2013/14 BUDGET STATEMENT DELIVERED IN THE NATIONAL ASSEMBLY OF THE REPUBLIC OF MALAWI BY THE MINISTER OF FINANCE THE HON. DR. KEN LIPENGA,M.P.

TABLE OF CONTENTS


1.0. MOTION


2.0. INTRODUCTION


3.0. ACHIEVEMENTS IN THE ECONOMY IN 2012/13 FISCAL YEAR


4.0. 2012/13 BUDGET PERFORMANCE


5.0. MGDSII AND THE ECONOMIC RECOVERY PROGRAM (ERP)


6.0. ASSUMPTIONS UNDERLYING THE 2013/14 BUDGET


6.1. Global Economic Outlook


6.2. Outlook for Sub-Saharan Africa Region


6.3. The Malawi Economy


7.0. MAIN FEATURES OF THE 2013/14 BUDGET


7.1. Transitional and Recovery Based Budget


7.2. Fiscal Policy Anchor: No Net Domestic Financing


7.3. Monetary Policy and Financial Sector Development


8.0. THE 2013/14 BUDGET FRAMEWORK


8.1. Resource Envelope


8.2. Total Expenditure and Net Lending


8.3. Overall Balance and Financing


9.0. THE BUDGET STRUCTURE


10.0. KEY ALLOCATIONS IN THE 2013/14 BUDGET


10.1. Agriculture and Food Security


10.2. Public Works Programme


10.3. School Feeding Program


10.4. Public Financial and Economic Management Reforms


10.5. Education, Science and Technology


10.6. Public Health, Sanitation, and HIV/AIDS Management


10.7. Transport and Public Works


11.0. REVENUE POLICY MEASURES FOR THE 2013/14 BUDGET



11.1 Preamble


11.2. Tax and Non-Tax Policy


11.3. Non Tax Measures


11.4. Tax Measures


11.5. Customs and Excise Tax Measures


11.6. Income Tax Measures


11.7. Excise Tax Measures


2013/14 Budget Statement



TABLE OF CONTENTS CONTINUED


11.8. Value Added Tax Measures


11.9. Administrative Measures



11.10.International and Regional Trade Agreements


2013/14 Budget Statement




MOTION


Mr. Speaker, Sir, I beg to move that the Estimates on Recurrent and Development Accounts for the 2013/14 Budget be referred to the Committee of the Whole House, be considered Vote by Vote, and that thereafter, be adopted.


2.0. INTRODUCTION

Mr. Speaker, Sir, I am honored to stand here and deliver to this August House the second Budget Statement of the People's Party (PP) Administration led by Her Excellency, Dr. Joyce Banda.


Before I proceed with my statement, allow me to once again express my most profound gratitude to the President for
entrusting me with the responsibility of leading her economic team in these trying times. I also wish to offer my deepest appreciation of her leadership and guidance.


It is because of Her Excellency's guidance that we all can see the light at the end of the tunnel and have hope for an improved economy.


Mr. Speaker, Sir, as we have always done, I led the Ministry of Finance in consultations with a wide range of
stakeholders across the country in April and May this year, to get an understanding of what Malawians want to see in this budget.


This budget that I am presenting has benefited greatly from these consultations. Of course, it was not possible to take on board all the good ideas due to limitations of resources. I would, therefore, like to thank most sincerely all those who came forward with ideas on how to move the economy forward and make the budget reflective of the aspirations of our people.



Mr. Speaker, Sir, the honorable House is well aware of the economic challenges that we faced in this country at the time I presented last year's statement. We introduced and have been implementing a series of tough economic reform measures that were designed to restore macro-economic balance and a market based economy that would help provide a solid foundation for sustainable economic growth.


Mr. Speaker, Sir, you will recall that in trying to correct a severe external imbalance, we undertook a number of measures in the foreign exchange market, including an initial devaluation and subsequent floatation of the Kwacha, removal of restrictions on foreign exchange transactions by banks and bureaus, relaxation of surrender requirements on export proceeds, and removal of pre-screening requirements for foreign payments in excess of USD 50,000.

Just recently, further measures were also announced by the Reserve Bank of Malawi in order to remove restrictions with respect to current account transactions.


You will agree with me, Mr. Speaker, Sir, that at the beginning, the reforms that we instituted were not universally accepted.

Skeptics pointed to an exchange rate that had overshot and inflation that had surged as reasons for abandoning our tough reforms. However, convinced that the path we proposed was necessary under the circumstances we faced, we marched on, sometimes amidst some resistance and criticism.


I am pleased to inform the august House that there are now signs that the great patience and resilience of the people
of Malawi, for which we are profoundly grateful, is beginning to be rewarded. There is evidence that the economy is now starting to recover.


Mr. Speaker, Sir, in January when I presented the mid-term budget review, we celebrated the availability of fuel.

People were no longer sleeping in queues at filling stations or chasing fuel tankers, often empty ones. I also spoke of the availability of foreign exchange.

Thanks to measures that this House approved, we have now been able as a country to clear foreign exchange arrears and re-establish lines of credit for most of our industries.


Mr. Speaker, Sir, the availability of fuel and foreign exchange enabled our companies to resuscitate production.


The latest business survey undertaken shows that capacity utilization, which had gone down to an average of 30 percent, had increased to an average of more than 60 percent and a significant number of companies had started to expand.


I also invite the House to join me in welcoming the stabilization of the exchange rate, which has even shown some
signs of appreciation. This has led to the much awaited reduction in the price of fuel. It is the hope of all of us in this House that we will soon see the benefits of competition in bringing down prices in other markets.


As a result of our policies, along with good weather in some parts of the country which has ensured adequate
availability of maize, we have noticed a decline in inflation since February. It is only fair that all of us play our part in ensuring that the economy moves forward.


Mr. Speaker, Sir, the 2012/13 budget was implemented within a framework designed to deal with the challenges faced, and in so doing, we were able to restore the confidence of our international partners, including the IMF, who noticed our determination to deal with our own problems.

The successful resumption of the programme with the IMF, in turn, allowed us to unlock budget support from the Common Approach to Budget Support development partners (the European Union, the United Kingdom, the World Bank, Norway, Germany, African Development Bank, and Irish Aid).


The unlocking of budget support and increased support from all our development partners was an essential component
of the economic recovery process. The first and second reviews of the programme were successfully completed. As a
consequence, SDR39.1 million an equivalent of US$58.7 million has been disbursed under the programme.


The third review will be conducted in June 2013 when the IMF mission returns to Malawi. We are confident that this review will also be successful and we will remain on track.


Mr. Speaker Sir, the 2013/14 financial year budget seeks to build on the successes of the 2012/13 financial year budget and consolidate the gains from the economic reforms undertaken. We intend to continue with a tight fiscal and monetary policy stance to ensure that government operations do not contribute to inflation and crowding out of the private sector.

In short, Mr. Speaker, Sir, we should continue to strive to live within our means.


Within the context of a tight budget, government remains committed to strict expenditure controls and substantive
reforms in order to strengthen and promote a culture of enhanced transparency and accountability in the management
and reporting of public finances to avoid over-expenditure.

