawi’s major trading partner is
projected to register a recession of negative 8.0 percent in 2020,
but rebound in 2021 to a growth rate of 3.5 percent.

Macroeconomic Developments in Malawi

Madam Speaker, growth prospects for Malawi are
shrouded with extreme uncertainty. Pre-pandemic real GDP
growth rate for 2020 was forecast at 5.1 percent. However, due
to the adverse economic impact of Covid-19, GDP growth rate
was revised downwards to 1.9 percent on the assumption that
there will be gradual opening up of economic activities during
the second half of 2020. In 2021, Madam Speaker, this economy
is projected to grow at 4.5 percent.

Madam Speaker, moving on to price developments, the
annual average rate of inflation has remained within the single
digit, recorded at 9.2 percent and 9.4 percent in 2018 and 2019,
respectively. In 2020 and 2021, annual average inflation rate is
projected at 10.5 percent and 9.3 percent, respectively, with an
average of 9.9 percent for the 2020/2021 fiscal year. Inflationary
pressure during the last fiscal year emanated from increased
food inflation especially from maize prices on account of scarcity
in some parts of the country as well as price speculative buying
and hoarding by some traders.

On the other hand, Madam Speaker, non-food inflation has
been oscillating between 5.0 and 6.0 percent over the past 13
months. This was largely on account of the stable Malawi
Kwacha exchange rate as well as the low oil prices on the
international market. Global oil prices, which directly feed into
non – food inflation, fell to a historical low of US$22.58 per
barrel as at 30th March 2020.

Madam Speaker, the macroeconomic stability enabled the
Reserve Bank of Malawi to maintain the policy interest rate at
13.5 percent. This enabled commercial banks to maintain an
almost stable interest rate structure. Gross official reserves of
the central bank have also remained stable as measured by
months of imports at around 3.1 months as at end June 2020.

GOVERNMENT REFORM PROGRAMS
Public Finance Management

Madam Speaker, the Tonse Alliance Government will
complete the review of the Public Finance Management Act of
2003 during the 2020/2021 fiscal year. The revised Act is
expected to strengthen accounting, budgeting, revenue and
expenditure management, internal controls and other areas of
public finance management.

Madam Speaker, some of the proposed changes in the
revised PFM Bill include: specific responsibilities of public
officers with the inclusion of sanctions for violations against the
PFM Act; placement of personal accountability to Controlling
Officers and public officers for actions taken in executing their
roles and responsibilities; and placing the obligation of
accountability of third parties that receive resources for the
intended benefit of the people of Malawi. The revised Public
Finance Management Bill is expected to be submitted to this
August House during the upcoming February 2021
Parliamentary sitting.

It is high time, Madam Speaker, that Controlling Officers
must start regarding the approved national budget as law and
it must be treated as such. Failure to do so must be punishable
under the governing laws of Malawi and enforcement measures
must be institutionalized. Controlling Officers must desist from
committing Government financially without prior approval from
the Secretary to the Treasury.

Madam Speaker, in an effort to stop accumulation of
arrears by Ministries, Departments and Agencies, Treasury is
committed to fund the approved budget in full. However, in order
to achieve this commitment, all revenue collecting MDAs are
urged to meet and surpass their revenue collection targets.In
view of this, Madam Speaker, all Controlling Officers are advised
to adhere to their approved budgets and my Ministry will not
entertain any extra-budgetary requests as this derails
implementation of the budget.

Madam Speaker, one of the pillars for the Tonse Alliance
led Government is transparency and accountability on the
revenues collected, resources received and how these revenues
have been utilised for delivery of public services. In this regard,
the Ministry of Finance will be posting on its website the Budget
Performance Reports on a monthly basis and publishing the
same in the newspapers with wide circulation on a quarterly
basis.

Madam Speaker,as per Section 84 of the PFM Act of 2003,
all Controlling Officers are expected to submit monthly financial
reports to the Secretary to the Treasury. In this regard all
Controlling Officers are being reminded to abide by this law by
submitting the mandatory financial reports namely: Expenditure
Return, Revenue Return, Payroll Return, Commitment Control
Report and Bank Reconciliation Report. Madam Speaker, any
MDA that fails to submit these reports on time will be sanctioned
including having their monthly funding withheld.

Madam Speaker, in order to enhance compliance to public
finance management regulations in District Councils,
Government, in the 2020/2021 fiscal year will introduce
performance based grants to all 28 District Councils. Under this
arrangement, resources will be disbursed to these councils
based on their adherence to regulations and prudent financial
management.

