monitoring report 2010 quarter 1 malawi revenue authority nlgfc national local government finance...

Ministry of Finance | Quarter 3 of 2015/16 FY i

MALAWI GOVERNMENT

2015/16 BUDGET PERFORMANCE

QUARTERLY REPORT

(Q3)

Ministry of Finance, Economic Planning & Development

P.O. Box 30049

Lilongwe 3

Malawi

June 2016

Ministry of Finance | Quarter 3 of 2015/16 FY ii

Table of Contents

FOREWORD ..................................................................................................................................................III

ABBREVIATIONS AND ACRONYMS ......................................................................................................... IV

EXECUTIVE SUMMARY .............................................................................................................................. V

REVENUE PERFORMANCE .......................................................................................................................................... V

PERFORMANCE OF GRANTS AND LOANS ....................................................................................................................... V

EXPENDITURES PERFORMANCE.................................................................................................................................. VI

1 INTRODUCTION ................................................................................................................ 7

1.1 BACKGROUND TO THE REPORT ...................................................................................................................... 7

1.2 KEY OBJECTIVES OF THE REPORT ................................................................................................................... 7

1.3 METHODOLOGY ......................................................................................................................................... 8

1.4 LAYOUT OF THE REPORT .............................................................................................................................. 8

2 PERFORMANCE OF DOMESTIC REVENUES ........................................................... 9

2.1 INTRODUCTION ................................................................................................................................................. 9

2.2 OVERALL PERFORMANCE IN REVENUE COLLECTION .................................................................................................. 9

2.3 TAX REVENUE PERFORMANCE ............................................................................................................................ 10

2.4 PERFORMANCE OF NON – TAX REVENUES (NTRS) IN THE THIRD QUARTER ................................................................ 11

2.5 GENERAL REVENUE TREND ................................................................................................................................ 12

2.6 CONCLUSION .................................................................................................................................................. 13

3 PERFORMANCE OF GRANTS .............................................................................. 14

3.1 INTRODUCTION ........................................................................................................................................ 14

3.2 GRANTS PERFORMANCE IN QUARTER ........................................................................................................... 14

3.3 CONCLUSION ........................................................................................................................................... 15

4 EXPENDITURE PERFORMANCE ......................................................................... 16

4.1 INTRODUCTION ........................................................................................................................................ 16

4.2 PERFORMANCE OF OVERALL EXPENDITURES .................................................................................................. 17

4.2.1 PERFORMANCE OF RECURRENT BUDGET ....................................................................................................... 18

4.2.1.1 Expenditures under Personal Emoluments (PE) .............................................................................. 18

4.2.1.2 Other Recurrent Transactions (ORT) ............................................................................................. 18

4.2.1.3 Social Spending ............................................................................................................................... 19

4.2.2 PERFORMANCE OF DEVELOPMENT BUDGET ................................................................................................... 21

4.3 CONCLUSION ........................................................................................................................................... 22

5 CONCLUSION AND RECOMMENDATIONS ....................................................... 23

Ministry of Finance | Quarter 3 of 2015/16 FY iii

Foreword

This Quarterly Budget Performance Report is premised on the performance of

the National Budget implementation in the third quarter of the 2015/16 Fiscal

Year. The report provides a detailed analysis of all the revenue that

Government collects; status of grants and loans and the subsequent

expenditures that Government has incurred in the quarter under review. The

main objective of this report is to appraise all stakeholders on the current status

of National Budget implementation, including risks and challenges associated

with it, so that where necessary, remedial measures can be undertaken much

earlier to salvage the situation.

The Ministry of Finance hopes that the information provided in this report will

be valuable and informative to all the stakeholders. Any further suggestions for

improvements are welcome and can be submitted to the Secretary to the

Treasury.

