Full Mid-Year Budget Review Statement By Minister Of Finance, Dr. Goodall Gondwe

Speaker, Sir, I beg to move that Parliament should review the mid-year performance of the approved budget of the 2016/17 financial year, and consider and adopt the revised estimates on the recurrent and development accounts for the budget of the same financial year.

  2. Speaker, Sir, it has become a tradition that, half way before the expiry of a financial year, the Minister of Finance, on behalf of the Government, should submit a midyear review of the budgetary developments to this honourable House. This is not a legal requirement, but a tradition that began in 2005.  Accordingly, His Excellency the President, Professor Arthur Peter Mutharika, has directed me, yet again, to follow this tradition, and I am happy to present the review and proposals that are contained in the document that will be circulated in this house shortly.
  1. Honourable Members should bear in mind that this exercise is only related to budgetary performance during July to December 2016 period. It is not intended to cover Government’s long term plans.  Therefore comments on what should be done in the long term are not relevant to this budgetary review.
  1. Speaker, Sir, I will begin by making a summary of our observations on the economic developments that have prevailed during the first half of the 2016/17 financial year, and I will follow this analysis with a review of the budgetary performance during this period. I will then describe the proposed revised budget that has been made in light of the half-year budgetary developments, as well as the need for maintaining a budgetary framework that is consistent with accelerating macroeconomic stability.
  1. Midyear reviews such as these are important, because they provide an opportunity for the whole House to exercise its surveillance function over the operations of the Government, and assure the transparency of the operations. The reviews also enable the Government to beacon the House to what needs to be done in order to achieve the approved goals set in the budget.
  1. As was the case last year, my statement will be short, since we have produced copious data that gives a detailed and vivid picture of what has been accomplished through the implementation of the budget.