Madam Speaker, the Government has made tremendous
progress in development planning with the establishment of the
National Planning Commission to coordinate the preparation of
a successor to the Vision 2020 and medium term development
strategies. Madam Speaker and Honourable Members, despite
Malawi attaining political independence some 56 years ago, the
country is yet to attain economic independence. In order to
reverse this situation Government, through the National
Planning Commission is developing a collectively-defined new
Vision that is expected to transform the country through
inclusive wealth creation, sustainable and resilient growth. The
new Vision is planned to be launched before December, 2020.

Madam Speaker, under revenue management, Government
has developed the Domestic Resource Mobilisation Strategy,
which will among other areas focus on broadening the tax base,
improving tax and non-tax systems, enhancing tax compliance
and strengthening institutional capacity.

Madam Speaker, most State Owned Enterprises have over
the years not performed satisfactorily to sustain their operations
financially and ultimately remit dividends and surpluses to the
Government. Contrary to the shareholder’s expectation, even
commercial SOEs are heavily reliant on Government support in
form of guarantees and on-lending instruments. These have
resulted into high and increasing contingent liability on
Government. In this regard, Government under the reforms
agenda will strengthen governance structures of all parastatals,
and enhance prudent financial management. This will ensure
remittance of dividends and surpluses to shareholder and
reduce reliance on Government support.
The New Integrated Financial Management Information
System (IFMIS)

Madam Speaker and Honourable Members, I am delighted
to report to this August House that as part of strengthening
Public Finance Management Systems, Government through the
Department of Accountant General rolled out the New IFMIS on
1st July, 2020. The roll out has been done in a phased approach
where 10 selected votes and modules were identified as part of
the pilot phase. The New IFMIS is a key reform in Public Finance
Management and pivotal to the efficient and effective accounting
and financial reporting functions in Government. Its full rollout
is expected to be done by 1st July, 2021.

Treasury Single Account

Madam Speaker, in the current banking arrangements,
Government has numerous bank accounts which are difficult to
manage. This affects precision of Government cash position at
any given point in time. Furthermore, Madam Speaker, such a
structure is costly due to numerous bank charges incurred on
the accounts.

In the 2020/2021 fiscal year, Government will establish a
Treasury Single Account. This, Madam Speaker, does not
necessarily mean having one bank account, but it is rather a
unified structure of bank accounts where Government resources
are pooled and treated as fungible. A Treasury Single Account
would provide a consolidated cash position with a clear overview
of all cash flows in and out of the accounts.

Madam Speaker, if a country has a fragmented system for
handling government receipts and payments through the
banking system, it is a critical PFM weakness that needs to be
addressed. A country with fragmented government banking
arrangements pays for its institutional deficiencies in multiple
ways. Firstly, Madam Speaker, idle cash balances in bank
accounts often fail to earn market related remuneration.
Secondly, Government, being unaware of these resources,
incurs unnecessary borrowing costs on raising funds to cover a
perceived cash shortage. Thirdly, idle government cash balances
in the commercial banking sector are not idle for the banks
themselves, and can be used to extend credit, including to
Government itself. Draining this extra liquidity through open
market operations also imposes costs on the central bank.
Government Payroll and Pensions

Madam Speaker, I am pleased to inform the Honourable
Members that Government completed headcount exercise for
pensioners. All pensioners who did not avail themselves for this
exercise have been deleted from the pension payroll. As a result,
Government is expected to save just above K1.0 billion from the
pension payroll during the 2020/2021 financial year.In this
regard, Madam Speaker, Government is following up on the
source of the identified anomalies and will apply the necessary
corrective measures.

Madam Speaker, expenditure on pension and gratuity has
been increasing and exerting pressure on the budget. Currently,
civil servants are waiting for a longer period, in some cases over
twelve months before they receive their gratuity. In this Budget,
Government has increased allocation for pension and gratuity
from K86.9 billion to K102.8 billion in order to reduce the
waiting period.

Affordable Inputs Program

Madam Speaker, according to the census there are 4.2
million farm families. In the 2020/2021 financial year,
Government will implement the Affordable Inputs Program
where all the 4.2 million farm families will be provided with
cheap farm inputs. This, Madam Speaker, is not far from being
a universal subsidy program assuming an average family size of
four people, which gives approximately 16.8 million people that
will be covered under this program out of the 17.6 million people
in Malawi. In this regard, Madam Speaker, there is no sampling
of farm families to benefit from this program as every
smallholder farmer is covered.

Madam Speaker, each farming household will purchase
two 50 kg bags of fertilizer at a price of K4,495.00 per bag. As I
announced in this August House during my presentation of the
Provisional Budget, implementation of the AIP will use an
electronic system as opposed to paper coupons. This reform
Madam Speaker,will ensure transparency and efficiency as
National Identity Cards will be used when purchasing the
fertilizer and all other farm inputs.

