2017/2018 BUDGET STATEMENT

MOTION

1. Mr. Speaker, Sir, I beg to move that the Estimates onRecurrent and Development Accounts for the 2017/18 budgetof the Government of Malawi be referred to the Committee ofthe Whole House, to be considered Vote by Vote, and thatthereafter, they be adopted.

INTRODUCTION

2. Mr. Speaker, Sir, this honourable house has beenassembled to debate and decide how the financial resourcesthat are projected to become available during the 2017/18financial year, should be utilized to optimize the welfare ofMalawians. The resources are also intended to generateeconomic growth that could boost future financial resources tofund the needed enhancement of future welfare of Malawians.

3. Mr. Speaker, Sir, I am mandated by the President of theRepublic, His Excellency, Professor Arthur Peter Mutharika tosubmit to the house the proposals of the Government on howthe resources can be raised and used; for the considerationand approval of the house on behalf of the people. This is aserious and noble responsibility and; I am humbled andprivileged that yet again, His Excellency has entrusted thisduty to me.

4. Mr. Speaker, Sir, the budget has been designed to beimplemented within the context of international, regional anddomestic, economic developments and it is therefore fitting thatI start by sharing the view of the Government on thesedevelopments.

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World Economic Outlook

5. According to the International Monetary Fund, globaleconomic growth rose from 3.1 percent in 2016 to 3.4 percentin 2017 and it is projected to continue to grow by 3.6 percentin 2018; reflecting a strong economic rebound in advancedeconomies and a marked pickup of economic activity inemerging and developing economies. Economic growth ratesinadvanced economies have been revised upwards recently,intheUnited States reflecting expectations of fiscal easing andrising confidence; while in Europe and Japan the upwardrevisions merely reflect cyclical recovery in manufacturing andtrade.

6. For emerging and developing countries, growth isexpected to remain strong in China, India and many othercommodity importers. Malawi stands to gain from thesedevelopments if it positions itself appropriately, by producingquality tradeable goods that are expected to be in demandworldwide.

7. Therefore the Government will continue to encourage theprivate sector to take advantage of these global trends. Inparticular it intends to push the production of legumes andcotton and the development of a thriving system of marketingfor these commodities.

8. The Ministry of Industry, Trade and Tourism is poised totackle this task while the Ministries responsible forAgriculture, Irrigation and Energy stand ready to support smalland large scale farmers to increase the production of thesecommodities.

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9. Inflation in 2016 increased by 0.7 percent in advancedeconomies but declined by 4.5 percent in emerging anddeveloping economies. It is anticipated that consumer priceinflation will continue to rise globally resulting from anexpected rise in oil prices. These global inflation pressurescould occur when Malawi poises to continue on a trajectory ofdeclining rate of inflation.

Sub-Saharan regional outlook

9. Growth in the Sub-Saharan Region slowed downconsiderably from 3.4 percent in 2015 to 1.6 percent in 2016.This was on account of the domination of oil exportingcountries that influenced a continued diminishing of growthrates.However, in Malawi, depressed economic conditionslargely resulted from unfavourable climatic reasons. It isprojected however, that growth in this region will pick up to 2.8percent in 2017 and 3.7 percent in 2018, although in Malawihigher growth rates are possible and expected during thisperiod.

10. Mr. Speaker, Sir, inflation within the region, remainshigh, especially in large oil exporting countries where inflationdramatically increased from 9.1 percent in 2015 to 19.1percent in 2016. In oil producing middle income countries,inflation increased to 5.4 percent in 2015 and to 7.0 percent in2016; whereas in low income countries, the increase was mild - from 5.7 percent in 2015 to 5.8 percent in 2016. It isanticipated that consumer price inflation will worsen in oilexporting and low income countries in 2017. However, inMalawi better financial and fiscal outcomes will lowerinflationary measures and rate of inflation.

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Economic Developments in Malawi

12. Economic activity in 2016 remained subdued at 2.7percent from 3.3 percent that was recorded in 2015 followingtwo consecutive seasons of poor crop harvest. Simultaneousfloods and dry spells in 2015 and in 2016 resulted in a severecurtailment of agricultural output, declining by some 35percent cumulatively in 2016. Concomitantly, growth in suchsectors as manufacturing, energy and water supply wassignificantly reduced during the two years. However, signs ofrecovery begun to emerge in the second half of 2016 wheninflation begun to ebb downwards. The strong fiscal andmonetary policies, that were reinforced by the IMF supportedprogramme, have sustained this recovery which is continuinginto 2017 and is strongly expected to continue to gatherstrength in 2018, when it is projected that single digitinflationthat has been unsuccessfully pursued for the pastseven years could prevail.

13. This expected favourable environment, if sustained, willaugur well for public and private sector capital investmentsand could provide the linchpin of a needed robust growth.Based upon our recent annual economic survey, it wouldseemthat a number of companies are already considering toexpandproduction and increase the recruitment of labour inparticular because of the vast improvement in the availabilityof forex, and the expectation of further interest rate reduction.