I can assure the honorable Members of this House that we remain committed to using public resources efficiently and
effectively, ensuring value for money and focusing our efforts on achieving sustainable delivery of services.



3.0. ACHIEVEMENTS IN THE ECONOMY IN 2012/13 FISCAL YEAR


Mr. Speaker, Sir, owing to the myriad of economic challenges our country was facing at the beginning of 2012,
growth in economic activity was subdued.

Gross Domestic Product as a measure of economic activity only grew by 1.8 percent in 2012, a slowdown from 3.8 percent registered in 2011.

This was mainly on account of substantial reductions in growth of agriculture, manufacturing, wholesale and retail
trade. This dismal performance in GDP growth meant that companies were downsizing or closing, unemployment was
rising and income per person was falling.

However, Mr. Speaker, Sir, our business survey towards the end of 2012 indicated that the initial measures undertaken were beginning to bear fruit. Although some challenges still persist, overall performance of companies has improved and confidence in the economy is growing.

These developments in the real sector, coupled with improvements in foreign exchange and fuel availability, are expected to anchor growth in economic activity in 2013 and beyond.

Although, the country's inflation peaked at a high of 37.9 percent in February 2013, the good news, Mr. Speaker, Sir, is that inflation has started declining. Already by April 2013, headline inflation had started responding to our measures and eased to 35.8 percent, due to a tight fiscal and monetary stance implemented by the Government and new food harvests which had began to reach the markets.


Mr. Speaker, Sir, concerning the external sector, the alignment of the exchange rate to its market value and
liberalization of the foreign exchange market are key to a sustainable current account. Our estimates indicate that, in nominal dollar terms, imports decreased by 2.2 percent in 2012, while exports decreased by 3.4 percent in the same year.

However, in 2013 exports are expected to grow by 0.7 percent, while imports are expected to decrease by 5percent. With this, we anticipate to achieve our objective of a stable exchange rate while maintaining current account sustainability.

It is our sincere hope that the US$/Malawi Kwacha Exchange Rate can stabilize at a reasonable rate but of course the actual situation will be determined by market conditions.



4.0. 2012/13 BUDGET PERFORMANCE


Mr. Speaker, Sir, in spite of the many challenges facing the Government, the fiscal performance for the 2012/13 financial year is on track.

Overall, domestic revenues are expected to amount to K283.5 billion, surpassing the Mid-Year revised target of 278.9 billion by K4.6 billion, largely on account of tax revenues, which are projected to amount to K253.6 billion against a Mid-Year revised target of K243.8 billion.

Grants underperformed marginally from the revised amount at mid-term. The revised target at mid-term is K179 billion, but we now expect that K175 billion would have been disbursed by the end of the financial year, due to challenges of absorption in our Ministries, which are now being addressed as
a matter of urgency.


Mr. Speaker, Sir, Government is expected to spend K479.1 billion by the end of the 2012/13 Financial Year,
compared to K475.8 billion revised at Mid-Year.

The upward adjustment is due to increases in foreign financed development expenditure, which has increased by K6.4 billion although its effect was moderated by a K2.7 billion decrease in domestically financed development expenditure.

On recurrent expenditures,although the increases in wages and salaries led to a K4.2 billion increase in the wage bill, corresponding cuts in 2013/14 Budget Statement purchases of goods and services and subsidies and transfers
eased the pressure and contained recurrent expenditures within the target by K0.5 billion.


On the basis of the developments above, the overall balance for the 2012/13 financial year is expected to be K18.2
billion which will be wholly financed by foreign borrowing. In addition, government expects to repay domestic debt
amounting to K18.6 billion, thereby meeting the programme target for net domestic borrowing for the period ending June 2013.




MGDS II AND THE ECONOMIC RECOVERY PROGRAM (ERP)


Mr. Speaker, Sir, the house is aware Government has been implementing reforms under the Economic Recovery Plan
(ERP) and in line with the Malawi Growth and Development Strategy (MGDS) II.


Under the ERP, five sectors were identified, namely:Agriculture; Energy; Tourism; Transport Infrastructure
Development and Information Communication Technology (ICT); and Mining as critical areas to move the ERP forward.

Mr. Speaker, Sir, my colleagues responsible for these sectors will no doubt later be making statements on the successes so far achieved, but significant progress has been made.

These will be further implemented through the 2013/14 budget.



6.0. ASSUMPTIONS UNDERLYING THE 2013/14 BUDGET



Allow me at this juncture,Mr Speaker, Sir, to state the assumptions made in projecting the 2013/14 Fiscal Year
budget.

Briefly, I will give projections of the global economic outlook, then the regional economic outlook, and lastly the
national prospects.


6.1. Global Economic Outlook


29. As you might be aware, Mr. Speaker, Sir, the National Budget is implemented within the context of a globalized economy.

According to the April 2013 World Economic Outlook (WEO) by the International Monetary Fund (IMF), global
economic prospects have improved, but the road to recovery in the advanced economies remains bumpy and uncertain.


Mr. Speaker, Sir, world output growth is forecast to reach 3.3 percent in 2013 and 4.0 percent in 2014, anchored by growth in emerging and developing economies.

In advanced economies, activity is expected to gradually accelerate, starting in the second half of 2013. This pickup follows the slowdown in the first half of 2012, which was manifested in industrial production and global trade.

Private demand appears increasingly robust in the United States, but still very sluggish in the Eurozone area. Growth is forecast at 0.3 percent in 2013 and in 2014 growth in Europe is projected at 1.5 percent.



6.2. Outlook for Sub-Saharan Africa Region


Mr. Speaker, Sir, Sub Saharan Africa (SSA) is expected to continue growing at a strong pace during 2013/14 period, with both resource-rich and lower-income economies benefiting from robust domestic demand. Growth in 2013 is projected to reach 5.6 percent.

The strong performance is based on ongoing investments in infrastructure and productive capacity, continuing robust consumption, and the activation of new capacity in extractive sectors.


Sub Saharan Africa is projected to grow by 6.1 percent in 2014 driven by the strengthening of activity in South Africa and other middle-income countries predicated on improvements in the external environment. On the other hand,
Mr. Speaker, Sir, some deterioration is expected in the short term in the current account balances of a number of countries, largely on account of the expected decline in the terms of trade, especially among oil exporters.


6.3. The Malawi Economy


Turning to the domestic economy, Mr. Speaker, Sir, growth in 2013 is expected to rebound to 5.0 percent from 1.8 percent in 2012. This growth is mainly being driven by improvements in the Agricultural, Forestry and Fishing sector.


The rebound in agriculture is partly propelled by increases in tobacco production from 79 million Kg in 2012 to 156 million Kg in 2013.

In addition, manufacturing is also expected to increase on account of higher tobacco processing and fewer
production bottlenecks related to fuel and foreign exchange problems.

As indicated earlier, Mr. Speaker, Sir, capacity utilization in most of the sectors has shown great
improvement.


Mr. Speaker, Sir, considering the foregoing, inflation is expected to slow down to 14.2 percent by December 2013 and to 7.0 percent by December 2014 as the economy continues to recover.