Extended Credit Facility with the IMF

Madam Speaker, following discussions between the Tonse
Alliance Government and the IMF, the two parties agreed to
cancel the Third Extended Credit Facility on account of changes
in policy by the new Administration.

Going forward Madam Speaker, it is expected that
Government will negotiate a new credit facility. However, in the
interim, Government has negotiated a second Rapid Credit
Facility which is a fast disbursing instrument amounting to
US$100.0 million during the 2020/2021 fiscal year.

THE 2020/2021 BUDGET
Major Assumptions for the 2020/2021 Budget

Madam Speaker, the 2020/2021 budget has been
developed under the following assumptions.
i. Real GDP growth rate of 1.9 percent in 2020 and
4.5percent in 2021;
ii. Average inflation rate of 9.9 percent; and
iii. A Policy rate of 13.5 percent during the fiscal year;
Total Revenue and Grants

Madam Speaker, total revenue and grants for the
2020/2021 financial year have been projected at K1.435 trillion
which is 20.1 percent of GDP and represents a decrease of about
6.0 percent from the 2019/2020 approved figure. Domestic
revenues have been projected at K1.179 trillion representing
16.5 percent of GDP. Of this amount, K1.116 trillion is tax
revenue while K63.1 billion is other revenues.

Grants have been projected at K255.7 billion representing
3.6 percent of GDP, comprising K220.9 billion from International
Organizations and K34.8 billion from Foreign Governments.
Expenditure

Madam Speaker, let me now proceed to the expenditure
side of the Budget. For the 2020/2021 financial year, total
expenditure is projected at K2.190 trillion which is about 30.6
percent of the country’s GDP and representing an increase of
around 22.9 percent from the 2019/2020 preliminary
expenditure outturn. Out of this total expenditure, K1.679
trillion is for recurrent expenses.

The recurrent expense of K1.679 trillion comprise K523.7
billion for Wages and Salaries; K376.0 billion for Interest
Payments; K308.9 billion for Goods and Services; K266.0 billion
for Social Benefits; and K97.4 billion for Subvented
Organisations.

Madam Speaker, Development expenditure is programed
at K511.2 billion, consisting of K100.9 billion for domestically
financed projects and K410.3 billion for foreign financed
projects.

Overall fiscal Balance

Madam Speaker, the overall balance has been projected at
K754.8 billion, which will be financed by foreign borrowing
amounting to K224.8 billion and K530.1 billion from domestic
borrowing. At this level, Madam Speaker, domestic borrowing
represents 7.4 percent of the country’s GDP.

HIGHLIGHTS OF THE 2020/2021 BUDGET
RECURRENT BUDGET
Wages and Salaries

Wages and salaries for 2020/2021 financial year are
projected at K523.7 billion which is 7.3 percent of GDP
representing a 13.5 percent increase from last year’s preliminary
outcome. The increase in wages and salaries is on account of
K42.7 billion for general salary increment; K14.3 billion for
employer contribution to the Contributory Pension Scheme;
K8.1 billion for annual wage creep; and K8.0 billion for
recruitment of health personnel.
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Madam Speaker, the budgeted increase in wages and
salaries taken together with the substantial increase in the tax
free band under Pay As You Earn will translate into a huge
increase in disposable incomes for the civil servants.
Interest Payments

Interest payments for the 2020/2021 financial year have
been projected at K376.0 billion which is 5.3 percent of GDP,
representing an increase of 43.8 percent from the 2019/2020
preliminary outturn. Foreign interest payments have been
projected at K11.9 billion while domestic interest payments have
been projected at K364.2 billion.
Pensions and Gratuities

Madam Speaker, Pensions and Gratuities have been
projected at K102.8 billion. With this amount, the waiting period
for receiving gratuity is expected to be reduced.
Affordable Input Program

Madam Speaker, in line with the promise of the Tonse
Alliance Government of providing cheap agriculture inputs to
smallholder farmers, K160.2 billion has been allocated to the
Affordable Input Program in the 2020/2021 financial year. Out
of this amount, K132.7 billion is for fertilizer payments, K25.7
billion for maize seed and K1.8 billion for logistics.
Maize Purchases

Maize Purchases have been projected at K10 billion for the
2020/2021 financial year, for the replenishment of the Strategic
Grain Reserves. It is anticipated that there will be bumper
harvest this year due to forecasted good rains as well as the
increased coverage of the Affordable Input Program.

Constituency Development Fund.