Mr. Speaker, Sir, it is strongly believed that the economy couldregister an increased growth rate of between 5-6 percent in2017 and thereafter, depending upon good weather conditions,a resumption of robust economic growth rates is likely.

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15. Mr. Speaker, Sir, and honourable members, it isencouraging that this view of an improving economy and ameasure of success in the public finance management reformsis shared by the international community.

16. The recent resumption of the World Bank budgetarysupport, the expected confirmation by the IMF that Malawi ison track in its pursuance of fiscal management reforms as wellas the pending European Union’s resumption of budgetarysupport, are all welcome signs of international confidence inwhat is being achieved.

17. Mr. Speaker, Sir, I will be the first to admit that we stillhave a lot to do to perfect economic management and certainlythe economy still requires careful handling. Financialresources are still scarce. In the circumstances a careless useof resources can easily reverse the rebound. I also admit thatwe yet have a lot to do to adopt basic sound fiscal managementpractices as needed to routinize bank reconciliations.

18. As the recent forensic audits have shown, lack ofsystematic reconciliations have resulted in inexplicable use ofhuge amount of resources. It is therefore, imperative that oncompletion of the current audit by independent auditorsregarding the remaining K236 billion, an exercise that isvoluntary being paid for by the Government itself, furthertransparency of our fiscal system, must be routinised.

We also have a lot to do regarding the systematic complianceby the fiscal system to our own financial rules and regulations.In the event, the establishment of a fiscal structure thatprovides for a systematic reconciliations between Governmentaccounts and bank statements ought tobe adopted forcibly and

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urgently. Mr. Speaker, Sir, we no longer need donors todemand this, for us this is most important measure againstcorruption.

20. However, it must be equally admitted that a noble starthas been made and that the international confirmation thatMalawi is achieving positive results in this domain is moraleboosting to Malawians in general and the public service inparticular and we are determined to do more.

21. Mr. Speaker, Sir, at this point, I find it necessary torecapitulate what has been achieved. First, I wish to repeat,and request that it be noted by the house, that despite thefailure for some four years to bring down inflation that wasunleashed in May 2012, the annual rate of inflation has beenfalling steadily for more than 10 months since June 2016.

22. Helped by declining food prices, a relatively stableKwacha, and lower international fuel prices, and moresignificantly, by fiscal adjustments that have characterizedfiscal management since June 2014, overall inflation hasdeclined without interruption by 9.7 percentage points from24.3 percent in July 2016 to 14.6 percent in April 2017. Thisdownward trajectory of both food and nonfood inflation hasprovided scope for monetary policy to start unwinding.

23. Mr. Speaker, Sir, in response to this development, theReserve Bank of Malawi reduced its policy rate to 22 percent inMarch 2017 from 27 percent at its peak. With a continuationof this trend in inflation, it is expected that the Reserve Bankof Malawi will reduce the policy rate further and generate acontinued fall of rates of interest leading inter alia to asignificant reduction in the “interest payment bill” of futurebudgets and improved access to credit by the private sector.

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24. During this period, the volatility of the exchange rate thatprevailed for a long time, halted. I am pleased to report to theHouse that the exchange rate remained fairly stable in thesecond half of 2016 up to May 2017 depreciating by only 2.0percentage points against the US dollar between June 2016and mid May 2017.

25. This was largely due to a seamless supply of foreignexchange that the country experienced in 2016 through tothefirst quarter of 2017. The stability of the exchange rate islikely to persist due to an expected augmented supply of forex.

26. With a careful husbandry of forex after augmenting thereserves from seasonal proceeds of our exports; inflows frominternational organizations as described earlier the exchangerate stability should continue.

27. Mr. Speaker, Sir, foreign international reserves have beenmaintained at around 3 months of import cover during the2016/17 financial year and although for a short time in April2017, reserves declined to 2.7 months of import cover; theresumption of budget support by the World Bank, EuropeanUnion, and the expected disbursements from the IMF andexport proceeds reserves are likely to even surpass the 3months import cover by the end of the financial year.

28. And now Mr. Speaker, Sir, I owe it to the house to pointout that an economic rebound does not mean that we now haveenough resources to spend. It merely means that we haveemerged out of the hole into which we were thrust by the“cashgate” episode and that we can now commence aneconomic management that should lead to robust economicgrowth. It does not mean that we can indulge into lavish

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expenses and focus on personal wealth gathering, becausesuch actions will push us back into the economic dungeon.

29. In fact Mr. Speaker, Sir, we have reached a very criticaleconomic point when our main preoccupation will be tomanage our resources very carefully. In view of theaccumulation of domestic debt and a large amount of arrearsof K155 billion as at June 2014, the budgetary support that wehave received must all go into the repayment of debt and thesettlement of arrears.

30. Mr. Speaker, Sir, this then is the sum total of thebackground to the 2017/18 budget that I am about to presentto the august House on behalf of the Government. It has beendesigned to maintain macroeconomic stability and to jump-start a robust sustainable economic growth. This particularlymeans that to grow, we must maintain the austerity measuresthat are leading to macroeconomic stability and discernible ofeconomic growth.

