Table of Contents
Page
Motion ……………………………………………………………………………………………………….2
Introduction…………………………………………………………………………………. ………………2
Fiscal Performance Under the 2007/08 Budget………………………………………..........................6
Revenue and Grants………………………………………………………………………………7
Expenditure………………………………………………………………………………………...8
The 2007/08 Development Programme…………………………………………………………………..9
World Economic Outlook………………………………………………………………………..11
Developments in the Malawi Economy………………………………………………………..12
The 2008/09 Budget Perspectives………………………………………………………………………14
Medium Term Pay Policy……………………………………………………………………….14
The Subsidy Programme in 2008/09 Budget…………………………………………………16
Maize Storage……………………………………………………………………………………16
Crop and Weather Insurance Scheme………………………………………………………..17
Public Participation in the 2008/09 Budget…………………………………………………...18
Alignment of the 2008/09 Budget in MGDS…………………………………………………..19
2008/09 Budget Framework…………………………………………………………………………… 20
Expenditure……………………………………………………………………………………….21
Overall Budgetary Balance……………………………………………………… …………….22
Notable Resources Allocation in the 2008/09 Budget……………………………………….23
Agriculture and Food Security………………………………………………………………….23
Irrigation and Water Development……………………………………………………………..24
Road Sector………………………………………………………………………………………25
Energy…………………………………………………………………………………………… 26
Rural Development………………………………………………………………………………26
Social Sector……………………………………………………………………………………..27
Health……………………………………………………………………………………………..28
Education……………………………………………………………………………………….. 28
Miscellaneous……………………………………………………………………. ……………..30
Tax Measures for 2008/09……………………………………………………………… ……………….31
Value Added Tax (VAT)…………………………………………………………………………31
Income Tax……………………………………………………………………………………….32
Removing VAT from Manufacturing and Construction Equipment. and
Creation of New Customs Procedures Codes……………………………………………..33
Tobacco Measures………………………………………………………………………………35
Excise Tax on Mobile Airtime…………………………………………………………………..37
Taxation of Gaming/Betting Including Lotteries…………………………………………… 37
Fish Farming and Trawlers……………………………………………………………………..38
Hessian Sacks, Testing Equipment, and Cycle Ambulances………………………………38
Conclusion…………………………………………………………………………………………………40
THE 2008/09 BUDGET STATEMENT
Motion
1. Mr. Speaker Sir, and Honourable Members, I beg to move that the Recurrent Account and Development Account of the 2008/09 Budget be referred to the Committee of the Whole House, to be considered Vote by Vote; and that thereafter, they be adopted.
Introduction
2. Mr. Speaker Sir, this is the last budget sitting of this Parliament and I want to begin by reminding my honourable colleagues that the moment is about to come when each one of us must give an account of achievements and failures of our stewardships to our constituencies. Similarly, now is the time when Parliament must report on what has been achieved under its stewardship since the May 2004 General Election. The House will therefore expect me to provide a highlight of what has been done up to now since May, 2004 in the financial and economic domain of our work.
3. And so, Mr. Speaker Sir, permit me to preface the highlight of our deeds with a short recapitulation of the financial and economic situation in the country as this Parliament was taking over. Our performance will be seen more vividly against this backdrop.
4. Mr. Speaker Sir, in fiscal terms, the dominating feature of the economy in 2004 was a huge domestic debt that was 25 percent of Gross Domestic Product (GDP) and the attendant high interest rates pegged to a bank rate of 35 per cent. Inflation that fell momentarily in 2003 began a vigorous climb back to double digits. There was a large liquidity overhang as a result of huge Government domestic borrowing that took place during the period leading to the General Election that fuelled lagged inflation in 2005. It was in these confused budgetary and financial circumstances that the International Monetary Fund (IMF) and other donors suspended their programmes in Malawi. The result of all this instability, was a severely depressed economy, and investments declined to a level that could not generate meaningful economic growth rates. Consequently, Malawi was characterised by abysmally low growth rates that averaged three per cent per annum. This, Mr. Speaker Sir, is a summarised economic and financial situation that the Government and this Parliament took over in 2004.
5. Fortunately, Mr. Speaker Sir, everybody, everywhere in Malawi was determined to revitalise the economy and the 2004 General Election was seen as the vehicle for ushering in new economic policies that would breathe life into the economy.
