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Preamble
This paper reviews the 2004/05 Budget proposal delivered by the Honourable Minister of Finance on 3rd September 2004. We appreciate the difficulties of our economy and we would want to congratulate the Minister of Finance for his well-thought budget. We further appreciate the classification that the 2004/05 budget is a transitional one and that budget may not anchor all the features that can anchor the economic growth that we all want.
Overall we see the budget as aimed at bringing the economy back from the dungeon it was, before we start taking the economy forward. We understand that efforts to bring about change in such environment can be inflationary if not well done, and so caution must be practiced. We agree with the two observations made that poverty reduction takes place only when there is substantial and sustained economic growth. Second and in the context of Malawi, which is a poor country characterized by a highly unequal pattern of income distribution and very high domestic debt, poverty reduction can only be sustained if the poor and small-scale operators are directly and adequately involved in the targeted economic growth programmes. There is however no choice over the livelihood of the poor: Government must do something for them. The challenge for Government, especially the Ministry of Finance, is enormous.
The President in his 2004/05 Budget opening speech set the preamble for understanding and analyzing the budget. He presented the theme for this year's budget as: 'Keeping our heads above the water'. According to the President's speech, the major issues included in the budget are:
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Good governance
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Economic planning
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Stabilization of macroeconomic conditions
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Fertilizer subsidy
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Public sector investment programme
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Institutional capacity building
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Cotton development project
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Irrigation
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Tourism
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Public health and HIV/AIDS
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Energy
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transport
The key question is how have these been translated in the budget? Are there significant changes in amount and structure compared to last year?
Following the President's speech, the minister of finance presented the budget statement giving more details of the budget. There are a number of issues which have been highlighted in the budget statement by the minister of finance. These issues reflect the nature, structure and scope of the budget. Some of the highlights include the statement that this budget is being considered as a transitional budget to those of the next four years in the life of the current parliament. The reasons why this is a transitional budget include:
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Budget lacks some key features to support economic growth strategies of the country (e.g. lower current expenditure accounts relative to investment account expenditure, generation of savings rather than emphasizing consumption). Future Budgets to act as central instrument for economic development.
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Budget provides a framework for eliminating obstacles (practices, habits and mindsets) to the exercise of fiscal discipline and good governance.
Based on these premises, this review aims at providing a critical appraisal of the budget in terms of its goals and objectives as they are reflected in revenue and expenditure projections. It also analyses how the budget is focusing on national priorities as specified in the MPRSP and other policies. An attempt is also made at analyzing the macro-economic aspects of the budget as well as the expenditure control and management measures being propagated in the budget statement. Due to the limited time available for this analysis, only selected variables and components of the budget are analyzed to give a picture of the overall budget.
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