31. But before I take up issues of the 2017/18 budget, I owethe house to report on the outcomes of the 2016/17 budget.

32. Mr. Speaker, Sir, last year the attention to this part ofpresentation resulted in some members’ surprise that I did notgive the house a review of the outcome of the past budget. Itherefore request the attention to what I will report as well tothe background of data to the issues.

THE 2016/2017 BUDGET OUTTURN

The design of that budget Mr. Speaker, Sir, was part of avigorous fiscal adjustment that has been pursued since June2014 in order to progressively match the diminished availableresources with the needed total budgetary requirements.

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33. The objective of the adjustment is to reduce domesticborrowing so as to eliminate excessive liquidity in the systemthat has been a major factor in fueling inflationary pressures.

34. In the event, after the huge exchange rate depreciation ofMay 2012, it has been necessary to conduct yearly fiscaladjustments to achieve this objective.

35. In 2016/17, at mid-term, it became necessary to reducean approved expenditure amount of K 1,149.0 billion (27.1percent of GDP) down to K1,129.0 billion (26.0 percent of GDP).

36. Mr. Speaker, Sir, the house should take note, (Annex I),that the final budgetary outturn data for 2016/17 havechanged somewhat. From that annex, it will be seen thattotalreceipts comprising of domestic revenue and grants havebeen revised downwards from K999.0 billion (23.5 percent ofGDP) to K977.8 billion (23.0 percent of GDP).

37. Mr. Speaker, Sir, therefore it is now projected that thedeficit including grants that was estimated at K130.2 billion(3.1 percent of GDP) is likely to turn out to be higher atapproximately K169.5 billion (4.0 percent of GDP). Thisoutturn will still be lower than the deficit that was originallyapproved at K174.8 billion (4.1 percent).

38. The house will further note, Mr. Speaker, Sir, that themajor cost escalation relates to the “interest payment bill”(budget line)that was projected to be K168.5 billion and is nowestimated to rise toK183.5 billion (4.3 percent). With thisexception, all major expenditures have behaved as projectedincluding expenditures on FISP and the wage bill that havealways been uncontrollable in the past.

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39. The house will also note a significant departure from themid-term figure relating to expenditures on the developmentprogramme which was projected at K257.0 billion (6.1percent).We now expect that figure to be K6 billion higher andincrease to K263.3 billion (6.2 percent).

40. This is due to improvements in the implementation ofprojects that resulted from His Excellency the President’sdecision to set up a Cabinet Subcommittee on ProjectImplementation that was charged with the Surveillance ofProject Implementation. The Committee includes seniorofficials responsible for implementing the projects. It reports tothe President. This improvement augurs well for the 2017/18development programme that is much higher and moreinvolving.

41. The house is invited to carefully note other smallerchanges from the annex which could be discussed withindividual ministries in the time available for this purpose.

THE 2017/2018 BUDGET

42. As I have alluded to before, in view of the economic andfinancial outcomes of the year, it is felt that conducivemacroeconomic conditions are emerging which will provide anecessary foundation for the resumption of robust economicgrowth.

43. The underpinnings of the budget therefore, are themaintenance of macroeconomic stability and a relaunch of aprogramme of robust economic growth.

44. The Government’s economic goal for the medium termand for the financial year, is founded on common aspirations

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of Malawians that the country should move out of a group ofcountries that is considered to be the poorest in the world.

45. Most economists and Malawians in general feel that abetter management of the economy could pull the country outof this group and it is assumed here that this can and shouldbe done within 10 years by doubling our income per capita bythat time.

46. In our calculation, this objective is possible if we shapeour policies and management of the economy to register anaverage growth rate of 7 percent per year.

47. There will be others who will be apprehensive about thisobjective, and will give arguments as to why this objective is tooambitious. However, the target of a growth rate of 7 percent peryear is an ambition that is not based on complicatedmathematical economics but it has to be attained if theaspirations of Malawians are to be satisfied.

48. It should also be pointed out that this county’s potentialis far from being exploited fully and that with good policies andsound economic management of the resources, the requiredhardwork from all Malawians and institutions, there is noreason why this target cannot be reached.

49. As a matter of fact, this country has been known to growat rates of more than 9.0 percent in the 1970s, 1990s and inthe early 2000s and it is therefore argued that if dormantresources are mobilized; clear and enough incentives for hardwork are established including appropriate compensation forlabour and discipline is reinforced, Malawi could redouble itspresent economic achievements and surpass this averagegrowth rate.

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50. It is also important to remind ourselves that at varioustimes during the 50 years of independence, we have reachedthis point at which macroeconomic stability has been achievedand a beginning of a robust growth started but falteredbecause of policy reversals and a belief that a point ofeconomicsuccess had been reached and therefore fiscaldiscipline could be relaxed.

51. Therefore, as we launch yet another new phase when theopportunity to attain robust sustainable growth rates isopening up, the house should decide to insist that policies thatmaintain macroeconomic stability particularly to fiscaldiscipline, be sustained. The leadership should spend moretime on developing the country than on personal welfare. Thisshould be the anchor of their workload.