Ministry of Finance | Quarter 3 of 2015/16 FY iv

Abbreviations and Acronyms

ASWAP Agriculture SWAP

FISP Farm Input Subsidy Program

FY Financial Year

IMF International Monetary Fund

LDF Local Development Fund

MoH Ministry of Health

MRA Malawi Revenue Authority

NLGFC National Local Government Finance Committee

TR Tax Revenues

NTRs Non-tax Revenues

ORT Other Recurrent Transactions

Part I Donor supported projects

Part II Projects financed by domestically generated resources

PAYE Pay As You Earn

PE Personnel Emoluments

SWAP Sector Wide Approach

VAT Value Added Tax

Ministry of Finance | Quarter 3 of 2015/16 FY v

Executive Summary

Revenue Performance

In the 2015/16 Financial Year, Government plans to collect a total of K666.3

billion in Domestic Revenues of which, K592.4 billion and K73.9 billion is

from Tax Revenues and Non-Tax Revenues, respectively. In the Third Quarter

of the Financial Year, total Domestic Revenues were projected to be K164.6

billion of which, K145.3 billion were Tax Revenues and K19.3 billion were

Non-Tax revenue. However, the outturn for Domestic Revenues for this quarter

was K152.6 billion of which K138.5 billion was Tax Revenue and K14.1 billion

on Non – Tax Revenues, reflecting an underperformance of K12.0 billion. Tax

revenues underperformed by K6.8 billion while Non-Tax revenues by K5.3

billion.

Performance of Grants and Loans

In the 2015/16 Financial Year, Government projects to receive Grants

amounting to K97.1 billion, of which, K6.9 billion are Program Grants, K37.2

billion are Dedicated Grants and K52.9 billion are Project Grants. In the Third

Quarter of the Financial Year, expected disbursements from Grants were K67.2

billion, of which K27.1 billion was Dedicated Grants and K40.1 billion was to

come from Project Grants. The Outturn for the Third Quarter of the Financial

Year represents an overall underperformance of Grants by K38.4 billion. Total

Grants received amounted to K28.7 billion, out of the projected K67.2 billion

during the period under review representing an underperformance of 57.2

percent.

Ministry of Finance | Quarter 3 of 2015/16 FY vi

Expenditures Performance

In the 2015/16 Financial Year, Government planned to spend K930 billion,

including net lending. Out of this sum, K705.9 billion is planned for Recurrent

Expenditure and K224.1 billion for Development Budget Expenditure. In the

Third Quarter of the financial year, Government planned to spend K297.2

billion including net lending, of which, K184.7 billion is Recurrent Expenditure,

K112.4 billion is Development Budget Expenditure and a net lending of K0.2

billion. However, overall, Government spent K243.4 billion reflecting an under

expenditure of K53.6 billion.

Ministry of Finance | Quarter 3 of 2015/16 FY 7

1 INTRODUCTION

1.1 Background to the Report

In June 2015, the National Assembly approved a Budget of K930 billion for the

2015/16 Financial Year (FY). This Budget is expected to be financed by

Domestic Resources amounting to K666.3 billion and K97.1 billion from Grants

and Loans.

In order to assess the performance of the National Budget from time to time, a

report is produced on quarterly basis to provide insight into all the relevant

components of the budget.

This report therefore, examines performance of the National Budget in meeting

the set targets for Third Quarter (January to March 2016) of the Financial Year.

It highlights where discrepancies between the projected and the outturn figures

have occurred and also provides a possible explanation for such discrepancies.

1.2 Key Objectives of the Report

The main objective of this report is to present the performance of Government

in implementing the National Budget in the Third Quarter of the 2015/16

Financial Year. Specific objectives of the report are:

(i) To present the status of Domestic Revenues;

(ii) To report on performance of Grants and Loans from Development

Partners; and


(iii) To present the details of Expenditures of Government in the Third

Quarter of the Financial Year.

1.3 Methodology

The review and assessment of Receipts and Expenditures for the Second

Quarter of the Financial Year was done in January 2016. The work involved

analysis of data from the Reserve Bank of Malawi, Spending Agencies, and

consultations with various Stakeholders.

1.4 Layout of the Report

The First Chapter introduces the report, its objectives and methodology in

assessing performance. The Second and Third Chapters discuss the performance

of Revenues and Grants, respectively. The Fourth Chapter focuses on the

discussion of Expenditures, while Chapter Five concludes the report.