Madam Speaker, I am pleased to inform this August House
that the allocation to the Constituency Development Fund has
been increased from K30.0 million to K40.0 million. In line with
the Government agenda of increased transparency and
accountability, I urge all Honourable Members of this August
House to exercise prudent financial management in the
execution of CDF projects.
Empowerment of Persons with Disabilities and Albinism

Madam Speaker, the Tonse Alliance Government will
continue with the empowerment of persons with disabilities and
albinism. In this regard, K400.0 million has been allocated to
Ministry of Gender, Community Development and Social Welfare
for the implementation of the Action Plan for the protection of
people with albinism. A further K100.0 million has been
allocated to the Disability Fund.
Key Sector Allocations
Education Sector

Madam Speaker, the Education Sector has been allocated
the largest portion of the budget at K384.5 billion which is 21.6
percent of the total budget, representing 5.4 percent of GDP.
These resources, Madam Speaker,will cater for wages and
salaries of teachers; operations for primary and secondary
schools; development projects; and all education subvented
organizations such as public universities.

Agriculture Sector

The Agriculture Sector has been allocated K354.8 billion
which is 19.9 percent of the total budget, representing 5.0
percent of GDP. This provision will cater for wages and salaries
for the sector, operations for Agriculture Departments; maize
purchase; the Affordable Input Program; and development
projects within the sector.
Health Sector

Madam Speaker, the Health Sector has been allocated
K204.7 billion which is 11.5 percent of the total budget and 2.9
percent of GDP. These resources will cater for wages and salaries
for health personnel; operational expenses for central and
district hospitals, procurement of medical drugs and vaccines;
maintenance costs for hospitals and medical equipment; and
development projects.

Transport and ICT Sector

This Sector, Madam Speaker has been allocated K150.6
billion. This represents 2.1 percent of GDP and 8.5 percent of
the total budget. Of this total allocation, K111.4 billion has been
allocated to the Roads Fund Administration for construction of
roads, while K1.4 billion has been allocated towards air and
water transport infrastructure. Madam Speaker, in order to
improve ICT services in the country, Government has set aside
K300.0 million in the 2020/2021 budget for the recruitment and
training of ICT officers.

Energy Sector

Madam Speaker, the Energy Sector has been allocated
K57.8 billion, which is 0.8 percent of GDP and 3.2 percent of
the entire budget. This provision will cater for wages and salaries
and operations in departments of Energy, Natural Resources,
Tourism, Environment, and Forestry.
Governance and Rule of Law Sector

Madam Speaker, the Governance and Rule of Law Sector
has been allocated K52.8 billion which is 0.7 percent of GDP and
3.0 percent of the entire budget. This provision will cater for
wages and salaries and operations of oversight institutions such
as the Anti-Corruption Bureau, Office of the Ombudsman, Law
Commission and the Malawi Human Rights Commission.
Madam Speaker, I am also pleased to inform this Honourable
House that in the 2020/2021 budget, allocations to the AntiCorruption Bureau, Director of Public Prosecutions, Fiscal Police
and the Financial Intelligence Authority have been substantially
increased to take care of their financial requirements.

2020/2021 DEVELOPMENT BUDGET

Madam Speaker, the development budget for the
2020/2021 financial year has been projected at K511.2 billion.
Of this amount, K410.3 billion is for foreign financed projects
while K100.9 billion is for domestically financed projects. The
list of projects is provided in Document Number 3: Financial
Statement, and Document Number 4: Detailed Budget
Document.

Madam Speaker, as Honourable Members might have
noticed, some projects which were part of the budget in the
2019/2020 financial year are not featuring in the submitted
budget documents for 2020/2021 financial year. Some of these
projects have been deferred as Government is undertaking a
review of the project portfolio. The August House may wish to
note that although some projects were included in the budget
last year, they did not have detailed designs. This, Madam
Speaker, has led to delays in project implementation and cost
escalations that could have been avoided.

The Tonse Alliance led Government, Madam Speaker, will
speed up implementation of development projects by ensuring
that only projects with detailed designs are allocated resources
in the budget. Furthermore, Madam Speaker, some projects may
have designs but still require to undergo a review as those
projects may have taken time to commence.
Major Development Projects in the 2020/2021 Budget

Education Sector Projects

Madam Speaker, in the 2020/2021 financial year,
Government will continue with initiatives to improve human
capital development in the Education Sector through the
following projects:
i. Construction of Teachers Training Colleges for
Primary School Teachers in Rumphi, Mchinji and
Chikwawa;
ii. Construction of Science Laboratories and Libraries in
29 sites across the country;
iii. Construction of a new Mzuzu University Library;
iv. Expansion and Rehabilitation of two Lecture
Theatres, two Library floors and refurbishment of a
special needs resource centre at Chancellor College;
and
v. Construction of Teaching Complex and
Administration Block for Lilongwe University of
Agriculture and Natural Resources.
Agriculture and Irrigation Development Projects