53. With this preamble, let me now give a short review of theproposed 2017/18 budget that is clearly illustrated by thedocuments that will be distributed shortly today.

54. The budgetary outline is in Annex I. Annex II containsvote by vote allocations and Annex III provides a detailed list ofthe projects vote by vote that are being proposed forimplementation during the financial year.

55. It is being proposed Mr. Speaker, Sir, that total revenueand grants should be increased from a likely outturn of K977.8billion (23.0 percent to K1, 108.8 billion (22.3 percent).Therefore, whereas in current prices, total revenues and grantsare projected to increase by 13.3 percent, in real terms, it willbe slightly reduced particularly as regards grants which areprojected to decline by 8.4 percent. Domestic revenue isbudgeted to increase by 17.0 percent and remain at the samelevel in real terms.

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56. Total expenditure (the budget) is projected at K1,297.2billion (26.1 percent) and register a 13.5 percent increase atcurrent prices but decline somewhat in real terms. This isparticularly true of recurrent expenditure which will decline inreal terms from 20.5 percent to 19.1 percent of GDP, whereasdevelopment expenditure will increase by 32.6 percent incurrent prices and register a slight decline in real terms by 0.6percent of GDP.

57. There average Wages bill will increase by a total of 10.0percent. However, with wage creep of 3 percent, the total wageincrement will be approximately 13 percent. It is hoped thatthis rate of wage or salary increment can be applied to everyonewho is paid from the Consolidated Fund in Parliament,Judiciary, Civil Servants, etc.

58. The attention of the house is called to two significantbudgetary projected occurrences; the first is that after a longtime, Malawi is expected to generate enough domestic revenuethat could exceed recurrent expenditure by close to K32 billion.

59. This is an objective that has been sought for since the2009/20 10 zero deficit budget when the desired objectivewasto balance recurrent expenditure with the domesticresources.

60. Secondly, as frequently demanded by this house, theincreased recurrent expenditure is lower than the increase indevelopment expenditure which is also more than 25 percentof total budget, a threshold for deciding whether the budget isa development budget or a consumption one. These aresignificant achievements and it is hoped that future budgetscan build on this success.

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61. The projected deficit “including grants” in 2017/2018 ascan be seen from annex I, is 3.9 percent of GDP thisanadjustment from 4.1 percent of GDP last year. Although itwas hoped atmid-term to reduce the figure to 3.1 percent atGDP, the likely deficit for 2016/17 budget is slightly higherGDP. These are commendable figures as it will be recalled thatthe deficit in the 2013/14 budget was 6.1 percent of GDP. Thisshows a huge fiscal adjustment that has occurred within thelast 3 years.

62. In parallel, it is projected that domestic net borrowing willbe reduced from K63.6 billion (1.5 percent of GDP) to K27.5billion (0.6 percent of GDP). Here again, we are making asignificant improvement and shows the efforts behind theeconomic rebound that has been made.

63. In light of this development, the budgetary support thathas been received will all be used to repay domestic borrowingand the huge arrears that were accumulated by June 2014.

HIGHLIGHTS OF SOME RECURRENT EXPENDITURES

Pensions

64. Mr.Speaker, Sir, there is a pension disparity betweenthose who retired prior to 2004 when allowances and basicsalaries were amalgamated to form a pension base clean ofallowances, while for those who retired before 2004, thepension base was net of allowances. A retiree from the lattergroup could now be receiving a quarter of the pension paid toa post 2004 retiree who retired at the same grade and had thesame number of years of service.

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65. As we migrate to the National Pension Scheme, it is beingproposed that we start a process of eliminating these pensiondisparities between the two groups of retirees. It is proposed tostart with a 200 percent increase of pensions of those whoretired prior to 2004 and hold the pensions of those who retiredafter 2004 constant during the process until the two areequated.

66. The budgetted increased pension bill from K50 billion toK70 billion partly reflects the needed resources for such anincrease.

67. Secondly, the increase reflects the migration of CivilServants that are below 35 years of age and the incoming newrecruits. These will migrate from the present Governmentpension scheme to the contributory National Pension Schemeas from 1st July 2017. The increased pension bill also includethe contribution that the Government will pay for eachmigrating Civil Servant to the National Pension Scheme.

Devolved Services to Local Authorities

68. The house will note that a substantial amount ofresources from a number of votes have been transferred totheLocal Authorities Vote to fund devolved services. Theseincluderecurrent resources consisting of “PersonnelEmoluments” and “Other Recurrent Transactions” from, inparticular, the Ministry of Agriculture, Irrigation and WaterDevelopment, theMinistry of Education, Science andTechnology and Ministry of Health among many others.

69. It is planned that the local authorities take over themanagement of these resources such as salary payments toprimary school teachers and similar grade levels of officials

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from the other ministries including Agriculture and Health. Atotal of K132 billion “Personnel Emoluments” from these voteshas been transferred to the local authoritiesvote where itwill bemanaged. As can be seen from Local Councils vote, thetotalamount of recurrent budgetary resources totallingK162.3billion has been transferred to the local councils to bemanaged there.