2 Performance of Domestic Revenues

2.1 Introduction

In the 2015/16 Financial Year, Government projected to collect total Domestic

Revenues to the tune of K666.3 billion, of which, K592.4 billion were projected

to be Tax Revenues and K73.9 billion Non-Tax Revenues (NTRs). In the Third

Quarter of the Financial Year, total net Domestic Revenues were projected to

amount to K164.6 billion of which, K145.3 billion was expected to be Tax

Revenues while Non-Tax Revenues were projected at K19.3 billion. This

Chapter seeks to assess the performance of Government in Revenue collection

during the Third Quarter of the Financial Year by comparing the Revenue

Outturn for the quarter against the set targets; and discussing some of the

underlying factors that explain the variances.

2.2 Overall Performance in Revenue Collection

Figure 2.1 below compares the outturn in Domestic Revenues in the Third

Quarter of the Financial Year against their corresponding targets. As indicated

overall, Domestic Revenues underperformed by K12.0 billion as compared to

its target. Total Domestic Revenues collected amounted to K152.6 billion

against a target of K164.6 billion. This translates to undercollection of 7.3

percent.


Figure 2.1 Total Domestic Revenues Performance

2.3 Tax Revenue Performance

Table 2.1 below compares the Tax Revenue Outturn for the Third Quarter of the

Financial Year against the projections. As the table illustrates, overall Tax

Revenues underperformed by K6.8 billion, as the outturn of K138.5 billion

against a target of K145.3 billion was realised. The underperformance on the

Tax revenue is mainly on account of taxes on Income and Profits which

underperformed by K5.0 billion; taxes on Goods and Services which

underperformed by 2.7 billion; and taxes on international trade which

underperformed by K1.0 billion. Overall, domestic taxes missed the target by 9

percent. In general, the tax revenues underperoformed in the quarter under

review due the decline of economic activities arising from water and electricity

outages and also due to decline of importation of dutiable goods because

exchange rate volatiltity.


Table 2.1 Tax Revenue Performance

QIII Projection QIII Actual Variance

K' Million

Tax revenue (Net) 145,274.36 138,521.83 (6,752.53)

Income and profits 77,176.26 72,223.35 (4,952.91)

Individual 42,843.22 45,308.05 2,464.83

Corporate 23,019.73 15,344.45 (7,675.28)

Withholding 11,313.31 11,570.85 257.54

Goods and services 57,559.95 54,834.87 (2,725.08)

VAT 45,234.65 42,645.18 (2,589.46)

Excise Duties 12,325.30 12,189.69 (135.61)

International trade 13,724.09 12,724.25 (999.83)

Import duty 13,595.63 12,469.63 (1,126.00)

Prepayment 128.46 254.62 126.17

Other (3,185.93) (1,260.64) 1,925.29

Misc. duties 199.61 124.82 (74.79)

Tax refunds (4,049.45) (2,064.30) 1,985.15

Penalties 246.06 289.61 43.56

Dividend 415.80 386.57 (29.23)

Turn-over tax 2.05 2.66 0.60

2.4 Performance of Non – Tax Revenues (NTRs) in the Third Quarter

Table 2.2 below presents the outturn in NTRs in the Third Quarter of the

2015/16 Financial Year against their set targets. Actual NTRs amounted to

K14.1 billion compared to their target of K19.4 billion, thus an undercollection

of K5.3 billion. This unfavourable performance is mainly attributed to

underperformance on all categories of NTRs. Only the Road Tax and Rural

Electrification Levy overperformed by K0.4 billion and K0.7 billion

respectively. The general decline in economic activities as observed under the

tax revenues had also an impact in the performance of NTRs. Another reason

was that a dividend was expected from the Reserve Bank of Malawi but was

never realised in the quarter under review.