Madam Speaker, under the Agriculture sector, the
following projects will continue to be implemented in the
2020/2021 financial year:
i. Agriculture Commercialization Project;
ii. Agriculture Infrastructure and Youth in Agribusiness
Project;
iii. Sustainable Agricultural Production Program;
iv. Shire Valley Transformation Project; and
v. Rural Irrigation Development Program.
Health Sector Projects

Madam Speaker, during the 2020/2021 financial year,
Government will continue to implement infrastructure projects
in the Health Sector to ensure efficient delivery of health
services. The following are some of the projects to be
implemented during the financial year:
i. Construction of the New Phalombe District Hospital;
ii. Construction of Domasi Community Hospital
iii. Construction of Cancer Centre; and
iv. Construction of Mponela Community Hospital.
Road infrastructure projects

Madam Speaker, in the Road Sector, Government will
implement a number of road projects including the following:
i. Construction of the Lilongwe-Kasungu-Mzimba
turnoff- Kacheche-Chiweta M1 road;
ii. Jenda-Embangweni-Edingeni road;
iii. Lirangwe-Namatunu-Machinga road;
iv. Njakwa-Phwezi-Livingstonia road; and
v. Thyolo-Thekerani-Muona-Bangula road.
Youth and Sports Development Projects

Madam Speaker, in the 2020/2021 financial year,
Government will commence the construction of the Indoor
Netball Court and the Mzuzu Youth Centre. Rehabilitation of the
Kamuzu Institute for Sports will also continue.

Energy Sector Projects

Madam Speaker, in the Energy Sector, Government will
continue with the implementation of the Malawi Electricity
Access project and the Malawi-Mozambique Interconnector
project. These projects are aimed at increasing access to reliable
electricity. Furthermore, Madam Speaker, discussions with
financiers for the 350 megawatts Mpatamanga Hydro Power
Station are at an advanced stage.

Water Development Projects

Madam Speaker, under the Irrigation and Water
Development, Government will implement a number of projects
including the following:
i. Southern Region and Blantyre Water Board Projects;
ii. Lilongwe Water and Sanitation Project;
iii. Salima-Lilongwe Water Project;
iv. Nkhatabay Town Water Supply Project; and
v. Karonga Town Water Supply Project.
Development Projects under Local Councils

Madam speaker, the 2020/2021 development budget
under Local Councils amounts to K13.6 billion. This amount will
finance the following projects:
i. Dualisation of Chileka-Blantyre Road which is being
implemented under Blantyre District Council;
ii. Construction of City Roads in Lilongwe, Blantyre,
Mzuzu and Zomba;
iii. District Development Fund projects in all district
councils; and
iv. Construction of Water Structures in Local Councils
under the Water Fund.

GENERAL POLICY ISSUES

Madam Speaker, let me now turn to some policy issues
that Government will put in place to support implementation of
this Budget. These policies are also aimed at supporting the
Tonse Alliance economic and development agenda.
Rebranding Malawi Enterprise Development Fund (MEDF)

Madam Speaker, as I indicated in the Provisional Budget,
the allocation to the Women and Youth Loan Program under the
Malawi Enterprise Development Fund was increased from K15.0
billion to K40.0 billion. This amount will gradually be increased
to K75.0 billion. In the meantime, Government has instituted a
financial audit and is in the process of reviewing operational
models and procedures of MEDF. This process, Madam Speaker,
will lead to a total rebranding, including change of name of this
very important institution.

With the increased allocation to MEDF, Madam Speaker,
Government is expected to support the creation of 200,000
enterprises run by the youth and women. These enterprises in
turn are expected to create over 600,000 jobs which will result
in an increased tax base and improved welfare of our people.
Creation of one Million Jobs

Madam Speaker, the Tonse alliance Government is
committed to create a million jobs within one year of office and
that job creation will continue to be the main focus going
forward.In this regard, Madam Speaker, Government has
developed a road map with key activities that will be undertaken
to facilitate the translation of this agenda into action.

It has become quite apparent, Madam Speaker, that most
of the sectors have enormous potential to generate jobs if certain
policy actions and incentives are implemented as a matter of
urgency. Government will therefore implement policy actions
and provide appropriate incentives to unleash this potential in
sectors such as agriculture, mining, tourism, manufacturing
and ICT.

In addition, Madam Speaker, the job creation agenda will
be buoyed by a number of Government initiatives that have
already been initiated. Some of these initiatives include;
establishment of modern and fully equipped job centres which
will first be established in Lilongwe, Blantyre and Mzuzu. The
Job centres will assist job seekers to access employment
information from employers and vice versa. These job centres
will also be connected to Government systems that will enable
reporting of number of people employed in real time.