To ensure the effectiveness and efficiency of devolved services,the frequency of auditing local authorities has been increased.In the 2016/17 financial year, a total of 20 local councils outof 28, have been audited and the reports are being submittedto the Ministry of Local Government where appropriate actionagainst malfeasances will be taken. From the DevelopmentBudget, net of CDF, DDF and LDF, a total ofK13.3 billion hasbeen transferred to Local Councils to enable them to take overthe responsibility for grass root development projects. TheMinistry of Local Government, has also been allocated a furtheramount of K8.5 billion for grass root projects. This ministry willalso be charged with surveillance over Local Authoritiesactivities.

Youth Development Programmes

71. Apart from the technical colleges that offer skills to theyouth, other notable innovations in this programme include,an increased allocation to the National Sports Council of 60percent to K1,752.0 billion. It is being proposed for examplethat Malawi should start professional football activities thatwill be offered at various youth centres including the YouthCentre in Lilongwe which will be rehabilitated extensively andin Blantyre and the Mzuzu where other centres will beconstructed. Within the new Ministry of Civic Education and

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Community Development, a sizeable amount has been setaside to construct an Arts and Drama Academy in Blantyrethat will include the productions of films and movies andotheryouth entertainments. It is therefore, being proposed thatover and above the skills vocational colleges that are being setup, an initial amount of K150 million be set aside for theestablishment of a Development Programme in the Ministry ofCivic Education and Community Development. The budgetshould support a comprehensive Youth Social and AthleticDevelopment Programme starting from this financial year. Thetotal cost of Youth Programmes amount to more than K5.0billion.

Governance Votes

70. The house will note that in response to the criticism of themid-term revised budget, governance institutions such as theACB, the Directorate of Prosecutions, the Ombudsman, theLegal Aid Bureau and the Asset Declaration Department, havebenefited from large budgetary increases within their ORTbudgetary lines. These will help them to operate unretarded bylack of funds.

Ranking of Allocations

71. The Education, Science and Technology sector which hasbeen allocated K235 billion or 18.1 percent of the budget hashad the highest budgetary allocation. The second largestallocation is in the Agriculture Sector that amounts to K192.0billion or 15.5 percent of the total budget. Health with anallocation of K129.0 billion which is 9.9 percent of total budgetis the third largest.

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HIGHLIGHTS OF THE DEVELOPMENT BUDGET

72. The rankings in the allocation of the resources within thedevelopment budget reflect the priorities that His Excellencythe President announced in his SONA. These include 1. TheAgriculture, Irrigation and Climate Change group of activities;2. The Educational activities; 3. Health programmes; 4. TheEnergy sector; 5. Transport and communicationsinfrastructural activities and; 6. Tourism.

73. It will be noted from annex III that the developmentbudgetary allocations closely reflect these priorities. Inagriculture and climate change for example, the developmentbudget is increased to K62.0 billion which is 17.4 percent ofthe total development budget is the highest. In EducationSector the development budget allocation is K38.7 billionwhich is 11.1 percent of the total budget. The allocation toHealth K25.7 billion, Roads Sector’s allocation is K69.9 billionand in the Energy Sector is K12.7 billion and Tourism has K1.3billion.

74. Within this Agriculture Sector, the majority of projectsrelate to the need to popularise irrigation agriculture. TheMinistry of Agriculture, Irrigation and Water Development willtherefore be in a position to concentrate on the development ofsmall scale irrigation projects that will cover the majority ofsmall scale farmers in the country. It is hoped that in time,such farmers can continue to produce even underunfavourable weather conditions.

75. Large scale irrigation projects will be managed under theGreen Belt Authority whose total development expenditure isprojected at K17.6 billion including the Shire Valley Irrigation

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project that is just about to be completed. It is expected thatthe Authority can extend its services to large scale farmers thatcould lease land within the area covered by this project. TheAuthority will also continue spending resources in Salima.

76. In education, the main objective of the projects that areestimated to amount to K38.7 billion is to improve the qualityof education by improving the adequacy required schoolequipment. A productionof 5 million desks for instance isenvisaged and a constructionof libraries and laboratories ineach constituency for the use of community day secondaryschools is also planned to commence this year.

77. It is also expected that some 12 primary schools could bebuilt in the Cities of Blantyre, Lilongwe and Mzuzu that will befully equipped. The intention would be that in the mediumterm, every school going child will be provided with adequateschool materials and learning equipment including a desk. Thepupil teacher ratio will be vastly improved in rural and urbanschools alike.

78. The programme also includes the rehabilitation of 50national secondary schools and an enhanced number of girls’hostels throughout the country.

79. In Health, it is intended to concentrate on theconstruction of community health facilities as well as theconstruction of district hospitals in Phalombe, Blantyre andLilongwe. The Ministry will also rehabilitate a number ofdistrict hospitals which have become relatively small with theever increasing population.