Table 2.2 Non – Tax Revenue Performance in theThird Quarter


K' Million

Non-Tax Revenue 19,358.87 14,066.67 (5,292.20)

Departmental receipts 3,650.00 3,232.89 (417.11)

Road Levy 4,906.29 4,772.40 (133.89)

Parastatal dividends 5,757.47 (5,757.47)

Rural electrification levy 4,009.11 4,681.04 671.93

Storage Levy 379.38 345.92 (33.46)

Road Tax 656.63 1,034.43 377.80

2.5 General Revenue Trend

This subsection looks at cumulative performance of revenues up to the end the

end of the Third Quarter to determine whether the overall target would be

achieved.

Figure 2.2 below gives a snapshot of revenue performance up to the end of the

Third Quarter:

Figure 2.2: Performance of Revenues


As it can be seen in Figure 2.2, the revenues started underperfoming in the

Second Quarter and worsened in the Third Quarter resulting in the a cumulative

underperformance of K15.6 billion in the past nine months.

2.6 Conclusion

In aggregate terms, revenue collection in the Third Quarter of the financial year

was below the set targets. Ministries and Departments should continue

prioritising activities that generate revenues. All revenue monitoring agents are

also expected to enhance their operations to boost revenue collection.


3

Performance of Grants

3.1 Introduction

In the 2015/16 Financial Year, the projected resource inflows from Grants

amount to K97.1 billion, of which, K6.9 billion would be realized from Program

Grants, K37.2 billion from Dedicated Grants and K52.9 billion from Project

Grants.

In the Third Quarter of the 2015/16 Financial Year, Government expected to

receive K67.2 billion in form of Grants. Out of this amount, K27.1 billion is

expected to be Dedicated Grants and K40.1 billion would come from Project

Grants. This Chapter examines the performance of these Grants in the period

under review.

3.2 Grants Performance in Quarter

Table 3.1 presents the performance of Grants in the Third Quarter of the

financial year. As indicated, overall, Grants underperformed by K38.4 billion.

In particular, Dedicated and Project Grants underperformed by K7.4 billion and

K31.1 billion respectively. Overall, disbursements under Grants were K28.7

billion against a target of K67.2 billion representing an underperformance of

57.2 percent. All Grants underperformed except grants towards National Aids

Commission (NAC) where disbursements were K5.3 billion against a target of

K0.1 billion.


Table 3.1 Performance of Grants in the Third Quarter


K’ Million

Grants 67,176.17 28,726.85 (38,449.32)

Dedicated grants 27,119.62 19,748.55 (7,371.07)

Food security 6,655.30 7,715.00 1,059.70

EU/Norway/World Bank Recovery 6,300.00 0 (6,300.00)

PWP-World Bank Recovery-MASAF 6,300.00 0 (6,300.00)

Maize seed/fertiliser subsidy 355.30 7,715.00 7,359.70

Multi donor trust fund 355.30 7,715.00 7,359.70

Agric. SWAP 12,961.78 6,691.13 (6,270.65)

FICA 355.82 0 (355.82)

Norway 2,263.01 0 (2,263.01)

EU 9,873.45 5,691.32 (4,182.13)

Ireland 469.50 0 (469.50)

ASWAP Pool 0 999.81 999.81

NAC inflows 121.00 5,337.12 5,216.12

PFEM RP Pool 4,097.96 5.30 (4,092.66)

DFID 1,125.67 0 (1,125.67)

Ireland 151.90 0 (151.90)

EU 2,458.31 0 (2,458.31)

NORWAY 362.08 0 (362.08)

AfDB DISCRETE 1,000.00 0 (1,000.00)

World Bank Recovery Resources 9,403.16 0 (9,403.16)

Rehab of Edu, Health and Water Infras 2,600.00 0 (2,600.00)

SGR 0.25 0 (0.25)

PWP-World Bank Recovery-MASAF 6,119.33 0 (6,119.33)

Road Maintenance 409.58 0 (409.58)

Reconstruction for PIU and DODMA 274.00 0 (274.00)

Project grants 40,056.55 8,978.30 (31,078.25)

3.3 Conclusion

As indicated above, overall, disbursement of donor resources under Grants

category underperformed in the Third Quarter of the financial year in almost

categories. There is need to engage the development partners to honour their

commitments.


