Market Report Fortnight ending 27th November 2002 Report
23/02
The Extended Surtax Scheme
The Malawi Revenue Authority with effect from 1st November
2002 extended its surtax to wholesale and retail level.
This is one of the reforms Malawi is undertaking with
a view to contain persistent macroeconomic instability,
which has on several occasions frustrated efforts to
bring about sound economic growth.
The move by the MRA is timely and should be supported
by all the stakeholders. The broadening of the tax base
will in the long term enhance Malawi’s self-reliance
in its budgetary operations.
Of late, monthly fiscal budgetary operations have been
characterized by severe deficits, which have acted counter
to government policy of bringing about macroeconomic
stability. According to minutes of the Monetary Policy
Committee (MPC), government cash budget deficit during
September 2002 amounted to K2.0391 billion from yet
another deficit of K3.2997 billion in August.
This reflected high expenditures that could not match
with revenues. Government revenues totaled K3.6229 billion
while expenditures amounted to K5.662 billion.
Since the extended surtax has replaced the general
sales tax, which has in the past played a leading role
in tax revenues, care should be taken during its implementation
stage to avoid loss of revenue as a result of unscrupulous
traders. According to statistics from government, general
sales tax in year 2000 accounted for 38% of all tax
revenue.
This not withstanding, the consumption type of surtax
that has been implemented in Malawi hasdistributive
properties in that its burden falls more heavily on
some sections of society than others. This tax will
hurt poor people more than the rich in that the poor
consume a higher share of their current income than
their counterparts in the middle and upper income categories.
To remedy the situation, the government should stick
to its original plan of exempting from surtax, essential
things that make the bulk of the consumption basket
of the poor.
The Malawi Kwacha Exchange Rate
The performance of the kwacha during the fortnight
under review was influenced by the level of foreign
exchange the country has at the moment as it passes
through its lean period. Currently the kwacha has depreciated
to an equivalent of MWK81.2990 to the USD from MWK80.8686
barely a fortnight ago.
The excess demand for foreign exchange in an environment
of dwindling supply will inevitably see the kwacha gradually
depreciate further in the short and medium term.
Financial Markets and Interest Rates
The recent revision of the Liquidity Reserve Requirement
by the Reserve Bank of Malawi has seen a sudden surge
in the demand for treasury bills. During the auction
of 8th November 2002, the demand for the government
paper amounted to K930.7 million (cost value) while
during the auction of 15th November 2002, the figure
had increased to K1, 000.1 million (cost value) against
a required amount of K500 million.
This saw yield rates for the 91, 182 and 273 days bills
decline to 37.21%, 38.05% and 38.45% from respective
rates of 37.41%, 38.40% and 38.77%
According to RBM bills auction results for 12th November
2002, the yield rates maintained their downward trend
when the rates for the 63 days and 91 days bills declined
to 37.16% and 37.45% from 37.53% and 37.62% registered
on 5th November 2002.
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