Free Water and Electricity Connections

Madam Speaker, you may recall that the Tonse Alliance
Government promised free water and electricity connections.
I therefore wish to inform the August House that it remains
Government’s commitment to ensure increased access to
electricity as well as safe and portable water. In order to
implement free water and electricity connections, Government
has embarked on a reform program of the concerned utility
companies. It is upon completion of these reform programs when
Government shall ably implement these promises.

Transforming the Informal Sector.

  1. Madam Speaker, in keeping with recent policy changes and
    the public procurement law, Government Ministries,
    Departments and Agencies will be required and are urged to
    prioritise procurement of goods from indigenous businesses.
    Furthermore, the informal sector entrepreneurs will be
    organized into cooperatives through which they will be
    supported to upgrade their skills. This will enable them to
    achieve minimum product specifications and standards for the
    local and the export markets.
  2. For example, Madam Speaker, procurement of furniture is
    a low hanging fruit in this respect. Government will therefore
    provide support, including through the rebranded MEDF, to
    capacitate the local furniture industry to upgrade their
    products. Similarly, Madam Speaker, given that Malawi has a
    cotton industry that needs to be supported, it is Government’s
    vision to revive the cotton and textiles value chain by requiring
    that procurement of clothing for uniformed officers in the public
    service be done locally.
  3. Madam Speaker, domestication of these economic activities
    is beneficial in a number of ways including; provision of markets
    to local farmers, economic empowerment of small and medium
    enterprises, job creation, and preservation of foreign exchange.
    Creation of a Debt Retirement Fund
  4. Madam Speaker, as I have already said, one of the major
    fiscal challenges for this country is the high and rising public
    debt stock. As at end June 2020, Malawi’s total public debt was
    recorded at K4.1 trillion, the majority of which, at 57.3 percent
    is domestic debt. Madam Speaker, Malawi’s domestic debt is
    currently rated at high risk of debt distress.
    26
  5. Madam Speaker, in order to repay this huge debt, Ministry
    of Finance is looking at a possibility of establishing a Debt
    Retirement Fund. Proceeds in the Fund will be ring-fenced and
    entirely used to retire public debt until debt levels subside to
    within sustainable levels. Thereafter, Madam Speaker, such a
    Fund could be turned into a Malawi Sovereign Wealthy Fund
    which could be used to support economic activities and the
    citizenry in times of pandemics and other forms of natural
    disasters through bail outs and fiscal stimulus packages.
    Malawi Sovereign Credit Rating
  6. Madam Speaker, Malawi has a huge infrastructure deficit
    that require recourse to international financial markets.
    However, Malawi’s access to these markets is limited by its lack
    of sovereign credit rating. It is therefore almost impossible for
    Malawi to issue a sovereign bond on the international money
    market for infrastructure development. Any such borrowing
    could be highly priced due to the risk premium placed on a
    sovereign that is not rated. It is therefore important for this
    country to engage the credit rating agencies for a sovereign
    credit rating.
  7. Madam Speaker, there are a number of advantages for a
    country such as Malawi to be rated. These include: allowing a
    country and its institutions, including commercial banks and
    the private sector to access cheap financing on the international
    money markets; acts as a moral suasion that compels policy
    makers to pursue prudent monetary and fiscal policies; and has
    potential to attract foreign direct investment as institutional
    investors rely heavily on rating agencies in making investment
    destination decisions.
    27
  8. In this regard, Madam Speaker, Ministry of Economic
    Planning and Development, Reserve Bank of Malawi and my
    Ministry have started the process to have this country rated.
    Promotion of electronic financial transactions
  9. Madam Speaker, I wish to inform the August House that
    Government will fully migrate to the electronic funds transfer
    system. This is an enabler to move towards a society that will
    adopt electronic payment modes in its financial transactions.
    This will also enable Government to enforce usage of electronic
    fiscal devices for taxation purposes, thereby enhancing
    compliance and bring the informal sector into the tax base.
    Long Term Development Bond
  10. Madam Speaker, Government will issue a 15-year
    development bond for some strategic projects and clearing of
    outstanding payment arrears. Government has therefore
    selected some projects for financing under this arrangement
    based on a number of factors including: potential to reduce
    government expenditure or generate revenues in the short to
    medium term; projects with substantial economic impact in
    form of employment creation and growth enabling; and
    readiness for implementation. Madam Speaker, use of long term
    development bond will enable Government to create fiscal space
    in the short term.
    Diaspora Development Bond
  11. Madam Speaker, My Ministry in collaboration with the
    Reserve Bank of Malawi is working on modalities towards the
    issuance of a diaspora development bond. This, Madam
    Speaker, is one way of encouraging Malawians in the diaspora