6. When His Excellency the President, Dr. Bingu wa Mutharika, took over the helms of the Government, he clearly defined how the economy could be resuscitated. He defined what economic goals we had to aim for and the strategy of how to achieve the objective of re-energizing the economy. In financial matters Mr. Speaker, Sir, the House agreed with his strategy, without exception, that first and foremost we had to enforce fiscal discipline and respect for our financial rules and regulations. Furthermore, this House agreed with His Excellency the President’s government on what ought to be the cornerstones of his budgets; we had to reduce the domestic stock of debt, interest rates, inflation and to stabilise the exchange rate; and they had to emphasise development against consumption. These then were the agreed objectives of our fiscal and financial policy as defined by the government and approved by this House through budget approvals.
7. Mr. Speaker Sir, in the economic field we were set to attain economic growth rates of 6 percent, at the minimum, and to continue with the policy of poverty reduction that aimed at empowering the poor to participate vigorously in the economic activities of the nation. This strategy for achieving sustainable growth had to include a transformation of the economy from a consuming and importing economy to a producing and exporting one.
8. In parallel Mr. Speaker Sir, was a decision by Government, and supported by this House, that the tax system in Malawi should be reformed so as to improve business environment and to create a fair tax system.
9. The House will also recall that when we took over as a Government and Parliament, the remuneration system of the Public Service was dominated by distorted pay incentives that consisted of a multiplicity of allowances that formed the largest portion of an individual’s pay package. The actual core salaries that formed a base for pension calculation could be as low as a quarter of a total pay package. The system was also characterised by low wages at the middle and lower ranges of salary scales, while top salaries were relatively high. As a result, a good deal of civil servants supplemented their official employments with private business undertakings. The result of course was a decline of productivity in the civil service and lack of commitment and dedication to their official duties. Morale in the civil service plummeted to unacceptable levels. To address the challenges, Mr. Speaker Sir, the Government launched a Medium Term Public Pay Policy under which, inter alia, allowances were consolidated with core salaries and progressive salary increases were approved by this House particularly for the middle and lower levels of the service. It was agreed to consolidate allowances with core salaries so as to increase the salary base for pension calculations leading to a boost in pensions.
10. This Mr. Speaker Sir, is a summary of what we set ourselves to attain under His Excellency, the President’s able leadership. It is important to report on what has been achieved and what remains to be done so that our performance can be assessed.
11. Mr. Speaker Sir, I am pleased to report that our success in macroeconomic management has been commended by many including the international community. We have reduced the stock of domestic debt from 25 percent to about 11.5 percent of the GDP in four years. As a matter of fact we have virtually normalised this important fiscal element. The inflation rate, which climbed to 17 percent in 2005 because of the large build up of the money supply during the run-up period prior to the 2004 General Elections, fell to 7 per cent by the end of 2007. Thirdly, Mr. Speaker Sir, as honourable members are aware, interest rates fell progressively and reached a low of 15 percent in November, 2007. These low macro-economic elements have permitted the stabilisation of the exchange rate at the prevailing rate of K140 per US Dollar for about 3 years.
12. Honourable members, this success of macroeconomic management, as members are aware, was rewarded by the international community by according Malawi the status of Highly Indebted Poor Country (HIPC) Completion point on the basis of which our external creditors, including the World Bank, IMF, the African Development Bank and bilateral donors cancelled a huge amount of our external debt.
13. Lastly, Mr. Speaker, Sir, it is satisfying that for three successive years, Malawi has attained growth rates of over 7.0 per cent and that in 2006 the growth rate that was achieved was higher at 8.4 per cent. In fact, with the exception of Angola, which relies on huge oil reserves; Malawi’s economic performances have been considered one of best performing economies in the SADC region during this period. It is also pleasing to observe Mr Speaker Sir, that our exports which, from the 1980s to 2004 stagnated at between US$400 and US$500 million reached a record of just over US$700 million in 2007. In fact, international experts forecast that the figure could exceed US$800 million this year and when Kayerekera becomes fully operational, total exports could pass the US$1 billion mark by 2010. The House can therefore see that the Bingu dream of transforming Malawi into a producing and exporting country is fast approaching.