Mr. Speaker, Sir, as usual, we expect to experience the traditional seasonal trends that are a characteristic of the Malawi economy. However, we are very confident that these seasonal trends will be smoothened out on account of the prudent economic management.



7.0. MAIN FEATURES OF THE 2013/14 BUDGET


7.1. Transitional and Recovery Based Budget


Mr. Speaker, Sir, the key objective of the 2013/14 budget is to restore macro-economic balance and a market-based economy that will consolidate the bold economic reforms that the Government embarked on in 2012.

As we all know, the country will be going to the polls in 2014 to elect a president, members of parliament and
councillors.

The budget must, therefore, provide for this important event in our democratic process. This expenditure is not a
regular feature in our budget framework. In order to create space for this event, some activities have had to be
reprioritized.


Mr. Speaker, Sir, we have, however, prioritized some critical expenditures in areas of Agriculture and Food Security, Health, Education, Transport and Water. Adequate resources, within the limitations of the resource envelope, have been provided to those sectors.

With diligent management of the economy and efficient use of the resources provided, the country should expect quality service delivery.


Mr. Speaker, Sir, in this budget, Government will continue to implement the reforms undertaken in 2012. In this regard, we will continue to adhere to the principle of a market based economy, so as to reduce the burden of subsidies on tax payers. In addition, Government is scaling up implementation of Public Financial and Economic Reforms aimed at achieving meaningful expenditure control and prioritization, strengthening governance systems for public financial management and prevention of and avoiding the build-up of domestic debt and arrears as was the case in the past.


The Budget follows the principles of the Medium Term Expenditure Framework with proposed estimates for the
2013/14 fiscal year as well as projections for 2014/15 and 2015/16 fiscal years. This ensures that Budget allocations are aligned with the country's medium term goals as outlined in the Malawi Growth and Development Strategy II; Economic Recovery Plan; and the Millennium Development Goals.

The Medium Term Expenditure Framework is intended to encourage long term planning and not to cram programmes
and projects in the short term. Short term planning results in thinly spreading of our resources over too many activities with minimal impact on development.


Mr. Speaker, Sir, it is important that we consider critically our implementation capacity in order to ensure that programmes and projects are implemented efficiently and effectively. Over the years, we have seen the dangers of trying to do everything at the same time without due regard to implementation capacity. Programmes have experienced cost overruns and poor quality which could have easily been avoided.



7.2. Fiscal Policy Anchor: No Net Domestic Financing


Mr. Speaker, Sir, in order to remain on track on our programme to reduce inflation and stabilize the exchange rate, government has in the past relied on monetary policy. Beginning from the 2012/13 fiscal year, government planned the fiscal policy, so that it complements its critical role, just as the monetary policy in dealing with inflation and exchange rate.


You will agree with me that in the past, programme targets were missed primarily on account of loose fiscal stance.
In order to sustain and build on the gains achieved so far, the fiscal policy will have to remain very tight in the coming year.


Mr. Speaker, Sir, in this regard, the fiscal anchor for the 2013/14 fiscal year, like that of the current financial year, remains "No Net Domestic Financing" with a planned net domestic debt repayment of K7.2 billion, which is equivalent to 0.5 percent of GDP.


This fiscal stance is intended to reduce the domestic debt stock to allow the private sector space to borrow at reasonable rates for productive investment. The private sector as the engine for growth and development must be allowed to operate in a conducive environment. One such element in this atmosphere is financing at reasonable interest rates.



7.3. Monetary Policy and Financial Sector Development


Mr. Speaker, Sir, the Budget will be supported by a prudent and tight monetary policy stance designed to contain money growth and achieve price stability while allowing for private sector growth. Money is programmed to grow at about the pace of nominal GDP in the near term and further financial deepening in the medium term would allow broad money to grow faster than nominal GDP without fueling inflation.


The monetary authorities will monitor the inflation rates very closely so as to adjust interest rates in line with the levels of inflation.


The monetary policy reforms that the Reserve Bank has been implementing will continue. Foreign exchange will remain
liberalized and the rates being determined by market forces.


The target, Mr. Speaker, Sir, is that we achieve sustainable foreign exchange levels.


In order to protect small depositors and strengthen the stability of the financial system, we will expand the financial safety net by instituting a Deposit Insurance Scheme for the country. To this effect, we have constituted a National Task Force comprising experts from the Ministry of Finance and the RBM with the task of designing and establishing the country's first ever explicit Deposit Insurance Scheme.

The National Task Force, under the leadership of the Ministry of Finance, has
already developed a comprehensive business plan upon which
Government and RBM will provide seed capital to enable the
scheme roll out. We have provided resources for the
capitalization in this year's budget and within the course of the
year, we will be asking this august House to consider and
approve the legal and regulatory framework for the scheme.


8.0. THE 2013/14 BUDGET FRAMEWORK


8.1. Resource Envelope


Mr. Speaker, Sir, let me now turn to the fiscal projections for the 2013/14 Budget. Total revenues and grants for the 2013/14 FY are expected to amount to K603.4 billion from K460.9 billion in 2012/13 FY. Domestic revenues are projected at K363.1 billion, representing 60.0 percent of total revenue and grants, while K240.3 billion are donor grants, representing 40.0 percent of total revenue and grants.


Of the total domestic revenues, tax revenues are projected at K328.1 billion while the non-tax revenues are estimated at K35.0 billion. Grants, on the other hand are expected to increase by 36 percent from K177. 4billion estimated for 2012/13 FY to K240.3 billion.


8.2. Total Expenditure and Net Lending


Mr. Speaker Sir, total expenditure and net lending for the 2013/14 Fiscal Year are projected at K638.2 billion comprising K463.1 billion recurrent expenditure and K175.0 billion development expenditure.


8.3. Overall Balance and Financing


The overall fiscal deficit for the 2013/14 FY is projected at
K34.8 billion. This deficit will be wholly financed by foreign
borrowing amounting to K42.0 billion. These resources will
further be used to finance domestic debt repayment of K7.2
billion which is equivalent to 0.5 percent of GDP in line with
the fiscal anchor of No Net Domestic Financing. This
repayment of domestic debt will reduce the domestic debt stock
from K170.6 billion at the end of 2012/13 financial year to
K163.4 billion at the end of the 2013/14 financial year.



9.0. THE BUDGET STRUCTURE


Mr. Speaker, Sir, as the August House considers the budget for approval I wish to ask that special attention be paid to the following aspects of the budget:

The first is the fact that the development partners are financing the budget to the tune of 41 percent of total
expenditure. While this is good news in that it shows the trust and confidence that development partners have in Her
Excellency Dr. Joyce Banda's leadership and policies, it also raises the issue of long term fiscal sustainability.


Mr. Speaker, Sir, the questions we should be asking ourselves as a Nation are critical for our future. A few of these are: (a) How do we move towards living within our means? (b) How do we grow this economy fast enough to meet our consumption demands and population growth? How do we increase the contribution of domestic revenues to the Budget?