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Energy Sector

Mr Speaker, Sir, as His Excellency the President stated, theEnergy Sector will be another sector of focus in this budget andother budgets to come. This is because as Mr. Speaker, andHonourable Members are aware, energy is what is going tounlock our nation’s development potential. Our pace ofdevelopment as a country has, thus far, been stifled as resultof inadequate power in our country. It is therefore the policy ofthis government to ensure that we provide adequate power forindustries, agro processing, mining, irrigation,informationtechnology, and all sectors that will be the maindrivers of our economy.

83. The Government continues to be grateful to theMillennium Challenge Corporation of the United States ofAmerica for the huge investment that they have made toensurethat the transmission of the large power that will begeneratedis possible. The Corporation continues to provideleadership in enhancing the effectiveness in this sector. I hopeMalawi’s relations with the Corporation can extend to othersectors soon.

84. In this budget and budgets to come, we will provideadequate resources, in collaboration with our partners suchasWorld Bank and the African Development Bank, to ensurethat there is revolutionary growth in energy generationtransmission and distribution. We will achieve this byproviding on - grid and off - grid power from both renewableand non-renewable energy sources. We will also put in placetax policies and incentives to achieve two objectives: firstly,that Malawi is an attractive destination for private sectorinvestment in the power sector; and secondly that electricity isaffordable especially to rural communities.

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85. Very soon, Mr Speaker Sir, after parliamentary approval,we will be signing a financial agreement with EXIM Bank ofChina which will see the commencement of Kam’mwamba CoalFired Power Project which will add 300MW to the greed. Thisproject, once completed, in three year’s time, will almost doublethe current power supply in Malawi. Simultaneously, theGovernment with support of the World Bank and AfricanDevelopment Bank through institutions such as theMultilateral Investment Guarantee Agency (MIGA) will facilitatethe signing of Power Purchase Agreements between ESCOMand other Independent Power Producers. Further, EGENCOwill be facilitated to enter into Public Private Partnershiparrangements with various financial and other powercompanies to increase its current generation capacity.

86. Mr. Speaker, Sir, I now turn to the tax policy and taxadministrative measures that underpin the domestic revenuesfor the FY20 17/18 budget. The tax measures I will beannouncing will concentrate on improving administrativeefficiency, encouraging tax compliance and broadening the taxbase in order to generate adequate domestic resources. In thejust ending fiscal year 2016/17, the Malawi RevenueAuthorityhas demonstrated an exceptional performance bycollecting tax revenues beyond our estimates and I therefore,would like to commend Malawians from various sectors forhonouring their noble duty of paying taxes honestly. We areoptimistic that the exceptional performance demonstrated inthis fiscal year will continue in the 2017/18 budget.

87. Mr. Speaker Sir, my team and I received variousproposals for consideration during this year’s pre-budgetconsultations, and I wish to acknowledge that most of theproposals were insightful and constructive. Mr. Speaker, Sir,

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although a number of the suggestions that were made may notappear in this budget, many have been included in variousparts of the budget and I am grateful for some spiriteddiscussions that we had.

Mr. Speaker, Sir, the Customs and Excise tax measures that Ishall be announcing today will be effective from midnighttonight, whereas the VAT and Income Tax Measures shall beeffective on 1st July, 2017, once the relevant bills are passedby this House.

Customs and Excise Act Amendments

89. Mr. Speaker, Sir, there are several amendments to theCustoms and Excise Regulations which will appear in theGovernment Notice to be published in support of the 2017/18Budget. As it has been done in the past, I do not intend to listdown these changes to the Customs and Excise Regulations.The Commissioner General of the Malawi Revenue Authoritywill publish the amendments through public notices after thechanges have been gazetted.

90. Let me appeal to members of the public to follow-up thesechanges by logging in MRA’s website, or by requesting copies ofthe changes from MRA’s corporate affairs office, or by readingin the local newspapers, or even by obtaining copies of theGovernment Notice from the Government Printer.

Introduction of 10 Percent Excise Tax on TV SubscriptionsFees.

91. Excise taxes have a multifaceted function ranging fromrevenue generation role to income distribution and influencingconsumption behavior of the populace. To the extent that we

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are shifting reliance, in the long term, on domestic resourcesmobilization from income and investment to consumptiontaxes; and to expand the revenue base, we are introducing 10percent excise tax on fee based TV services.

92. As you are aware, Mr. Speaker, Sir, Government isalready providing free TV services through MBC TV and it ispleasing to note that there are several free private TV serviceproviders such as Zodiak, Times TV, just to mention a few inaddition to free religious TV service providers.

93. The 10 percent excise tax will therefore be levied onsubscription fees paid by only those consumers offee basedTVservice providers effective from midnight tonight.

Deletion of Customs Procedure Code 443 for Buses andMinibuses.