14. Because of these robust achievements, the inescapable verdict of Malawi’s performance is that under the stewardship of this Parliament and the Government led by His Excellency the President, Dr. Bingu wa Mutharika, this country has achieved impressive results in the economic and financial field.
Fiscal Performance Under The 2007/08 Budget
15. Mr. Speaker Sir, let me now branch off and account to the House for the implementation of the 2007/08 budget. As was the case last year, Honourable Members will find detailed reports of how the budget was implemented in the documents that will be made available to them immediately after the delivery of this statement. I wish to emphasise that over and above these documents my colleagues and I stand ready to answer questions the honourable colleagues may have on the budget. As we have always done, we want to be as accountable and as transparent as possible in exercising this responsibility to the House and the country.
Revenue and Grants
16. This House approved the 2007/08 budget with total revenue and grants that were estimated at K163.9 billion which, because of higher tax collections and larger grant receipts, is being revised to K174.9 billion: this increase of K11.1 billion, K4.9 billion is an increase in domestic revenue. Malawi also received K6.2 billion additional grants. However, because of delays in establishing the grants-in-aid scheme, Government departments collected K800 million less than the targeted non-tax revenue.
17. Mr. Speaker Sir, the House will wish to join the Government to express our thanks to our development partners for demonstrating their confidence again in our country by increasing pledged grants of K65.7 billion which Parliament approved for 2007/08 to K71.8 billion. The Government wishes to register its continued appreciation for these acts of generosity. We are aware that these resources represent sacrifices by the Government and the people of these donor countries and that the resources are intended to support poverty reduction in Malawi and to enhance the welfare of its people.
Expenditure
18. The approved estimated total expenditure for that year Mr Speaker Sir, was K173.6 billion which has been revised upwards by K10.2 billion; of which the increased amount of K4.9 billion represents cost escalations of the recurrent budget. Mr. Speaker Sir, honourable members will note from the documents that this recurrent expenditure overrun was almost exclusively due to escalated costs of the Input Subsidy Programme which includes subsidies of fertilizers and seeds under Vote 190 of the Ministry of Agriculture and Food Security. The documents show that the cost of the combined programme in 2007/08 was K4.2 billion more than the budgeted figure of K11.5 billion. Honourable members will note, therefore, that the combined cost of escalations of the remaining 56 votes was less than K700 millions which is 0.4 percent of the total voted expenditure or 1.75 percent of the approved total ORT of the 2007/08 budget.
19. All in all therefore, Mr Speaker Sir, the sum of these revisions has slightly improved the fiscal position than was originally planned. We now expect to finish the financial year with a slightly lower overall fiscal deficit since the increased resources at K11.1 billion were more than the cost escalations of K10.2 billion. It was planned to finish the year with a deficit of approximately K9.7 billion, and we now expect to finish the year with a reduced deficit of K8.8 billion. Therefore Mr. Speaker Sir, our ability to repay part of domestic debt of K1.5 billion, as approved by Parliament, is enhanced and we expect to increase this amount to K1.7 billion. The House will see a well presented budget framework on pages 3 and 4 of document No. 5.
20. The total expenditure overrun of the development account of the 2007/08 budget was K5.3 billion of which K4.2 billion were escalations in the cost of the domestically funded development programme. The unprogrammed expenditure was particularly evident in the road sector where the implementation of projects was faster than envisaged.
The 2007/08 Development Programme
21. Mr. Speaker Sir, the House will recall that the budget for the financial year 2007/08 was dominated by the development programme particularly in the road sector. I, therefore, propose to spend a few moments to report on some of these notable projects. In the Central Region as planned, the construction of the Bunda-Mitundu road is underway and the Mponela-Ntchisi and the Nkhoma-Kamphata roads were completed. Furthermore, His Excellency, the President has just launched the construction of the Lumbadzi-Dowa road, as planned. However, due to the shortage of funds, this year prevented us from commencing the construction of the Kasungu-Msulira and the Old Airport-Kasiya roads.
22. In the Northern Region, apart from Chitipa-Karonga road whose construction is underway, work has just commenced on Mzimba-Kafukule-Ekwendeni-Njakwa road after His Excellency the President launched the construction programme recently. We expect that if resources become available, the Jenda-Endingeni-Euthini and the Rumphi-Nyika roads could commence since feasibility studies have been completed. Negotiations with financial institutions for the needed funds are still underway.