  1. Speaker, Sir, let me therefore start with a summarised report on the country’s economic developments that prevailed during the six-month period up to end-December 2016. Economic developments were dominated by the effects of the calamitous weather conditions that afflicted Malawi.  The result of this catastrophe was an acute shortage of food that engulfed the country, and it was estimated that more than 6 million people could face starvation.  It became necessary, therefore, to prioritise measures that aimed at ensuring the availability of food as an urgent Government preoccupation.  According to national crop estimates and Malawi Vulnerability Assessment Committee (MVAC) reports, some 800,000 metric tons of maize was required.   As Members are aware, in view of such a requirement arising from the crisis, His Excellency the President publicly appealed to the international community for support to the Government’s effort to secure food, particularly for the poor segment of the population.  The food that was obtained from these sources was intended for free distribution to the uttermost poor segment.  This was estimated to be 400,000 metric tons.  Another 400,000 metric tons was to be purchased by ADMARC for sale countrywide by that institution.
  1. I am happy to report to the House that Government was able to mobilise the required “humanitarian” food with support from various donors. The World Bank, the African Development Bank, the European Union and the International Monetary Fund provided financial resources to enable the National Food Reserve Agency (NFRA) and the World Food Programme (WFP) to purchase humanitarian food from domestic and foreign sources. We also received valuable technical support from the United Nations, as well as significant donations from our bilateral development partners, notably the United Kingdom, the United States of America, Germany, Norway, China, India, Ireland and Japan. The Government thanks these gracious benefactors on behalf of Malawians.  This generosity was unprecedented and makes the adage “a friend in need is a friend indeed” singularly applicable to them.
  1. The Government also supported ADMARC to mobilise almost a quarter of the required commercial maize to be bought from within our borders, and it was planned that the balance of 300,000 metric tons would be imported. It has transpired that the food shortages may have been exaggerated by both the national crop estimates and the MVAC, such that Malawi may not need imported food after all. Instead, the country could rely on purchasing a further 50,000-100,000 metric tons of maize from domestic sources at much cheaper prices from Malawi traders who are reported to have privately imported maize from Zambia and are now desirous to sell it to ADMARC.
  1. The house will wish to know that the resources for buying maize by ADMARC were secured by tradition from local commercial banks and, if it is decided that ADMARC engage in a second round of maize purchases from within Malawi, it is planned that ADMARC should again secure more funds from local commercial banks to purchase the maize. The midyear budget review statement that is being submitted to honourable members gives a vivid account of how the budgetary allocation for maize purchases was used.
  1. Overall, Honourable Members will be pleased that Malawi was voted as second only to South Africa in the ranking of 45 countries on how governments organized their responses to food shortages that covered other parts of Africa. The Government is happy that its efforts at ensuring availability of food for its population was deemed to be one of the best in Africa.
  1. On general macroeconomic developments, I wish to share the view of knowledgeable people who believe that during the first half of the year, we begun to see signs of an economic rebound from which an economic recovery could emerge.
  1. There is evidence that, six months into the implementation of the Budget, the performance of the economy commenced a rebound towards recovery that is reflective of the effectiveness of the fiscal and monetary policies being pursued by the Government.
  1. In particular, during this period, there has been a marked decline in inflation which resulted in a 3 percentage point reduction in the Reserve Bank Policy Rate, while the exchange rate has remained relatively stable. The rate of inflation plummeted to 18.2 percent in January – the lowest since May, 2012. Food inflation went down by 3 percentage points to 21 percent and non food inflation eased to 15 percent from 15.4 percent.  This is a significant macroeconomic improvement.
  1. Another significant indicator of a possible economic turnaround is that capacity utilisation has increased from 57.8 percent to 68.5 percent during the period, suggesting an increase in private sector confidence. Moreover, there has been a robust domestic revenue performance during this period.
  1. Moving forward, these developments, coupled with the high prospects for a much better agricultural season relative to the two previous seasons, create a positive outlook to sustain the economic recovery. This is the basis for the Government’s projected surge from an economic growth rate of 2.9 percent in 2016 to approximately 6.0 percent in 2017. Therefore, a continuation of the implementation of the sound policies underpinning these gains is key.
  1. It is also encouraging that the donor community are among those who have observed a discernable improvement in public finance management reforms that are being pursued by the Treasury separately from the Public Sector Reforms Committee headed by the Vice President.
  1. On the basis of this improvement, we are now more likely to receive budgetary support from multilateral organisations. In particular the World Bank has expressed publicly its confidence that their earmarked amount of US$80 million as budgetary support could be disbursed this financial year assuming all their conditionalities would have been achieved. We also expect the European Union to disburse an amount of more than US$20 million.  This will be on top of some budget support that has already been provided by the African Development Bank.  We also expect that the IMF will disburse more than US$20 million when they complete their ninth review of the Extended Credit Facility (ECF) within this financial year.
  2. I must emphasise to the house that these are preliminary signs of a rebound, and that the extent to which a real recovery can occur depends on how our agricultural production will turn out to be in the course of 2017. The Government is, therefore, consciously optimistic that an economic recovery could emerge this year. Therefore, a continuation of sound fiscal and monetary policies is crucial.  These policies must be anchored by a fiscal consolidation, now that we are discerning positive results of pursuing the sound fiscal policies that the Government has embarked on.
  1. We must continue with budgetary adjustment so as to bring about a necessary balance between revenue and expenditure, so as to minimize domestic borrowing. Fiscal consolidation has to continue to be the backbone of our efforts to maintain macroeconomic stability.
  1. The revision of the budget, therefore, is intended to build an economic environment within which private sector investments can respond to that macroeconomic stability that could emerge and be maintained. The data in the report that is being circulated to honourable members illustrates our pursuance of this goal.