I have no doubt that this House will agree with me that the people of Malawi have no wish to turn into a nation of
subsidies. We need to face the fact that almost every service that the government is providing is heavily subsidized.

Mr.Speaker, Sir, as everyone knows we subsidize Agriculture by almost 75 percent, Education by close to 90 percent, Health by almost 100 percent. Until last year, we were subsidizing fuel and electricity. We still heavily subsidize water.


Mr. Speaker, Sir, subsidies are justified in a number of
cases. But from the Pre-Budget Consultations that I led we
found out that Malawians want their Government to implement
policies that will one day make some subsidies unnecessary
while maintaining targeted subsidies for the poor.

The other element to note is the imbalance between
salaries and wages and goods and services. The proposal is to
spend K131.1 billion in salaries and wages and yet spend only
K64 billion in goods and services. What this means is that we
need to examine how to ensure that sufficient resources are
provided to improve efficiency.


Mr. Speaker, Sir, our Development budget which is K154
billion is 70 percent financed by development partners and is
only about 24 percent of the total expenditure. Much as we
thank the Development Partners and the tax payers in their
respective countries for their generosity, time has come to start
asking ourselves whether this is sustainable.


Mr. Speaker, allow me to echo the call by the President
that we undertake a soul searching exercise as a nation. Could
we be asking too much from our Government to the extent that
we are consuming too much without sufficient investment for
our children?

As we go for elections, I have no doubt in my mind that
during the campaign period we politicians will be promising
the moon to the electorate, such as free secondary school
education, free fuel and electricity, high salaries and wages for
the public service and many more, and indeed where
government is providing subsidized fertilizer somebody will
promise free fertilizer. Mr. Speaker, I am just mentioning this
as food for thought, and this, too, is free.


10.0. KEY ALLOCATIONS IN THE 2013/14 BUDGET


Mr. Speaker, Sir, I now turn to key allocations in the 2013/14 budget. Due to the constraints in the resource
envelope, the budget has had to prioritize key sector which we believe would make an impact on poverty reduction. These areas, Mr. Speaker, Sir are in line with the Economic Recovery Plan and MGDS II. The major areas are Agriculture and Food Security, Social Support and Protection, Education, Health, Transport, Tourism, Mining and Energy. Some of the areas, Mr. Speaker, Sir, may not feature highly in the budget because
they will be undertaken by the private sector and these include
mining, tourism and energy.



10.1. Agriculture and Food Security

Mr. Speaker, Sir, Agriculture is the main stay of our
economy and will remain a major driver of the economy in the
medium term. Agriculture will also remain the source of
livelihood for most of the population in Malawi and the critical
element in this is food security. In order to achieve this Mr.
Speaker Sir, we need to bring in the private sector. In this
regard, we will work with stakeholders to find ways of making
agriculture more attractive to investment. This is intended to
ensure National food security and export oriented agriculture.
66. Government also intends to resuscitate sub-sectors of
agriculture such as animal husbandry and legumes. Apart
from Maize, tobacco, cotton, tea and other traditional crops
government intends to encourage non-traditional crops such
as legumes. In this budget, therefore, Mr. Speaker, Sir
Government has allocated adequate resources for animal
husbandry, scaling up of legume production, and irrigation.
The budget is proposing an allocation of K1.7 billion for
legumes, K2.0 billion for the second cropping, K1.6 billion for
small stocks, and K2.0 billion for a Cow per Family
Programme.


Mr. Speaker, Sir, despite the resource challenges, food
security remains a major priority and the Farm Input Subsidy
Programme will continue. A total of K60.1 billion has been
allocated. This fertilizer will be made available to the small
holder farmers at a subsidized price of K500 per 50kg bag for
both basal and top dressing fertilizers. The Ministry of
Agriculture and Food Security has worked out the specific
details on the distribution modalities and schedules, including
participation of the private sector, to ensure that the
distribution is timely and without any irregularities. It is
expected that the fertilizers will have been bought from the
suppliers by September, 2013 and that distribution will start
immediately.

As you know, Mr. Speaker, we need to replenish our
Strategic Grain Reserves. In this regard, a total of K5.0 billion
has been allocated, of which K3.7 billion is grant from the
Norwegian, Irish Governments, and African Development
Bank. We are in discussion with more Donors to assist us
increase the amount of maize to be procured for our Strategic
Grain Reserves.



10.2. Public Works Programme


Mr. Speaker, Sir, a total combined outlay of K 23.3 billion
will be used to implement programmes aimed at asset building
and infrastructure improvement as well as nutrition
supplementation. Government will implement a K3.4 billion
Social Cash Transfer program under the Ministry of Gender,
Children and Social Welfare with support from KfW and
Ireland. As usual the Public Works Programme will be
implemented under the Local Development Fund (LDF) where
K18.4billion will be spent with support from the World Bank,
African Development Bank (ADB) and KfW. After a successful
implementation of the last Public Works Programme, we are in
discussion with the World Bank to increase the amount so that
we increase the number of beneficiaries and the number of
days each beneficiary is allowed to work. This will mean more
income for the beneficiaries.


10.3. School Feeding Program


Mr. Speaker, Sir, Government will continue to support the
school feeding programme that is being implemented by the
Ministry of Education, Science and Technology (MoEST) with
financial assistance from World Food Programme (WFP) and
other partners. A total of K500 million has been allocated in
the 2013/14 budget. All pupils in the targeted schools receive
a mid-morning serving of corn soya blend (Likuni Phala)
porridge each school day. Mr. Speaker, Sir, there is ample
evidence this programme leads to surges in enrolment,
attendance and academic achievement. The allocation is
double what was allocated last year and thus the number of
pupils will double.



10.4. Public Financial and Economic Management Reforms


Mr. Speaker, Sir, earlier I spoke of the need to take a fresh
look at what we are spending our money on so that we
concentrate on productive investment. To complement this, we
need to achieve high levels of efficiency and economy. We must
achieve high levels of value for money.
72. In this regard, in 2012, we developed a programme to
improve our Public Financial and Economic Management
which covered 10 components including planning, resource
mobilisation, budgeting, accounting, procurement, reporting
and auditing. We have now launched two projects covering
several of these components. In light of the critical importance
of financial reporting and accountability, the first project dealt
with the issues of our financial management information
system and auditing. During the last 12 months there has been
significant progress on the development of our Public Financial
and Economic Management Reform Programme (PFEM).


Mr. Speaker, Sir, over the next 12 months a series of
improvements are being undertaken under a project known as
Financial Reporting and Oversight Improvement Project
(FROIP). These include a re-engineering of our business
process which will be used for upgrading the Integrated
Financial Management Information System, strengthening our
financial operations now that we have been able to roll out our
IFMIS to all central and local government institutions, and
strengthening our auditing systems to respond more effectively
to not only financial but also performance reporting.
Government is grateful for the support we have received from
donors DFID, EU, Germany and to the World Bank for this
project.


