Struggling Malawi rises budget to $2.56 Billion

By Taonga Sabola, LILONGWE Malawi

Malawi Finance Minister, Simplex Chithyola Banda, Monday presented a revised 2023-24 national budget which has seen the financial plan rising by about K540 billion ($ 320 Million) from the initial K3.79 trillion presented in February to K4.33 trillion ($2.57 Billion).

Malawi has struggled to sustain growth for decades, despite large inflows of official development assistance. The past three years have been particularly difficult, with stagnating growth and widening macroeconomic imbalances due to unsustainable debt and the lingering effects of multiple shocks. 

Malawi’s external debt is unsustainable and debt service needs are eroding limited fiscal space.

Presenting the statement to Parliament Monday, Chithyola Banda attributed the jump in the overall expenditure to compensation of government employees, social benefits, public debt interest, other expenses and the use of goods and services.

Of course, Chithyola Banda has largely benefitted from the resumption of budget support which will see an immediate injection of $240 million (about K408 billion) from the World Bank, African Development Bank and the European Union (EU), among others, as they have come back after theInternational Monetary Fund (IMF) granted Malawi an Extended Credit Facility(ECF) Programme last week.

In the budget, Chithyola Banda has made an K80.05 billion provision for civil servants’ pay hike to cushion government workers from the effects of the recent devaluation of the Kwacha.

This will culminate in the rising of the wage bill from K900.44 billion to K980.49 billion.

In the revised budget, the finance minister has carefully attempted to avoid overburdening the private sector and resource-constrained Malawians with more taxes by announcing innovative ways of generating revenue without hurting the industry.

Among other things, Chithyola Banda has brought about some new thinking in revenue and forex mobilisation by coming up with initiatives such as the Golden Visa Programme, cannabis (marijuana) biomas trading, diaspora cities, carbon credits trading, labour exports, discounting mineral deposits and others.

For example, Chithyola Banda said Malawi is expected to export over 5,000 labourers, through a government-to-government arrangement with an unnamed government— which will see Malawi earning about $180 million (about K306 billion) annually.

On the Golden Visa Programme, Chithyola Banda said the government intends to roll out a residency-by-investment programme that allows high net-worth individuals and their families to obtain residency or even citizenship in a foreign country by investing in its economy.

He said upon expressing interest and qualifying for the programme, such individuals are usually required to pay a fee of around $200,000 for the golden visa.

According to Chithyola Banda, main areas of investment identified for this programme include mega farms in agriculture.

He cited hotels as another area that would be earmarked in the tourism sector.

“The ministries of Finance and Economic Affairs, Tourism and Agriculture will embark on a campaign to market Malawi as an investment destination under a Golden Visa Programme and, in the next five years, the target is to issue out 10,000 visas to investors which, in turn, can fetch about $2.0 billion.

“When all these initiatives are implemented— and we are determined to do that— this country can, in the next two years, generate approximately $3.5 billion depending on the maturity profile of the different projects,” Chithyola Banda said.

On Cannabis biomas, also known as Malawi Gold or chamba, Chithyola Banda said the country has potential to earn $700 million from the crop annually.

“This is another area the government has focused on as a diversification area. Malawi is one of the largest producers of Cannabis in Southern Africa and, at prevailing market prices, this country has potential to generate over $700 million a year from cannabis biomass.

“Government is reviewing the Cannabis Regulation Act of 2020 to allow participation of the local cannabis on the international market. On the production side, joint venture negotiations between government institutions and private sector investors are at advanced stages,” Chithyola Banda said.

According to Chithyola Banda, revenues and grants have been revised upwards from K2.55 trillion to K3.05 trillion.

He said the proposed revisions in revenues and expenditures will result into a widening of the estimated fiscal deficit from K1.24 trillion, which is 8.0 percent of GDP, to K1.28 billion, representing 8.3 percent of GDP.

The widening deficit, according to Chithyola Banda, is mainly on account of absorbing the impact of exchange rate correction.

To cushion Malawians from the effects of the 44 percent devaluation of the Kwacha, Chithyola Banda said government will continue implementing Cyclone Recovery interventions in Blantyre Rural, Thyolo, Phalombe, Chiradzulu, Mulanje, Nsanje, Chikwawa, Balaka, Mangochi, Machinga and Zomba Rural targeting 184,920 households where beneficiary households receive K150,000 as support for consumption needs.

He said government would re-introduce the Price Shock Urban Emergency Cash Transfer Programme which will target 105,000 households in Zomba, Blantyre, Mzuzu and Lilongwe city councils. Beneficiaries will receive a once-off transfer of K150,000 covering three months.

“Government has increased Social Cash Transfer Benefit Levels by 57 percent, which is more than the exchange rate alignment amount and this is with immediate effect.

“Government has increased Social Cash Transfer beneficiary coverage from the current 10 percent to 15 percent of the population. Government has also increased the wage rate for the Climate Smart Public Works Programme (CSPWP) and [this] will be announced in due course. Currently, beneficiaries receive K1,200 for four hours working day for 12 days a month. Furthermore, CSPWP Beneficiary Work Period will be extended by having no breaks between cycles for six months in a year,” he said.

National Planning Commission Director General Thomas Munthali has since hailed authorities for putting up measures aimed at boosting the productive sector as well as the country’s foreign exchange reserves.

According to Munthali, what the authorities need to do “is to adequately fund agencies that are responsible for overseeing the deliverables” so that they have no excuses whatsoever.

He said with strict supervision, the measures should enable Malawi to generate the required forex.

Scotland-based economist Velli Nyirongo yesterday said, overall, the minister of finance has performed well considering the inherited economic challenges.

He said the government’s decision to export labour has the potential to significantly boost Malawi’s economy, generating up to $180 million annually.

He, however, said concerns arise due to the undisclosed destination, emphasising the need for transparency to ensure worker protection and fair working conditions.

Economics Association of Malawi President Betchani Tchereni said the changing macroeconomic environment violated the assumptions of the budget.

According to Tchereni, exchange rates, interest rates and the inflation rate have all risen beyond the assumed levels.

“As such, government, also as an economic agent, is facing the same macroeconomic environment. This is why the budget has increased,” he said.

Leader of the Opposition in Parliament Kondwani Nankhumwa is one of the people that shook Chithyola Banda’s hands after he presented the budget statement.