94. Mr. Speaker, Sir, in a bid to encourage Malawians toparticipate in the passenger service transport sector,Government had created Customs Procedure Code 443 forbuses and minibuses to be imported duty free in the past fouryears. Considering the excellent up take in the publicpassenger transport sector that ordinary Malawians areparticipating and in line with sun-set clauses on taxincentivespolicy that Government has put in place, I wish toinform the House that CPC 443 will be deleted. The relevantCustoms Tariff Headings for Buses and Minibuses shall beamended to provide duty and excise free provisions for busesand minibuses that are less than five (5) years old. Thismeasure will therefore apply duty and excise free provisions tobuses and minibuses that are less than five (5) years old only.For those buses and minibuses above 5 years old, excise taxes

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will apply on a graduation or progressive basis whereas theCustoms duties will be 15 percent and VAT will be 16.5percent.

Value Added Tax Measures

95. Mr. Speaker, Sir, in the 2016/17 fiscal year we made anumber of changes to the VAT Act with the objective ofexpanding the revenue base; removing some economicdistortions in the production and supply chains and againshifting reliance of domestic revenue from taxes that fall onlabour and investment to taxes that mainly fall onconsumption, among other goals.

96. Mr. Speaker, Sir, the current positive revenueperformance registered by the Malawi Revenue Authority (MRA)is, partly, on account of economic efficiency gains that wereeffected to the VAT Act and indirectly to the revenue baseexpansion also implemented in the 2016/17 Budget.

97. Mr. Speaker, Sir, let me also hasten to state that thepositive revenue performance is also a function of the visibleand strict enforcement efforts undertaken by the MRA. Toenhance compliance, two years ago Government, introduceduse of cash registers requirement for all VAT registeredoperators. The cash registers are technically known aselectronic fiscal devices (EFDs) and these machines assist theMRA to track tax compliance. EFDs are customs designed andsupplied by designated manufacturers. Recently it has come tothe notice of the MRA that there are some unscrupulous VATregistered operators who are using unlicensed and fake cashregisters or EFDs with the intention of defrauding Governmentof VAT revenues.

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98. Mr. Speaker, Sir, to counteract this fraud, I shall beproposing an amendment to the VAT Act to introduce stiffpenalties to would-be-offenders to curb the malpractice ofusing fake or unlicensed EFDs and I invite the whole House tosupport this measure.

Value Added Tax on Milk

99. Mr. Speaker Sir, during the consultations for the2017/18 budget, my team and I received a lot ofcontributionsfor consideration. One of the out cries that hasbeen raised by the general public in various fora including theconsultations was on the introduction of VAT on milk. In orderto encourage farmers to produce more milk for the market andboost the market for milk in the country and increase itsuptake by many Malawians, the VAT on milk is therefore beingwithdrawn and in this regard, milk will continue to be exemptfrom VAT as was the case before the VAT was imposed.

Income Tax Measures

Increasing Tax Free Income Bracket from K20,000.00 PerMonth to K30,000.00 Per Month.

100. Mr. Speaker, Sir, the income tax free threshold thattriggers taxation for salaried employees was last adjusted in2013/14 Fiscal Year. I am pleased to announce that the taxfree income bracket has been increased from K20,000.00 permonth to K30,000.00 per month.

101. Mr. Speaker, Sir, in consultation with the representativesof employers and employees, the minimum wage has beenincreased from K19,000 to K25,000 per month. This meansthat all those who earn a minimum wage will be below thethreshold.

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102. Mr. Speaker, Sir, an appropriate amendment bill will bepresented to this House for consideration and approval.

Introduction of an Additional PAYE Bracket of 35 percentfor Salaried Income of above MK3,000,000.00 per Month

103. Mr. Speaker Sir, the increase of the Minimum PAYEThreshold from MK20,000.00 to MK30,000.00 is expected tocost Government revenue in excess of MK10.0 billion. It istherefore prudent for Government to explore other means ofrecouping this loss in revenue. One of the ways of recoveringthis lost revenue is by bringing in more progressivity in ourtaxsystem. In order to improve the distribution of income fromthe rich to the poor and increase the progressivity of the taxsystem, Government is introducing an additional bracket of 35percent on those earning salaried income aboveMK3,000,000.00 per month. I wish to highlight that this toprate of 35 percent will not affect individuals who earn theirincome from businesses.

Changing the Description of Withholding Tax on “BankInterest” to “Interest”.

104. Mr. Speaker, Sir, the current description of the terminterest in the Taxation Act is limiting withholding of tax to“interest” earned at a bank.

105. As you are aware, Mr. Speaker Sir, interest is also earnedfrom different sources of income apart from investments madeat commercial banks.

106. In order to increase coverage of withholding tax to non-bank institutions, the Taxation Law on withholding tax will bechanged on “bank interest” to read ‘interest”. An appropriate

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bill effecting this proposed amendment will be presented to thisHouse.

Tax Administration Changes in the Taxation Act

Use of Biometrics in Registering Natural Persons orIndividuals

107. Mr. Speaker, Sir registration of natural persons orindividual for income tax purposes has faced challenges ofduplications, among other problems. To uniquely identifynatural persons or individuals and prevent duplication, weshall be proposing the use of biometrics in registering naturalpersons or individuals.

Interest Charged on Overdue Taxes

108. Mr. Speaker, Sir, there are varying interest rates chargedor levied by the MRA on overdue taxes across different taxtypes. Due to the differences in interest rates being charged onoverdue taxes, taxpayers also take advantage and default inpayment on due dates for taxes that have lower interest ratecharges.