    to invest in the country. This is a policy concept that has been
    tested and is working elsewhere on the continent.
    28
  12. For this purpose, Madam Speaker, the Reserve Bank of
    Malawi created an information portal and in collaboration with
    the Ministry of Foreign Affairs, the Bank is profiling the diaspora
    communities as part of information gathering.
    Reduced Passport fee and free Driving License Renewal
  13. Madam Speaker, I wish to inform the August House that
    the Tonse Alliance Government is committed to deliver on its
    promise to reduce passport fee as well as to introduce free
    driving license renewal. In pursuing these two initiatives,
    Government has already engaged the concerned suppliers as
    these services are currently being rendered to Government
    under contractual arrangements with third parties.
    Climate Change Management
  14. Madam Speaker, in the 2020/2021 financial year,
    Government will strictly enforce the ban on manufacturing and
    use of thin plastics as part of managing the country’s
    environment. In addition, Madam Speaker, Government will
    continue to adhere to the requirement of conducting
    environmental and social impact assessments for any
    development projects.
    Revenue Policy and Administrative Measures for 2020/2021
    Fiscal Year
  15. Madam Speaker, I wish to report that Ministry of Finance
    received enormous inputs and proposals from various
    stakeholders for consideration in the 2020/2021 national
    budget. All proposals were consolidated and some of them have
    informed the policy measures included in this Budget whilst
    others are still being reviewed for consideration in subsequent
    budgets.
    29
  16. Let me therefore take this opportunity to thank the
    Parliamentary Committees, the Private Sector and Business
    Community, Academia, Development Partners, NonGovernmental Organizations and the General Public for the
    valuable inputs that were submitted during the budget
    consultation period.
  17. Madam Speaker, the August House, may wish to note that
    while there are numerous expectations for support from the
    general public and the business community in view of the
    adverse impact of the Covid-19 pandemic, Government has
    equally not been spared by this pandemic. Nevertheless,
    Government will still endeavor to create a conducive
    environment to jump start the economy and spur growth,
    generate adequate revenue to finance the budget and deliver
    quality public services to the nation.
  18. Madam Speaker, this country continues to register growth
    in the informal sector, where individuals can operate a business
    without any formal registration, thereby not paying taxes.
    However, Madam Speaker, whether one is operating in the
    formal or informal sector, they all look to Government for the
    provision of public goods and services such as roads
    infrastructure, schools, hospitals and security. Government will
    therefore implement policies aimed at turning the informal
    businesses into the formal sector via the creation of Associations
    and Cooperatives.
  19. Madam Speaker, there is enough evidence that tax evasion
    in this country is so rampant. Government is aware that most
    traders evade taxes by deliberately not using the electronic fiscal
    devices and avoiding issuing VAT compliant receipts. This,
    Madam Speaker is an offence under the law. Government will
    therefore deploy an increased number of tax inspectors to detect
    and report this malpractice. The citizens will also be civic
    educated and incentivized to report the same to authorities.
    30
  20. Madam Speaker, considering the fiscal challenges that are
    currently being experienced, Government would like to appeal
    to all citizens to contribute to the public pulse by developing a
    culture of paying taxes so that everyone participates in national
    building as we pursue a shared national development agenda
    under the Tonse Alliance.Madam Speaker, the tax base in
    Malawi remains narrow as most citizens and businesses do not
    pay tax despite their insatiable demand for improved service
    delivery.
  21. In the current financial year, Madam Speaker, Government
    will implement policies aimed at broadening the tax base and
    enhancement of tax payer compliance. In a special way, Madam
    Speaker, I would like to urge all Chief Executive Officers of State
    Owned Enterprises to comply with statutory obligations
    including timely remittance of taxes and pension contributions.
  22. Furthermore, Madam Speaker, Ministry of Finance will
    continue to conduct policy reviews in terms of the tax system
    and finalise the development of the revenue mobilization
    strategy. Madam Speaker, Government will implement tax
    administration reforms at the MRA to ensure taxpayer
    compliance and enhanced tax revenue collections through
    automation, audits and taxpayer awareness campaigns.MDAs
    will continue to be engaged to undertake reforms aimed at
    improving resource mobilisation through, among others,
    digitization of revenue collections and exploration of new
    revenue initiatives.
  23. Madam Speaker, in order to ensure that the citizens
    appreciate the importance of paying taxes, the Tonse Alliance
    Government is committed to prudently and transparently utilize
    all the revenues and ensure improved delivery of public services.
    31
    Tax policy measures for 2020/2021 budget
  24. Madam Speaker, let me now highlight the tax policy
    measures for the 2020/2021 Budget as follows:
    Income Tax
  25. Madam Speaker, Government realizes the need to increase