23. In the Southern Region, where the construction of a number of roads is in progress, construction has commenced on the Bangula-Nsanje-Marka as well as the Chilinga-Chiradzulu roads. The rehabilitation of Liwonde-Mangochi-Monkey Bay has also commenced.
24. Over and above this programme, Mr. Speaker Sir, work is underway at the rehabilitation and construction of road systems in the cities of Lilongwe, Blantyre and Mzuzu. I am also pleased to inform the House that the Japanese Government has commenced the conversion of Chipembere Highway in Blantyre and the Livingstone Street in Limbe into four lane streets The House will note from the documents, that we intend carrying these projects forward as part of the 2008/09 road development programme.
25. In the Education Sector, Mr Speaker Sir, again as programmed and after a long time of waiting, the rehabilitation of Blantyre, Dedza, Lilongwe Girls’ and Mzuzu Secondary Schools has commenced. It is expected that these schools once again could be brought to a level where together with Zomba Catholic Secondary School they would again provide the country with model schools in the country. Work is proceeding on a number of the World Bank projects and domestic funded projects as can be seen in document No. 5.
26. There have been some problems as regards Phalombe, Nkhata Bay and Dowa district hospitals which we had planned to commence construction. In 2007/08 in the case of Nkhata Bay and Phalombe district hospitals, plans have progressed sufficiently well for the construction work to commence in 2008/09. We could also commence the construction of a new district hospital at Dowa Boma in 2008/09.
27. The Ministry of Irrigation and Water Development constructed twenty small community dams across the country. It also undertook the implementation of several irrigation projects. Moreover, the Ministry constructed about 2,000 water points, consisting of boreholes, piped water tap points etc.
28. All in all therefore, the development programme that this Parliament approved has progressed well during 2007/08. Time is not sufficient for me to go into a report of other development projects that were included in the budget. I hope Members will have time to study the documents where they will see how these and other projects have progressed.
29. Mr. Speaker Sir, the House will also recall that it approved a 20 percent general salary increase for the public service. Let me take this opportunity to correct an error that frequently appears in the media where it is said that the Government promised that each civil servant would receive a salary increment of 20 percent. I wish to emphasise that individual officers or teachers etc. can be awarded higher or lower increases than the general (average) increase of, in this case, 20 percent. Last year, for example, the lower and middle levels up to P5, received increments that were much more than 20 percent. This was also the case in the teaching service. However, senior officials whose salaries continue to be inordinately higher than their junior counterparts, received less than the average general increase of 20 percent
World Economic Outlook
30. And now Mr Speaker Sir, as is traditionally the case, I will give the House the economic context of the 2008/09 budget.
31. The world economy has continued to be generally depressed because of the financial crisis that was originated by the subprime loan crisis in the United States of America (USA). This year, oil and food price hikes worsened the World economic outlook. In the event, global output is projected to slow down to 1.3 percent in 2008 from 2.7 percent in 2007 with the USA showing a much lower rate of 0.5 percent in 2008 compared to 2.2 percent in 2007. The consequent falling consumer confidence is exacerbating the already depressed economic conditions. These conditions are not expected to improve much in 2009 when output of the world economy is projected to grow by less than 3 percent.
32. Despite this world economic outlook, vibrant economic activity in the Asia sub-region continues. China, for example, registered a growth rate of 11.4 percent in 2007 and it is expected that in 2008/09 growth in that country will only decelerate to 9.3 per cent in 2008 and 9.5 per cent in 2009
33. Mr Speaker Sir, coming closer to home the downturn of world economic conditions have not had a sufficient impact on the African Region whose growth is expected at 6.5 percent in 2008 and 6.9 percent in 2009. These rates will be applicable particularly in the SADC region where, apart from Angola, Malawi is forecast to register a high growth rate of 7.5 percent in 2008 and almost a similar rate in 2009.
Developments in the Malawi Economy
34. Mr Speaker Sir, our economic policy objective is to achieve and maintain high economic growth rates in stable macro-economic conditions. As stated earlier, we have succeeded to maintain fiscal discipline and have created a sound macroeconomic framework within which to manage the economy. Within this framework, Mr Speaker, Sir, driven mainly by small-scale agriculture, construction, transport and communication sectors, the Malawi economy will have grown by more than 23 percent between 2005 and 2008 end. Indeed, as I said earlier, the current economic growth rates reflect a substantial improvement when compared to those recorded between 1997 and 2005 and are far above the 6.6 percent growth that is needed to achieve the targeted level of poverty reduction by 2015.