  1. And now Mr. Speaker, Sir, let me delve into an analysis of the budgetary developments during the first half of the financial year. As will be seen from Annex I, total revenue and grants at midyear of 2016/17 amounted to K430.2 billion against a target of K482.0 billion, reflecting an underperformance of 10.7 percent of the midyear target.  This underperformance was dominated by a large underperformance of the expected grants from donors.  At the same time, the annex shows that domestic revenues did commendably well.
  1. Domestic Revenue that amounted to K400.2 billion outpaced a target of K378 billion by 5.7 percent. Tax revenue overperformed by 7.7 percent. The annex shows that large increases were particularly discernable in import based taxes as well as income and profit taxes that scored increases of 9 percent and 7.5 percent, respectively.
  1. These improvements in domestic revenues are largely due to the improved efficiency of the MRA, but they also point to a surge in the economy that increased the tax base. Moreover, some significant tax reforms that accompanied the 2016/17 budget are believed to have contributed to this result.  Non tax revenue underperformed by K5.2 billion against a target of K34.0 billion.  It is expected that the bulk of the dividends that may be collected subsequently will boost the non-tax revenue at the end of the financial year.
  1. Speaker, Sir, on the other hand, both designated and project grants were disappointingly low. Only K30.0 billion was received against a target of K103.3 billion was received, reflecting a large underperformance of K73.0 billion (71 percent).  This is attributed to large shortfalls in disbursement of dedicated and project grant emanating from low rates of disbursement as well as a slow pace in project implementation by ministries.  It is anticipated however; that the shortfall can be made up for during the second half of the financial year.  This has already started to occur.
  1. Against this revenue and grants underperformance, budgetary expenditures also showed a slowdown in coming, particularly as regards expenditure on the development account. Total expenditure amounted to K506.1 billion against a target of K586.2 billion.  Spending was, therefore, well within the target by 17 percent.  Recurrent expenditure mounted to K415 billion against a target of K442.0 billion.  Speaker, Sir, I wish to draw the attention of honourable members again to Annex 1 that has all the details of how spending behaved, Honourable Members will note that the largest underspending within the recurrent account was the Farm Input Subsidy Programme (FISP), where 70 percent of the resources were not spent in the second quarter of the financial year as was expected.
  1. This was due to delays in the commencement of the programme. However, some 45 percent has been used to pay fertilizer suppliers in January alone.  I would like to emphasize that, because of a remodeling of FISP, we are unlikely to overspend on this programme as we have always done.
  1. On the other hand Mr. Speaker, Sir, wages and salaries and interest payments were overspent by 7.4 percent and 4.6 percent, respectively. The excess expenditure on wages and salary was due to payment of arrears to primary school teachers who were recruited at the tail end of 2015/16.
  1. The high payments of interest on domestic debt is likely to continue for the next  three years as maturing zero coupon promissory notes are being converted into interest bearing securities and as the necessary conversions from low interest securities to high interest securities due to market dynamics are also being conducted.
  1. The result of the fiscal operations during the first half of the financial year was an improvement in the fiscal deficit that required a domestic borrowing of only K25.1 billion, instead of the IMF target of K40.1 billion. This means that we are well within the IMF target amount by some K15 billion.  This is a commendable result and means that our total operations were markedly sound.  Honourable members should note that the IMF supported programme has continued to be track.   This result is due to an increasing perceptible improvement in public finance management in a majority of ministries as Annex III shows.  This includes efforts to institute and establish routine bank reconciliations that have been elusive for a long time.  Malawi has been congratulated by a number of knowledgeable donors as well as others that are interested in Malawi‘s fiscal performance.  In this respect, the Government proposes to increase the Auditor General’s budgetary resource to enable outsourcing the forensic audit of the remaining K236 billion for the period of 2009-2014 accounts.


Development Account

In response to the house’s request last year, we have produced Annex IV that shows activities that have occurred under the development account, project by project and vote by vote.  Honourable Members are requested to note the developments as portrayed by the data.


Meanwhile preparatory work to launch other vital development projects were under way.  Notably, the following are likely to commence shortly: Salima-Lilongwe Water project whose pipeline will also serve and provide irrigation water in between hinter lands populations.  Other projects are the Mponela Hospital, the Kasungu/Msulira/Nkhotakota Road, the Nkhata Bay Jetty, Chileka-Mpatanga road, and the Mzuzu Airport rehabilitation Project.  It is expected that these projects can commence shortly.