109. Mr. Speaker, Sir in order to reduce non-compliance withrespect to payment of taxes promoted by varying interestrateson overdue taxes, Government is proposing a singleformula for interest on overdue tax for all tax types. Theproposed change will standardize interest rates on overdue taxacross all tax types and reduce tax administration costs andworkload on the MRA.

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Harmonizing Penalties on Late Submission of Returns andLate Payment of Taxes

110. Mr. Speaker, Sir, there are varying penalties levied for latesubmission of returns across tax types and taxpayerstakeadvantage of these differences on penalties and default onthose type of taxes with low penalty charges.

111. The same scenario applies to penalties for late payment oftaxes across all tax types. Indeed, Mr. Speaker, Sir, somepenalties are insignificant to influence change in behavior.

112. To reduce incidents of non-compliance exacerbated byvarying penalties, Government is proposing to have a singleformula for penalties on late submission of returns for all taxtypes in order to ease administration, reduce cost ofcompliance and remove speculative behavior on tax paymentson due dates.

113. A bill will therefore be presented to this House proposingstandardization of penalties on failure to file a return or latepayment of taxes.

Conclusion

114. In summary Mr. Speaker, Sir, I must repeat to the housethat we have almost emerged out of the hole in which theeffects of cashgate pushed us in. These effects are thewithdrawal of budget support which was an importantpermanent feature of our fiscal structure since independencein 1964. This cashgate created a pronounced mismatchbetween thesupply of available resources to the budget and thedemand forfunding budgetary requirements. The consequencewas a huge deficit that was covered by a huge amount ofpayment arrears (K155 billion) and bank domestic borrowing.

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115. In this hole, Malawi experienced ever worsening andvolatile exchange rates, persistently high inflation rates andtherefore prohibitively high general rates of interests. Thesemacroeconomic conditions were inimical to economic growthso that our GDP stagnated and the income per capita of ourpeople was declining instead of increasing to reduce poverty.

116. The fiscal adjustment and tight monetary policy that wehave been following during the past 2 to 3 years have beenpainful but necessary. They have now led to a rebouncing ofthe economy out of the hole and it is expected that soon wecould attain full macroeconomic stability, which will mark aconducive foundation for economic growth.

117. I would like to emphasise Mr. Speaker, Sir, that althoughthe rebouncing out of the economic dungeon is a huge success,it is important for the house to know that we yet have towitness a full macroeconomic stability that will be marked bysingle digit inflation and generally low rates of inflation andrates of interest. We yet have to achieve these but we are poisedto reach these targets soon.

118. Mr. Speaker, Sir, I also wish to emphasise that it isimperative that we continue with the fiscal and monetarypolicies by which we have succeeded to bring ourselves out ofthe hole. We are in a tricky position Mr. Speaker, Sir, wherethere will be temptations to reverse policies and adopt morepermissive and accommodative policies so as to relax thediscipline we have reinforced the past 2 to 3 years. Suchdiscipline has led to reduction of budgetary deficit (includinggrants) from 6.1 percent of GDP in 2013/14 to a projected 3.9percent of GDP.

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119. Temptations of policy reversals, have been constant inMalawi before and have negated the successes that were made.It is argued by many inside and outside Malawi that reversalsof policies have been a backdrop of mediocre economicdevelopment during the entirety of our post-independenceperiod.

120. The budget therefore is intended to maintain sustainablemacroeconomic stability and to begin the needed robusteconomic growth rates. As I said before, I wish to repeat to thishouse that in order to satisfy Malawian economic aspirations,to move out of a group of countries considered to be the poorestin the world, it is our intention that per capita income bedoubled in the next 10 years. To do so, we will require that weachieve an average economic growth of 7 percent per annum.

121. The projects selected to be implemented in the 2017/18financial year, have been selected in such a way as to providea credible beginning for such a phase. The priority sectors willdominate the programme. It is expected for example that theinvestments in the energy sector will create a basis for theneeded economic take-off.

122. The programme also assumes a revitalised public serviceand that public finance management reform programme will bepursued in order to prevent corrupt practices to thrive. Toachieve improved production of the public service, theGovernment has decided that in thenext coming years, generalsalary increases will be based on an individual’s performance.The Chief Secretary to the Government is working out a modeof how supervisors can evaluate performance of their staff. Mr.Speaker, Sir, it is said that “economic performance of a countryis as good as its Civil Service is”. It is therefore the intention of

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the Government to improve incentives for hard work in thepublic service.

123. Overall Mr. Speaker, Sir, the Government believes thatafter this rebound, the country can dedicate itself to hardworkfor everyone because we believe that this country can dobetterthan most instead of worse than most. The fulfilment ofthis country’s aspiration, to emerge out of the cocoon ofthepoorest countries in the world depends upon its on hardwork and the perfection of its future economic performance.We need to enhance the spirit of “patriotism, integrity andhardwork”.

124. With these remarks Mr. Speaker, Sir, I beg to move.

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