    disposable income for salaried employees and enhance their
    purchasing power. In this regard, Government has increased the
    Pay As You Earn zero bracket from MK45,000.00 per month to
    MK100,000.00 per month. Government is aware that this
    adjustment is huge and to minimize its impact on the base for
    Personal Income Tax, the 15 percent middle bracket under the
    Pay As You Earn regime has been removed.
  26. Madam Speaker Government has also increased the
    Withholding tax threshold for casual labour from MK15,000.00
    to MK35,000.00 per transaction. Government recognizes the
    need to improve the welfare of the people, especially those that
    are engaged as casual labourers and earn modest incomes for
    basic needs.
  27. Government has noted increased participation in betting
    and gambling transactions including lotteries. Madam Speaker,
    in order to ensure taxpayer compliance and encourage
    submission of income tax returns, Government has introduced
    a 20 percent Withholding tax on winnings from betting and
    gambling transactions including lotteries.
    Value Added Tax (VAT)
  28. Madam Speaker, to ensure efficiency in the VAT system,
    Government has introduced a standard rate of 16.5 percent VAT
    on refined cooking oil. This August House may wish to note that
    32
    previously refined cooking oil was VAT exempt and
    manufacturers were not able to claim tax refunds on their input
    VAT. This measure will now allow manufacturers to claim input
    VAT.
  29. Madam Speaker, I wish to inform this August House that
    local manufacturers of refined cooking oil continue to benefit
    under the Industrial Rebate Scheme where raw materials are
    imported without payment of duty. In addition, under the
    Surcharge Tariff regime, the local manufacturers are protected
    from adverse competition. In this regard, arbitrary price
    increases especially by local manufacturers reflecting the full
    VAT adjustment on the refined cooking oil is not expected.
    Administrative Measures
  30. Madam Speaker, the Taxation Act has been amended in
    Section 2 under definition for “Amount Realized” to also include,
    “any contingent amount realized at the time of disposal”. This
    administrative measure has been done to provide clarity and
    protect the tax base.
  31. Madam Speaker, Government has reviewed and amended
    the provision under Section 15(1)(e) of the Taxation Act
    regarding transfer of assets from an Individual to a Trust, to
    restrict the transfer to a Trust in which the Transferor is a
    Settler of the Trust. This administrative measure has been done
    to provide clarity especially under the Capital Gains tax and to
    ensure that the provision is hedged from abuse.
    Trade Agreements and International Taxation
  32. Madam Speaker, Government remains committed to the
    Regional Integration initiatives and milestones agreed under;
    SADC, COMESA, the Tripartite (COMESA, EAC, SADC) and the
    33
    Africa Continental Free Trade Area. This will enable the country
    to benefit through regional projects and an increased regional
    market that our products can access at preferential rates.
  33. Madam Speaker, within SADC, member countries are
    encouraged to have a network of Agreements for the Avoidance
    of Double Taxation and Fiscal Evasion, with respect to taxes on
    income and capital, and the conclusion of these Agreements is
    actively being pursued by Malawi with its partners within the
    region. In addition, Madam Speaker, the old Tax Treaties which
    the country renegotiated are pending domestication and
    renegotiation process is ongoing for the remaining old Tax
    Treaties. Madam Speaker, the Ministry of Finance is also in the
    process of developing a Tax Treaty Policy for Malawi to ensure
    existence of a guided negotiation framework that promotes
    investment and trade while safeguarding national interest.
  34. Madam Speaker, let me inform the Honourable Members
    that the Tax Policy measures that I have announced in this
    Budget will become effective 1st October, 2020 once the relevant
    Amendment Bills under the Taxation Act, VAT Act and the
    Customs and Excise Act are deliberated and passed by this
    August House.
    Conclusion
  35. Madam Speaker, let me reiterate that the 2020/2021
    budget seeks to achieve sustainable and inclusive growth,
    macroeconomic stability and sound financial management.
  36. Madam Speaker, as I conclude, let me take this
    opportunity to sincerely thank the development partners for the
    enormous support rendered to the Government of Malawi in its
    development agenda. Furthermore, our development partners
    have been instrumental in supporting Government in times of
    34
    adversity such as; drought, floods and the recent Covid 19
    pandemic. Madam Speaker, I therefore call upon Honourable
    Members of this August House to join me in thanking our
    development partners.
  37. Madam Speaker, Malawi has relied heavily on development
    partners’ support as domestic revenues dwindled due to the
    impact of the pandemic. The Tonse Alliance Government is
    sincerely humbled and look forward to working with all
    development partners as we implement the 2020/2021 budget.
  38. Madam Speaker, let me leave the Honourable Members
    with a motivational quote from Henry Ford, an American
    industrialist and business magnate, and I quote,
    “If everyone is moving forward together, then success takes
    care of itself”, end of quote.
  39. Madam Speaker, I beg to Move.

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