4

Expenditure Performance

4.1 Introduction

This chapter highlights the performance of expenditures in the Third Quarter of

the 2015/16 Financial Year and explains the factors underlying the observed

expenditure trends.

In the 2015/16 Financial Year, Government is expected to spend K930 billion

including net lending. Of this sum, K705.9 billion is projected for Recurrent

Expenditures and K224.1 billion for Development Budget Expenditures. In the

quarter under review, total expenditure including net lending and direct

payments was projected at K297.2 billion, broken down as K184.7 billion

recurrent expenditure and K112.4 billion development budget Expenditure with

a net lending of K0.2 billion.

For the quarter under review, out of the projected recurrent expenditure, wages

and salaries were projected at K53.6 billion; Interest Payments at K28.2 billion;

while other purchases of goods and services; and subsidies and transfers were

projected at K37.2 billion and K65.6 billion, respectively. On the other hand,

expenditures on Development Projects budget were projected at K112.4 billion,

broken down as K4.9 billion for domestically financed projects and K107.4

billion for foreign financed projects.


4.2 Performance of Overall Expenditures

The Outturn for the Third Quarter of the financial year indicates that total

expenditure was K250.3 billion including net lending, broken down as K217.9

billion as Recurrent Expenditures and K32.4 billion as development budget

expenditures. Figure 4.1 below illustrates the projected expenditures against the

outturn.

Figure 4.1 Total Government Expenditure in the Third Quarter of the 2015/16 FY

As can be shown in Figure 4.1 above, total expenditures in the quarter were K72

billion below the projected amount of K310.2 billion. This reflects an

underexpenditure of 19.3 percent.


4.2.1 Performance of Recurrent Budget

In general, Government projected to use K184.7 billion to run its daily business

during the quarter under review. The outturn shows that expenditures were

above the target by K34.9 billion as shown in Table 4.1 below. Payments

towards interest on loans explain much of the overexpenditure.

Table 4.1 Recurrent Expenditure Breakdown


K' Million

Recurrent expenditure 184,651.04 219,542.38 (34,891.34)

Wages and salaries 53,617.00 57,743.53 (4,126.53)

Interest on debt 28,246.70 53,737.52 (25,490.82)

Foreign 2,994.70 3,331.43 (336.73)

Domestic 25,252.00 50,406.09 (25,154.09)

Purchases of goods and services 37,221.84 47,047.37 (9,825.54)

Subsidies and transfers 65,565.50 61,013.96 4,551.54

4.2.1.1 Expenditures under Personal Emoluments (PE)

In 2015/16 Financial Year, Government is expected to spend K131.1 billion on

PE. In the period under review and as indicated in Table 4.1 above, wages and

salaries were projected at K53.6 billion. The expenditure was K57.7

billion,which exceeded the target by K4.1 billion. This overexpenditure was

due to the salary adjustment effected in December 2015.

4.2.1.2 Other Recurrent Transactions (ORT)

ORT expenditure for the Third Quarter of the financial year was projected to

amount to K131.0 billion (which is total recurrent expenditure less wages and

salaries). Actual expenditures as at the end of the quarter were K161.8 billion,


which was above the target by K30.8 billion and represents an overexpenditure

of 23.5 percent. The overexpenditure is attributed to more than anticipated

payments towards interest on domestic debt and specifically interest on zero-

coupon bonds.

4.2.1.3 Social Spending

This section analyses the performance in terms of social spending, which is a

cushion against economic adversities, especially on the poor, following the

current economic status. The areas isolated as social spending are tabulated in

Table 4.2 below.

In the quarter under review, social spending was planned at K64.6 billion, but

the outturn of K91.0 billion was above the target by about 41percent. The

overexpenditure is mainly attributed to expenditures under the Farm Input

Programme (FISP) since most of the payments were made in the period under

review compared to the preceding quarters. This is because the invoices which

were expected in the preceeding quarters were claimed in the Third Quarter.

Expenditures on FISP alone were above the target by K22.2 billion.