Another project supporting elements of planning and aid
coordination has also been signed with support from UNDP
and the UN agencies. In addition, a further project is planned
to undertake the remaining components of the Public Financial
and Economic Management reform programme. These include
improving revenue collection and administration,
procurement, improving medium term fiscal framework, and
improving parastatal financing. We have offers of support from
the African Development Bank, United States Agency for
International Development and Norway for the continuation of
our reform programme.


10.5. Education, Science and Technology


.
Mr. Speaker, Sir, the education sector has been allocated
K99.19 billion in the 2013/14 budget representing 20 percent
of the total budget. Comparing with the 2012/13 revised
allocation of K80.0 billion the current allocation represents an
increase of 24 percent on last year's approved allocation.


The recommended allocation for Education in Sub-
Saharan Africa is 24 percent of the budget. We have not yet
achieved this but we are almost there. I believe in the next two
years we should be able to achieve if not surpass this target.


Mr. Speaker, Sir, we expect that the quality of education
will continue to improve as we reduce teacher pupil ratios,
especially in the primary schools. In the 2013/14 fiscal year we
expect to employ 10,500 primary and 1975 secondary school
teachers. As Her Excellency the President announced in her
State of the Nation address about 11,000 primary school
teachers will be promoted during the year. The process of
promotions is well advanced.


In order to create efficiency in the system procurement of
teaching and learning materials will be decentralized. This has
been done in order to further improve the availability of
teaching and learning materials in all primary and secondary
schools.


Mr. Speaker, Sir, during this current sitting of Parliament
the Ministry of Education, Science and Technology will bring to
the august House a bill for students' loans for those in tertiary
institutions of education. The current system of subsidy is not
sustainable. Beyond being unsustainable, the system denies
many deserving students the much sought after higher
education.



In addition to operating resources allocated for the
Ministry of Education, Science and Technology a total of
K12.4billion has been allocated for development projects.
Currently 1,000 primary school teachers' houses are complete
and it is planned that 2,000 houses will be built in the next
financial year. The plan Mr. Speaker, Sir, is that in ten years
every teacher especially in the rural areas should have a decent
house. Mr. Speaker, Sir, government will continue with the
building of classrooms. It is planned that 1,000 classrooms will
be built in the next financial year. Work on construction of
girls' hostels in 17 Community Day Secondary Schools is under
way and an additional 28 will be started in the coming fiscal
year. Under MASAF/LDF a total of K4.3 billion has been
allocated for continuation of construction of teachers' houses
and school blocks in the next financial year.



10.6. Public Health, Sanitation, and HIV/AIDS Management


Mr. Speaker, Sir, special attention has been paid to the
provision of drugs in the Health facilities of the country. In this
regard, K14billion, equivalent to US$35mmillion will be made
available for drugs for the Health sector. Furthermore, we
expect an additional K7.6billion equivalent to US$19million
equivalent in drugs to be given by Development Partners such
as Global Fund. Mr. Speaker, Sir, in total the drugs to be
available will exceed the US$7.6 per capita recommended by
the World Health Organisation.



The challenge, however, will remain in distribution,
management and control. Government is calling for total
accountability of these drugs from the Health personnel
involved. Mr. Speaker, Sir, government has also decided that
drug procurement be central. This will prevent Health facilities
buying from drugs from vendors at exorbitant prices. The
procurement process will also be improved to avoid drug stock-
outs that we have experienced in the past.
83. Mr. Speaker, Sir, I wish to call upon all the Health
personnel and all those involved in the drug supply chain
management to be honest and diligent in the way they manage
the drugs.



Government has also allowed some Health facilities to
open or introduce fee paying windows to allow those who can
afford and those with Health insurance such as MASM to be
able to use them. Government has also decided that the fees
paid in these facilities will be retained and used by the Centre.
85. Mr. Speaker, Sir, we will continue implementing the
projects that were started last year. This primarily concerns
rehabilitation of facilities such as Zomba Central Hospital,
Zomba Mental Hospital, Nsanje District Hospital, Kamuzu
Central Hospital, In addition Mr Speaker, Sir, Government will
be completing construction of Nkhata-bay District Hospital and
start the construction of Phalombe District Hospital and staff
houses under the Umoyo Project.


10.7. Transport and Public Works


Mr. Speaker, Sir, transport infrastructure will remain one
of the critical elements of our development programme. Our
transport infrastructure, especially the road network, is
relatively well developed compared to other countries in SSA.
However, in recent years maintenance has not been
maintained adequately in recent years. Resources that would
have been used to maintain our road network was used to
subsidize fuel as most of the fuel industries were holding fuel
levies.


Mr. Speaker, Sir, with the introduction of the Automatic
Fuel Pricing we have cleared what the Price Stabilization Fund
owed the industry and remittances have started to come in. In
this budget therefore, resources have been allocated for the
maintenance of the road network, including rural feeder roads.
As such a total of K9.1 billion has been allocated for the
grading and maintenance of rural roads. Mr. Speaker, Sir, this
amount of money would cover in excess of 35,000 kilometers.



Mr. Speaker, Sir, on transport infrastructure
development, government will continue with the construction
of Thyolo-Thekerani-Muona-Bangula road, Chikwawa-Nchalo-
Bangula road, Liwonde-Naminga road, Zomba-Jali- Kamwendo
- Phalombe- -Chitakale Road, Jenda-Embangweni-Edingeni-
Euthini Road, Ntcheu-Tsangano-Mwanza road, Lilongwe-Old
Airport- Kasiya-Sathe Road and Mzimba-Mzalagwe road among
others.



11.0. REVENUE POLICY MEASURES FOR THE 2013/14 BUDGET


11.1 Preamble


Mr. Speaker, Sir, before I outline the revenue policy
measures, I wish to take this opportunity to sincerely thank all
taxpayers that have contributed towards paying taxes through
the Malawi Revenue Authority and this is reflected in the
satisfactory performance of domestic revenues as presented
earlier in this Budget Statement.


The domestic revenues collected from taxes, user fees and
charges have assisted Government in the provision of the
necessary social services such as purchase of drugs,
construction of roads and schools and other important social
amenities. Specifically, Mr. Speaker, Sir, I wish to give
examples of roads that have been constructed using domestic
resources and these include: Ekwendeni-Ezondweni-Mtwalo-
Njakwa , Lumbadzi-Dowa-Chezi-Ntchisi and Bangula - Nsanje
roads. I therefore wish to urge and encourage all Malawians to
continue being compliant by remitting their taxes to contribute
towards national development.



11.2. Tax and Non-Tax Policy


Mr. Speaker, Sir, I wish to inform this august house that
in this Budget it will be observed that the measures show that
Government remains committed to support the sectors that
have been identified as priority areas under the ERP.
Mr. Speaker, Sir, allow me to now articulate the Non-Tax and
Tax revenue policy measures for the 2013/14 Budget.


11.3. Non Tax Measures

Stamp Duty

Mr. Speaker, Sir, in order for Malawi to improve on the
ease of doing business ranking with a view to create a pro-
business environment, Government has reduced stamp duty
under the Registrar General from 3 percent to 1.5 percent .
This measure is in line with the Doing Business Reforms that
Government is currently implementing with a view to make
Malawi an attractive investment destination.