35. Moreover, Mr. Speaker, Sir, according to recent Sub-Saharan Africa Regional Economic Outlook published by the IMF in April this year, the ratio of investment to GDP in Malawi rose to 28.1 percent in 2007 and is expected to stand at 24.4 percent in 2008. This contrasts sharply with the rate of investment that averaged 14.4 percent of GDP between 1997 and 2004. If we continue to manage the economy as well as we are doing and continue to follow the economic growth strategy that we have adopted, these forecasts augur well for the sustenance of the good economic prospects.
36. Mr Speaker, Sir, the prospects are also good in the external sector. Malawi’s trade balance improved by about 3.0 percentage points to a deficit of 14.9 percent of GDP in 2007 from 19.6 percent and 17.4 percent in 2005 and 2006 respectively. The improvement is attributed to increased exports which for the first time, since independence, climbed above the US$600 million mark to US$705.0 million in 2007.
37. Mr. Speaker Sir, despite the relatively positive outlook for the external sector, it would be remiss of me not to bring the attention of the House to the significant challenges the current world situation will present us in the coming years. The combined effects of the steep rise in oil and fertilizer prices will affect Malawi’s overall terms of trade with the rest of the world, and significantly exacerbate the challenges we face in accumulating foreign reserves.
38. Despite the down turn of economic activity in the developed countries and the high oil and food prices, the 2008/09 budget has been prepared on the basis of relatively good and robust macroeconomic assumptions as I will indicate later.
The 2008/09 Budget Perspectives
Medium Term Pay Policy
39. Mr. Speaker Sir, let me now give an outline of budgetary perspective for 2008/09. Let me begin with how the Medium Term Pay Policy has developed and what remains to be done. It is clear, Mr. Speaker Sir, that this Policy is still not well understood. Despite the fact that it was advertised in the papers four years ago, and that I have repeatedly discussed it in my budget statements, the questions that arise indicate a lack of an understanding of the policy. I would therefore like to summarise what we set out to do under the policy.
40. Mr Speaker Sir, the House is aware that the Government has been implementing a Medium Term Pay Policy since the 2004/05 financial year. As His Excellency the President stated in his speech to the House on May 19th, 2008, this policy represents one of the tools for improving governance in the Public Service and aims at enhancing its effectiveness. Mr Speaker Sir, here I merely should, yet again, review its elements and will inform the House what it intends to do in 2008/2009 in pursuance of its objectives.
41. The policy seeks to harmonise and unify a proliferation of salary scales that have emerged in the public service overtime. The emergence of these salary scales has resulted in a number of salary distortions in the public service; so that officers who do the same job, with the same qualifications and experience are not equally remunerated. Thus a clerk in the civil service who has counterparts in either the Judiciary or Parliament or indeed in the Anti Corruption Bureau (ACB), could be paid half the salary of his counterparts. The Policy seeks to remove such distortions.
42. Secondly, Mr. Speaker Sir, it seeks to eradicate the wide disparity between salary levels of low and middle staff below the Under Secretary (P5) level on the one hand, and senior officers at Deputy Secretary (S4) and above. The emergence of a large salary gap of about 500 per cent as it was in 2004, between the two groups has been a source of low morale and demotivation of a large group of civil servants. By awarding higher salary increments to the “junior” group in the public service than to the top levels, this gap has been reduced to approximately 200 percent. However, more work must be done to reduce it further to acceptable levels of, say 20 percent. Lastly, under this policy, all allowances have been consolidated with core salaries in order to boost the salary pension base that leads to higher pension benefits.
43. Mr Speaker Sir, the House is aware that the Government has established a Public Service Remuneration Board consisting of independent eminent Malawians to assist in the implementation of this policy and to advise the Government on general conditions of service of the public sector, including the determination of salaries in the service. As part of the implementation of this policy, the 2008/09 budget includes a proposal of a general salary increase of 20 percent that would be effective on July 1st 2008. The Board will be responsible to the Government in determining salary increments across the public service salary scale and it will be guided by the Medium Term Pay Policy objectives.