Table 4.2 Social Spending

Millions of Kwacka

Q3 Q3 Variance

Projection Actual (Q3 Actual - Q3

Proj)

Category

Health Expenditure 17,781.51 18,973.82 1,192.31

Wages 7,259.41 12,880.75 5,621.34

Other Recurrent 8,497.10 5,503.07 (2,994.03)

Ministry of Health ORT 3,791.33 4,147.88 356.56

Local Assemblies ORT 4,555.50 1,291.15 (3,264.35)

Subvented Organisations 150.28 64.04 (86.24)

Development expenditure 2,025.00 590.00 (1,435.00)

Education Expenditure 30,929.00 34,588.36 3,659.36

Wages 14,469.84 22,545.01 8,075.17

Other Recurrent 13,973.55 11,621.93 (2,351.62)

Ministry of Education ORT 3,696.00 2,024.12 (1,671.88)

Local Assemblies ORT 2,058.55 1,378.81 (679.74)

Subvented Organisations 8,219.00 8,219.00 -

Development expenditure 2,485.61 421.42 (2,064.19)

Agriculture Expenditure 13,221.61 35,407.27 22,185.66

Farm Input Subsidy Program 13,221.61 35,407.27 22,185.66

Lands and housing Exoenditures 1,000.00 1,300.00 300.00

Cement and Iron Sheets Subsidy 1,000.00 1,300.00 300.00

Gender, Children, Disability and Social

Welfare 516.15 639.07 122.92

Wages 230.56 312.63 82.07

Other Recurrent 203.46 267.04 63.59

Development expenditure 82.13 59.40 (22.73)

Local Development Fund 1,125.00 100.00 (1,025.00)

Poverty and Disaster Management 23.00 40.95 17.95

Wages 23.00 40.95 17.95

Other Recurrent - - -

Total Social Expenditure 64,596.27 91,049.47 26,453.20


4.2.2 Performance of Development Budget

On Development Budget, Government planned to spend K112.4 billion in the

Third Quarter, of which, K4.9 billion was to be financed using domestic

resources (Part II) and K107.4 billion was for Foreign Financed Projects (Part

I). Figure 4.2 below depicts the outturn on Development Budget of K23.9

billion, implying an underexpenditure of K88.5 billion. The underexpenditure

was on account of lower than anticipated inflows under both dedicated and

project grants for the Part 1.

Figure 4.2 Performance of the Development Budget

The underexpenditure on the development budget has serious ramifications on

contractual obligations, especially under the infrastructure development

projects. Consquently, this would result in cost escalation for the projects due to

claims on idle time, and some projects will not be completed on time.


4.3 Conclusion

This Chapter focused on the performance of expenditures of Government in the

Third Quarter of the 2015/16 Financial Year. The expenditures were broken

down into various categories, and the analysis was based on the deviations

between the target and the actual expenditure. Generally, the outturn showed

that expenditure was contained within the targets, but development expenditures

were significantly lower than planned. If the status quo is maintained, projects

will not be completed in time and this may lead to escalation of costs and

possible penalties charges.


5

Conclusion and Recommendations

The report has shown that revenue collection in the Third Quarter of the

2015/16 Financial Year was below the target in all categories. It is therefore

recommended that revenue collecting institutions, especially those collecting

non-tax revenues, should continue to give priority to revenue enhancing

activities in the remaining quarters to compensate for the underperformance in

the previous quarters. Similary, MRA should also intensify its tax revenue

collection efforts.

Disbursement of resources under Grants underperformed during the quarter

under review. This was mainly on account of low inflows under the dedicated

and project grants. It is recommended that Government should continue

engaging the development partners for a turn-around of the status quo.

On the expenditure side, Government expenditure was below the target for the

quarter. The departure from the target is significant and this may translate to

low levels of services provided in terms of both quality and quantity. If the

status quo is not reversed, the various output targets may not be achieved in this

financial year.

The development budget underspent and physical progress is minimal in most

of the projects. This is mainy due to low funding on both Part I and Part II

projects. It is therefore recommended that Government should continue


engaging the development partners to improve on disbursements towards Part I

projects and improve on its local resource mobilisation efforts.

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