11.3. Tax Measures


Mr. Speaker, Sir, allow me to now present the tax
measures for the 2013/14 Budget as follows:

11.4. Customs and Excise Tax Measures Incentives for the Tourism Sector


Mr. Speaker, Sir, in an effort to further support the
Tourism Sector, Government has removed taxes on off-road
game/scenery viewing motor vehicles (Safaris). In addition, Mr.
Speaker, Sir, to ease the problem of transportation of guests in
our Hotels and Resorts, Government has also removed taxes on
shuttle buses. This provision will allow Hotels, Lodges and Inns
with guest capacity of 50 rooms or more to import two shuttle
buses every five years without payment of duties.


Incentives for the Construction Industry


Mr. Speaker, Sir, in the previous Budget, taxes on most
machinery were removed in order to promote the various
productive sectors of the economy. In this Budget, Government
has further removed taxes on crane lorries, concrete mixer
lorries, mobile drilling derricks and track laying tractors for the
construction Industry to boost the industry.
Incentives for the Agricultural Sector


Mr. Speaker, Sir, most of the agricultural equipment and
machinery are exempted from duties. In order to encourage
diversification and promote animal husbandry in the country,
Government has removed taxes on importation of livestock
meant for breeding and this will cover live bovine animals, live
swine, sheep and goats as approved by Ministry of Agriculture.
This is in line with Her Excellency's' vision of one cow per
family which aims at empowering households especially the
marginalized.


Incentives for Electricity Generation and Distribution
Industry


Mr. Speaker, Sir, Government has noted the need to
involve other business players in the energy sector and to
encourage investment in this sector. Government has therefore
extended the Custom Procedure Code for ESCOM under the
Customs and Excise Tariffs Order to allow all investors to
import electricity generation and distributing equipment
without payment of import duty. It is believed that this will
encourage investment in the energy sector and also improve
the electricity generation and distribution capacity for the
country and support the industry that requires use of
electricity for production.


Incentives for Mining and Exploration Industry


Mr. Speaker, Sir, mining has been identified as another
2013/14 Budget Statement
21
Page 25
area that can foster economic development, as the Nation
continues to diversify. Honourable Members, in support of this
sector, Government has re-introduced a provision under the
Customs and Excise Tariffs Order to allow for exemption of
taxes on importation of specialised mining and exploration
machinery and equipment in order to encourage exploration
and mining activities in the country.


Incentives for Television and Radio Stations


Mr. Speaker, Sir, it is clear that access to information and
the promotion of investment in Information and
Communication Technology (ICT) remain critical. In support of
this, Government has removed taxes on specialised
broadcasting equipment for Television and Radio stations to
further improve access to information.


Rebate for Travellers


Mr. Speaker, Sir, the amount provided as an allowance
under Customs Procedure Code 429 for Travellers in the
Customs and Excise Tariffs Order, has been increased from
MK150,000 to MK300,000 to take into account the changes in
the economic environment. I wish to emphasize that this rebate
applies to travellers with accompanied baggage for personal
use and not commercial consignments. In order to further
facilitate clearance of passengers at our Airports the Malawi
Revenue Authority will adopt a risk based approach by
introducing the Green and Red lane with random checks.


Duty on Bicycles and Motorbikes


Mr. Speaker, Sir, it remains the wish of Government to
ensure that all Malawians especially the under-privileged are
able to access cheaper and affordable modes of transport. In
view of this, Government has removed, yes, totally removed,
import duty on bicycles. In addition, import duty on
motorbikes of engine capacity not exceeding 250cc, has been
reduced to 15 percent and excise tax on these motorbikes has
also been removed considering that this mode of transport is
widely used especially in the rural market areas.


Duty on Inverters


Mr. Speaker, Sir, Government remains committed to the
promotion of the use of clean energy and in this regard. Most
of the items used for solar power generation are exempted from
duty as announced in the previous Budget. In order to make
clean energy affordable to Malawians, import duty payable on
inverters has been reduced to 0percent considering that
inverters are critical in the generation of solar power.


Taxation of Buses


Mr. Speaker, Sir, in order to improve affordability, safety
and comfort of passengers and to decongest the streets of our
cities and towns, Government has reduced import duty to 15
percent on motor vehicles of seating capacity of 11 to 31
persons including the driver, and motor vehicles of seating
capacity of 32 to 44 persons including the driver, regardless of
engine capacity and year of make. In addition, excise tax has
been reduced on motor vehicles of seating capacity of 32 to 44
persons including the driver depending on year of make as
follows: 0percent for new and used motor vehicles not
exceeding 8 years, 10percent for used motor vehicles
exceeding 8 years but not exceeding 12 years and 25percent
for used motor vehicles exceeding 12 years.


Mr. Speaker, Sir, Government would like to urge operators of these buses to
ensure that the benefits trickle down to the consumer through
reduced transport fares.



11.5. Income Tax Measures


Tax Holiday - Designation of Priority Industries


Mr. Speaker, Sir, in order to encourage value addition in
the Agricultural Sector, Agro-processing shall be designated as
a priority industry for purposes of tax holiday as required
under the Taxation Act, 11th Schedule. In addition , Electricity
Generation and Distribution shall also be designated as a
priority industry.


Mr. Speaker, Sir, I wish to inform this August
House that Ministry of Finance is working closely with
stakeholders in other sectors where this tax holiday provision
can also be applied. It is clear that investors are showing keen
interest to invest in these areas if given the right fiscal
incentives.


Mr. Speaker, Sir, Government deprives itself from
revenues from corporate taxes by letting investors benefit from
tax holidays. It is therefore imperative for all investors that
shall benefit under this provision to ensure that they remain
committed to deliver the desired outputs such as; production
for export, value addition, employment creation and generation
of forex for the economy. In view of this, Government will
closely monitor performance and is at liberty to withdraw this
incentive where there is evidence of abuse or
underperformance depending on the agreed benchmarks.


Loss Carry Forward Provision


Government has reduced the indefinite loss carry forward
provision under section 42 of the Taxation Act, to 6 years for
the manufacturing sector in order to encourage investment in
profitable business ventures.



Interest and Transfer Pricing



Mr. Speaker, Sir, the Taxation Act has also been reviewed
and slightly amended in some sections to provide for tax
administration adjustments. In this regard, Mr Speaker, Sir,
section 105 (5) and (6) of the Taxation Act on Interest has been
amended to remove the insignificant amounts of MK22 and
MK5.50 contained therein. In addition section 127(A) of the
Taxation Act regarding Transfer Pricing has been reviewed to
incorporate transactions of related parties who are both
resident in Malawi. Previously, this provision recognised
transfer pricing transactions between a resident and non-
resident party.




Pay As You Earn (PAYE)


Mr. Speaker, Sir, it is clear that Malawians are beginning
to witness signs of recovery in our economy. However in some
cases the impact of the devaluation and its inflationary effects
are still being manifested in the economy and this is affecting
the welfare of the people. As a mitigating measure Government
has increased the 0percent threshold for PAYE from MK15,000
to MK 20,000 and the next MK5,000 will be taxed at 15 percent
whilst the excess will be taxed at 30percent .