  1. REVISED 2016/2017 BUDGET
  1. Speaker, Sir, it is proposed for the approval of the house that the annual approved budget for the year 2016/17, be revised on the basis of the budgetary performance of the first half for the financial year, and the needed fiscal adjustments in response to the loss in budget support. The revisions that have been made are also detailed in the attached annexes I to III, of which Annex III presents vote by vote allocations.
  1. Total revenue and grants is now projected at K999.2 billion against the budgeted figure of K978.0 billion, representing an increase of 2.2 percent. On the other hand, total expenditure is being revised downwards from K1,149.2 billion to K1,129 billion, representing a reduction of 1.7 percent.
  1. Domestic revenue has been revised upwards from K783.3 billion to K840.5 billion, an increase of K57.2 billion (7.3 percent). Tax revenue is revised upwards by K46.1 billion (6.5 percent), from K708.8 billion to K754.9 billion, based on actual tax performance during the first half for the financial year. Non tax has also been revised upwards from K74.5 billion to K85.6 billion, an increase of 14.9 percent due a higher than originally anticipated dividend from Reserve Bank of Malawi.  Grants from donors, on the other hand, have been revised downwards from K197.4 billion to K158.7 billion.  This is mainly due to lower than anticipated disbursements in project and dedicated grants.
  1. It should be noted, Mr. Speaker, Sir, that the downward revision in total expenditure from K1,149.2 billion to K1,129.4 billion is due to an expected decrease in disbursements of foreign financed projects. This reduction in overall expenditure would have been larger were it not for the increase in interest payments as indicated earlier. Let me repeat that the mushrooming interest payments on domestic debt reflect the conversion of zero coupon promissory notes as they mature, and this will result in a surge of interest payments for the next three years. It will be recalled that, on taking over the Government in June 2014, it was discovered that the Government had accumulated a huge amount of arrears that amounted to K155 billion.  If the payments of these were to be made from the budget that time, it would have paralysed Government operations.  Therefore, this Government decided to agree with creditors to accept payment in the form of promissory notes of one to three year maturity, which would be neutral on interest payments. Therefore, between the 2014/15 and 2015/16 financial years, it was possible to operate without relatively large interest payments.  However, these promissory notes will be maturing over a period of three years.  It is planned that, on maturity the promissory notes should be converted into interest bearing securities such as Treasury Bills. Therefore, the arrears so accumulated will now crowd-out some vital but non-statutory expenditures during the next three years.
  1. Foreign funded development programmes are being revised downwards by 20.3 percent from the approved amount of K257 billion as discussed above. The house is invited to study Annex III that shows where these reductions will fall.  In response to the house request last year, we have produced Annex IV that shows development budget allocations by projects and by vote.
  1. Expenditure on domestically funded projects has been revised upwards by 10.7 percent, from K38.6 billion to K42.7 billion, to finance the commencement of the construction of the Mombera University, some roads in the three cities, and stadiums in Ntcheu and Zomba. Allocations to some projects which experienced slow implementation for lack of resources, have also been increased accordingly.



 Speaker, Sir, given the aforementioned revisions in revenues and expenditures, the estimated fiscal deficit including grants has been adjusted downwards from K171.2 billion (4.0 percent of GDP) to K130.3 billion (3.0 percent of GDP). Excluding grants, the deficit has been revised from K365.9 billion (8.5 percent of GDP) to K289.0 billion (6.7 percent of GDP). The deficit will be financed by K76.6 billion (1.8 percent of GDP) in foreign borrowing, and K42.3 billion (1.0 percent of GDP) in domestic borrowing. We would also be carrying forward the amount of K11.3 billion in privatisation proceeds realised from the sale of the Malawi Savings Bank and Inde Bank, which occurred in July 2015.

  1. Although the level of domestic borrowing agreed with IMF is K60 billion, the Government has revised the budget in such a way that the borrowing will be much less than anticipated by IMF, so as to build a cushion to enable it to sustainably response to shocks, and in order to guarantee a speedy attainment of macroeconomic stability.



 Speaker Sir, it is encouraging that, after a long time characterized by a lackluster economic performance and instability, natural calamities, poor agricultural seasons and very low donor and investor confidence, the country is now on the verge of reversing this downward trend. The Government remains committed to build on and sustain the gains hitherto registered and, most importantly, to stay the course of the fiscal and monetary policy reforms whose positive results are now very evident.

  1. It is the Government’s expectation, Mr. Speaker, Sir, that this august House as well as all people and institutions of good intention will continue to support the Government’s policy reforms, in order that the desired improvement in the lives of Malawians that we all crave for may become truly entrenched.


  1. Speaker, Sir, I beg to move.

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