The Subsidy Programme in 2008/09 Budget
44. The Government intends to continue with this extremely valuable programme. Due to increased fertilizer prices, this year’s cost of subsidizing fertilizers and maize seed is projected to increase from K10.7 billion (revised to K14.5 billion) to K17.78 billion for the fertilizer subsidy and from K800 million (revised to K1.2 billion) to K1.7 billion. This programme is considered crucial to the welfare of the poorer segment of the Malawian population.
45. On the other hand, it is estimated that before and after harvests of maize, up to 40 percent of the grain is eaten by weevils. The chemical that would eliminate the variant of weevils that destroy hybrid maize is expensive and as a result its use is not prevalent among small farmers. Government has therefore decided to include the subsidisation of the pesticide in the subsidy programme, to encourage farmers to use the chemical. The effect of the subsidy would be to reduce the price of chemicals from K250 per satchet to K100 a satchet. This will cost approximately K650 million to the budget and appears in the budget as part of the maize seed subsidy.
Maize Storage
46. Furthermore, Mr Speaker Sir, Government intends to increase maize storage capacity and as indicated in the statement, I wish to confirm that resources have become available for the construction of two more silos in Mzuzu for the Northern Region and at Lunchenza for the Southern Region. This is of course in addition to the main silos in Lilongwe and the one that was launched in Mangochi by His Excellency the President. We have also commenced to construct 600 metal storage facilities that will be scattered around the country. It is hoped that when the programme is completed, Malawi will have enough storage capacity to enable farmers to use modern storage facilities and reduce food wastage that is being experienced now.
Crop and Weather Insurance Scheme
47. Mr. Speaker Sir, Honourable Members are aware that we have been operating a Crop Insurance Scheme in the country under which companies have bought maize with an undertaking that in case of maize shortage, Government would buy the maize at a price that the company in question purchased it. The maize is stored by us (Lilongwe silos) and the company pays for the storage expenses. If by an agreed month, (normally about January) the Government decides not to purchase the maize, the company is free to export it. The premium for this insurance scheme has been paid for us by the United Kingdom’s Department of International Development (DFID) and we are extremely thankful to that institution for this arrangement.
48. Over and above this crop insurance scheme, we have been asked and have agreed to pilot a World Bank “weather insurance scheme” under which a premium is paid. This case will be paid on our behalf by DFID. And if it is found that the weather conditions have impaired crop production, the insurance company would pay Malawi Government an agreed amount that would enable us to purchase food to alleviate the effects of the bad weather. It is expected that if the scheme works well in Malawi, the World Bank will use it elsewhere in the world. Mr Speaker Sir, the House may again wish to join me to express the pride for being chosen over other countries in the world to be the first to manage this valuable scheme which should prove invaluable in these days of climatic change.
Public Participation in the 2008/09 Budget
49. As in previous years, Mr. Speaker, Sir, we wish to thank everyone who took part in the pre-budget consultations throughout the country or who contributed ideas, suggestions and, indeed criticisms on the design and implementation of previous budgets through e-mails or letters to the Ministry of Finance. Our invitation for budget representations to be made directly to the Ministry by those who could not attend the public consultations was a new innovation this year, and I am encouraged that quite a few number of people took the trouble to put their ideas and proposals in this way.
50. The consultations we carry out each year before the budget are an important element in the budget process, and also in the wider engagement between Government and key groups such as the business community and civil society. Those who take part understand, I think, that not every idea can be adopted each year. Sometimes it is not because we don’t agree with ideas being put forward, but more often because although the idea is sound, it has resource implications that cannot be accommodated.
51. I believe, however, that anyone who has attended the consultations on a regular basis would confirm that many serious reforms have been discussed during them, and have then been implemented in following budgets. In other words, the consultations have not just been about appearing to consult, but have actually been a significant influence on the budgets that followed them.
52. Not only were good proposals made this year in relation to taxation and expenditure, but also, perhaps more than in previous years, very interesting proposals in a number of other policy areas not directly linked to the budget. These contributions have been reflected in this budget where possible, but have also led into discussion with Cabinet colleagues in several areas not specifically dealt with in the budget.