Withholding Tax for Cross-Border Traders


Mr. Speaker, Sir, Government has noted that small tax
payers including our smallholder farmers suffer withholding
tax when they sell their agricultural products. I wish to report
to this august house, that there are quite a large number of
locals and foreigners who are involved in cross-border trading
but are not paying income taxes to Government. Mr. Speaker,
Sir, in order to ensure equity and fairness in the tax system
and to ensure that most of the traders pay income tax,
Government is extending a 3percent withholding tax on all
imports Mr. Speaker, Sir, I wish to clarify that all registered
taxpayers with Withholding Tax Exemption Certificates will be
exempted from this withholding tax. Distinguished colleagues,
withholding tax is an advance tax and not a final tax meaning
that the amount paid on withholding tax on imports is tax
deductible upon submission of a tax return by a taxpayer.



11.7. Excise Tax Measures


Excise Tax on Matches and Ball-Point Pens


Mr. Speaker, Sir, Government continues to review the
excise tax regime as indicated in the last Budget Statement. In
view of this, excise tax on products such as matches has been
removed considering that this is a basic commodity and has no
negative externality that could make it liable for excise tax. In
addition, Mr. Speaker, Sir, excise tax on ball point pens has
been removed.


Excise Tax on Flavoured Mineral and Aerated Waters and Non-alcoholic Beverages


Mr. Speaker, Sir, in order to harmonise the application of
excise tax and also to promote the local industry, Government
has reduced excise tax from 20percent to 10percent on waters,
including mineral waters and aerated waters, containing added
sugar or other sweetening matter or flavoured, and other non-
alcoholic beverages, not including fruit or vegetable juices
classified under Heading 20.09 of the Customs and Excise
Tariffs Order.



11.8. Value added Tax Measures


Threshold for VAT Registration


Mr. Speaker, Sir, in order to align VAT registration
threshold with the prevailing economic environment and levels
of inflation which have a direct influence on VAT Government
has increased the VAT registration threshold from MK6 million
to MK10 million.



VAT on Internet Services


Mr. Speaker, Sir, Government has introduced a standard
rate of 16.5 percent VAT on Internet services in order to allow
Internet service providers claim input VAT and this will in turn
reduce costs associated with the provision of internet services
thereby making internet services relatively cheaper and
accessible to users.



VAT on Machinery


Mr. Speaker, Sir, in order to promote national
development through use of machines in the construction and
transport industry Government has removed VAT charged on
other lifting, handling, loading or unloading equipment such as
conveyors, teleferics classified under Heading 84.28 of the
Customs and Excise Tariffs Order.


VAT on Raw Materials under Industrial Rebate

Mr. Speaker, Sir, members of this August House may
recall that in the 2012/13 Budget Government removed VAT
on raw materials imported under industrial rebate. This
measure was implemented to ease the challenge that
Government was facing with accumulated arrears of tax
refunds. I wish to report that in the 2012/13 fiscal year
Government has managed to clear the backlog of tax refund
arrears that were accumulated. Considering the improvements
in the refund management system, Government has
reintroduced a standard rate of 16.5percent VAT on raw
materials imported by manufacturing industries registered
under Industrial Rebate. This policy has been reinstated
considering that the refund management system has improved
in the 2012/13 fiscal year and to ensure compliance with the
VAT principles of Taxation.


11.9. Administrative Measures


Customs and Excise

Mr. Speaker, Sir, there are several tax administrative
measures that have been done and cover issues relating to
proper classification in the Customs and Excise Tariffs Order
of items such as:
food supplements, iron/steel and
alluminium caskets, and articles of wood including proper
definition of "furnishings" under Customs Procedure Code 442
for Hotels, Inns and Lodges covered in the Customs and Excise
Tariffs Order, to avoid abuse arising from mis-description. In
addition various customs fees and charges have been reviewed
and adjusted accordingly.. The details of these revisions to the
various Customs fees and charges and other services will be
outlined in a Technical Notice that will be published by the
Malawi Revenue Authority.



11.10. International and regional Trade Agreements COMESA Simplified Trade Regime

Mr. Speaker, Sir, in order to conform with the agreement
made under the COMESA Simplified Trade Regime programme
which aims at promoting small cross border trade amongst
COMESA countries, Government has aligned the processing
fee for processing customs documents under the COMESA
Simplified Trade Regime (STR) to USD1.00 equivalent to
Malawi Kwacha in line with COMESA obligations.
COMESA and SADC


Mr. Speaker, Sir, in an effort to adhere to commitments
made under the COMESA and SADC Trade protocol, Malawi
will continue to adopt instruments that will facilitate the
implementation of deeper regional integration with a view to
encourage intra-regional trade for the benefit of the regional
economies. In the last fiscal year Malawi was able to reduce
and align its tariffs in line with the commitments made under
the SADC Tariff phase down after a long period of stagnation
amidst the economic challenges that were being experienced.
Although the country is operating under tight fiscal regime ,
Malawi remains committed to implement the obligations agreed
under the COMESA and SADC integration agenda respectively.
Avoidance of Double Taxation Agreements (DTAs)


Mr. Speaker, Sir, Malawi is actively reviewing and
negotiating new Avoidance of Double Taxation Agreements
(DTAs). These bilateral Agreements assist countries to
eliminate double taxation of income by allocating taxing rights
to the resident country, with a view to alleviate tax evasion and
fiscal fraud through the exchange of information. Efforts are
being made to terminate all the old DTAs that are porous and
are being grossly abused by unscrupulous investors and also
to ensure that the country has new DTAs with other countries.
120. In conclusion Mr. Speaker Sir, I want to echo what the
President Joyce Banda said in her remarkably visionary State
of the Nation address, namely, that "the road to recovery is not
easy". However, it is always gratifying when efforts result in
positive developments. As the President pointed out, and as
others have observed, the tough and painful measures that we
put in place have begun to bear fruit.


Mr. Speaker, Sir, there had been a general expectation
that signs of recovery would begin to show in 18 months, but
the recovery actually started earlier than anticipated. As I said
earlier, due to availability of foreign exchange and fuel,
capacity utilization in industry has improved, such that
companies that would have closed down resulting in
unemployment were able to stay on their feet, and a significant
number of firms were even able to expand, thereby creating
more jobs.


Mr. Speaker, Sir, commentators on the Malawi economy
have often used the metaphor of a patient requiring medical
attention. It so happens, Mr. Speaker, Sir, that the patient has
been taking some pretty painful medications. That we agree,
because the nature of the illness required a really strong
dosage to be taken over a considerably long period.
123. Now there are signs that the patient is getting better.
There are signs that indeed, the patient is very much on the
road to recovery, thanks to the medicines he has been taking.


What we in Government find amusing, Mr. Speaker, Sir,
is the attempt by various commentators p to give the
impression that the patient's improving condition has
absolutely nothing to do with the medicines he has been
taking.


Instead of giving credit to the medicine, there is now a
frantic search for the cause of this healing process. Suddenly,
it seems to cause of this improvement in the patient's condition
has become a mystery. Questions are being asked: Is it
perhaps only because of the season? Is it perhaps the tobacco,
or the maize, or could there have been a massive depreciation
of another currency which has caused the Kwacha to gain
weight? Could this be temporary? In fact sometimes we even
seem to be hoping that it is temporary, almost hoping for a
return to the really bad days of yesteryear. There is an
obsession with negativity and the glorification of the sad
mentality which is preventing otherwise reasonable people
from accepting the very obvious linkage between cause and
effect.


Mr. Speaker, Sir, I urge those engaged in this fruitless
search to search no more. The reasons for the stabilization of
the kwacha and the availability of fuel are staring us all in the
face: the reasons are the very same economic reforms and
measures which this House debated and wisely approved. The
reasons lie in the legislation regarding human rights which this
House passed. The reasons for the emerging recovery have to
do with the restoration of damaged relations with our
development partners which this House applauded last year.
127. I submit Mr. Speaker, Sir, that all Malawians should take
credit for encouraging President Joyce Banda to address the
nation's economic challenges, and the President should take
credit for heeding the call. Civil society should take credit for
demanding that Government takes action to save our economy
from total collapse last year. I submit that this honourable
House should take credit for approving the tough measures in
the current budget aimed at restoring the economy.
128. As for the fact that this is all because of the tobacco, let
us remind each other that we did have a tobacco season last
year. Among other factors, a conducive environment at the
tobacco auction floors, good rains provided by the Almighty
God, and good policies being implemented at the Ministry of
Agriculture have contributed to this being a good year, just as
an up scaled Fertilizer and Subsidy Programme has
contributed to a good maize harvest which is helping drive
inflation down.
129. Suppose, as the doomsayers and professional cynics say,
all this proved to be temporary. Well, we all know about the
seasonal structure of our economy. It is true that our economy
is characterized by seasonality. It is equally true that in the
past two years we experienced the seasonality phenomenon.


However, there was no recovery during those two years. But should we just sit back and lament that the
encouraging signs we see T the moment are only temporary
and therefore we should continue looking sad like professional
mourners because come December the kwacha will weaken
again? We in government, we in the People's Party, do not think
so. We believe that with the right policies in place and hard
work, the lean season can be broken. We do not have to accept
the seasonal structure of our economy as a permanent
condition, a permanent curse, of our nation.


It is possible to grow more crops and ensure that there is
plenty of food available in the lean season. That is what
President Joyce Banda has in mind when she talks about the
second crop and more robust use of irrigation. It is possible to
create an environment in which the private sector is more
productive and exports more in order generate more foreign
exchange that would ensure that we have adequate reserves
even in the lean season. That is what our tax measures and the
reforms being implemented by the Minister of Industry and
Trade seek to achieve.


Working together in unity as the President has appealed;
we can kill the lean season, or at least make it less lean, and
at long last change the structure of our economy. It may not
happen in one year, and in fact it need not happen in one year,
but it is possible, and with PP leadership it will happen.


One of the ways to achieve this and ensure
macroeconomic stability is to continue upholding the policies
that we put in place in the 2012/13 fiscal year. We must
maintain the tightness of the fiscal stance. We must continue
with the tight monetary position.


We need in the short to medium term to be able to reduce
the interest rate to allow meaningful and profitable investment
for the private sector.


In this regard, Mr. Speaker, Sir, Government's pre-
occupation in the next budget will be to bring inflation down
while at the same time ensuring optimal investment in the
private sector. I wish in this regard to call the private sector to
do a serious self-assessment of the relevance of their
investments. We expect the private sector to play its role as an
engine of economic growth and invest in productive sectors
that will spur economic growth.


I would also like to take this opportunity to express my
profound gratitude to my colleagues in Cabinet for their
support and encouragement in the implementation of the
budget and the drawing up of the new budget. Supporting me
was not always easy for them in view of the fact all too often
they had to take "No" for answer from me.



I have learnt, Mr. Speaker, Sir, a lot from all colleagues in
this Honourable House who in one way or the other have given
us good suggestions on how to implement the budget. Off
course, some of these suggestions were by way of criticism and
I took them with humility.


In particular, Mr. Speaker Sir, I would want to
acknowledge the advice from the standing committees of this
noble House starting with the Budget and Finance Committee,
the Public Accounts Committee and indeed many other sector
committees. I have enjoyed a good working relationship with all
these. We may not have agreed on a number of issues but that
is the nature of democracy and I remain convinced that every
individual member of these committees is driven by not selfish
interests, but by a wish to do good for our beloved country.



I also wish to thank our development partners namely DFID of the UK, the African Development Bank, World Bank,
Global Fund, Norway, Ireland, Germany, the European Union,
USAID, JICA, and many others. They always stand by us in our
time of need. Apart from their financial assistance, we also
benefited greatly from their suggestions and advice on how to
implement our programmes. It is my sincere hope and prayer
that the good and cordial relationship existing between our
development partners and this country will grow from strength
to strength.


Mr. Speaker, Sir, I would also like to express
government's appreciation to civil society organizations who
never miss an opportunity to let us hear their views on the
economy and other related issues. We remain convinced that
as government we have a duty and responsibility to listen to
everyone and especially to those who disagree with us or offer
alternative views.


Lastly but not least, I want to thank the hardworking men
and women of our Economic Management Team: members of
Staff in my Ministry, my friend the Minister of Economic
Planning Development and his fine team, the Reserve Bank of
Malawi, National Statistical Office and the Malawi Revenue
Authority for their tireless and commendable efforts to stay on
course with the programme. Mr. Speaker, Sir, without these
very dedicated and professional ladies and gentlemen it would
have been difficult to implement these reforms and for me to
present this budget. These are the unsung heroes of the
Economic Recovery Plan.


But Mr. Speaker there is another group of people that I
know are also here that deserve the continued appreciation of
the nation. They are not exactly donors, but they certainly
qualify to be called development partners. I am talking about
the taxpayers, big and small. Some of the big ones from the
corporate world are represented up there in the galleries and
the smaller ones are there too.



We do not always get well with taxpayers, Mr. Speaker.


Some of them given a chance would rather find some legal way
of avoiding the paying of tax, and we sometimes have to engage
in cat and mouse chases with them. Actually this is not
peculiar to Malawi, as we have seen in recent international
headlines. Ingenious tax avoidance and tax evasion tricks go
back in history to the day the very idea of paying taxes was
invented by mankind. Some of our taxpayers make really
unreasonable demands and are frequent visitors to my office or
that of the Commissioner General.


But they are all good men and women and when eventually they do pay their taxes, their money is what builds
many of the roads and bridges, the hospitals, and the schools in which our young people learn. So, on behalf of government, I salute all the taxpayers of Malawi and urge them to continue paying their taxes with a smile.



Mr. Speaker, Sir, I beg to move.



2013/14 BUDGET STATEMENT
Delivered in the NATIONAL ASSEMBLY OF THE REPUBLIC OF MALAWI
By THE MINISTER OF FINANCE
THE HON. DR. KEN LIPENGA,M.P.