Alignment of the 2008/09 Budget in MGDS
53. This is the second budget to have been prepared as a tool for achieving the objectives and goals of the Malawi Growth and Development Strategy (MGDS). Document No. 5 describes at length, the relationship between the budget and the MGDS and points-out that expenditures in the budget are classified into MGDS and Non-MGDS expenditures. This allows those who wish to assess the extent of its alignment with the MGDS to do so. The activities that can be classified only cover “Other Recurrent Transactions” (ORT) and those of the Development Budget. They do not cover Personal Emoluments as the personnel expenditures are spread out over varied activities. Lack of an understanding of how expenditures are categorized led various attempts in the media etc. last year to arrive at conclusions on the extent to which the 2007/08 budget was aligned with the MGDS. This year we have attempted to give a full account of how budgetary activities are classified.
54. It will be recalled Mr Speaker Sir, that the Malawi Growth and Development Strategy provides detailed costings of all the activities under each financial year. The 2008/2009 allocations are clearly displayed in MGDS by themes. It is therefore easy to compare the extent to which budgetary expenditures in this budget conform to the MGDS costings. Honourable Members will see from the document that as projected, MGDS estimates for 2008/09 amount to approximately K126.9 billion. In contrast, in the budget, MGDS themes have been allocated a total of K139.1 billion. The figures show that if wages and salaries are excluded, 73 percent of the 2008/09 budget activities are in support of main MGDS goals. In other words Mr Speaker Sir, the degree of the alignment of the budget with MGDS is higher than is envisaged in that document.
2008/09 Budget Framework
55. Mr Speaker Sir, the underlying assumptions of the 2008/09 budget are that nominal GDP will increase from K526.3 billion in 2007/08 to K588.7 billion in 2008/09 and that growth rate will remain at 7 percent in 2008/09. The average inflation during the financial year 2008/09 is projected at 6.5 percent and that interest rates will fall to an average of 12.5 percent, as the money supply growth declines to 12.2 percent. It is further assumed that exports will increase to about US$800 million in 2008 and are projected to rise to about US$1.0 billion in 2009. On the other hand, imports are projected to increase to US$1.3 billion in 2008 and to be at approximately the same level in 2009. As I have already said, Malawi stands to gain from the world food price hikes if it continues to export food materials. However, petroleum imports, which are expected to rise from US$178 million in 2007 to US$190 million and US$200 million in 2008 and 2009 respectively, could moderate the desired deceleration of inflation rate and fuel general price increases in the country.
56. Using these underlying assumptions Mr. Speaker Sir, the amount of resources in the 2008/2009 budget that comprise revenues and grants is estimated at K208.1 billion representing an increase of 27.0 per cent over the approved 2007/08 budget and 19.0 per cent over the revised estimates for that year.
57. Total domestic revenue is estimated at K118.2 billion and of this amount, tax revenue is estimated at K107.3 billion representing an increase of 24.5 per cent over the revised estimate for 2007/2008. Non tax revenue, on the other hand, is expected to fall from K12.0 billion to K10.9 billion, which is slightly higher than the revised amount of K10.1 billion for 2007/08.
58. We have pledges of grants Mr. Speaker Sir, that amount to K89.9 billion for the 2008/09 budget, which represents a 36.9 per cent increase over the 2007/08 figure and 24.0 percent over the revised figure of K71.8 billion. These figures demonstrate a continued confidence in Malawi’s management of resources and the generosity of our co-operating partners.
Expenditure
59. The total budgeted expenditure for 2008/09 is estimated at K229.2 billion, and K172.1 billion, representing 75 percent of the total expenditure, will fund the recurrent programme of the budget while the development account will constitute 25 per cent of the budget. Mr. Speaker Sir, the House will note that the recurrent account has been increased more than the development programme. The Recurrent Account was 66 percent of last year’s budget. Correspondingly, the development account share of the budget has deteriorated from 33 percent of the budget. There are two reasons for this change; the first is that this year the budget contains two once and for all group of expenditures that total nearly K10.0 billion. The activities that are funded by this amount are either directly or indirectly related to the general election and the population census. Secondly, there has been a reclassification of the National Aids Commission (NAC) spending which last year appeared as a capital account activity. As can be seen from the table, the total account of this item is K18.0 billion. It is argued that expenditures of the National Aids Commission are a recurring item of the budget. Moreover, an amount of K4 billion for road maintenance has also been reclassified as a recurrent expenditure rather than a development
