2023-24 Budget statement snippets

A bird’s view of the Budget Policy Statement delivered in the National Assembly of the Republic of Malawi by Minister of Finance and Economic Affairs Sosten Gwengwe on March 2, 2023.

Malawi’s Macroeconomic Developments: GDP Growth

Malawi’s economy slowed in 2022 as it registered real GDP [gross domestic product] growth of 1.2 percent down from a growth of 4.6 percent in 2021. Growth in 2022 was challenged by intermittent energy supply and weather-related shocks which reduced agricultural output.

Moreover, growth in 2022 was affected by supply chain disruptions emanating from the ongoing conflict in Ukraine. Going forward, the economy is estimated to grow by 2.7 percent in 2023 due to expected high yield in agriculture, stabilisation of energy supply and increased 6 output in other economic sectors like mining and construction.

In 2024, the economy is projected to grow between 3 and 4 percent.

Inflation

The growth developments were also affected by price movements. Consumer prices continued to rise in 2022 due to pressure in food and non-food prices. Annual average inflation in 2021 was in single digits at 9.3 percent but substantially increased to 20.9 percent in 2022. Notably, food inflation rose to 31.3 percent in December 2022 from 14.2 percent in January 2022 while non-food inflation rose to 18.6 percent in December 2022 from 9.6 percent in January 2022.

The annual average inflation for 2023 is expected to slightly decrease to 18.2 percent due to the expected increase in agricultural output and economic recovery from recent economic shocks. The increase in inflation is also emanating from the devaluation of the Malawi Kwacha in May 2022.

Monetary Policy

To contain inflationary pressures, the Reserve Bank of Malawi (RBM) adjusted its Policy rate from 12.0 percent to 14.0 percent in April 2022 and to 18.0 percent in October 2022. In response, the average lending rate moved in sync with the Policy rate adjustment, rising from 18.0 percent to 19.3 percent in May 2022 and to 22.6 percent in November 2022. In February 2023, in anticipation of a more favorable outlook for inflation, the RBM held its policy rate at 18 percent.

Foreign Exchange Reserves

Foreign exchange reserves remain remarkably low as need for imports far out paces the exports. To boost the foreign exchange reserves, the RBM implemented a surrender requirement of 30 percent of exports and, in May 2022, devalued the Malawi Kwacha. Let me assure the House that Gross official reserves are expected to recover to above 3 months of import over the medium term.

Total Public Debt Stock and Management

As at end- December 2022, total public debt reached K7.90 trillion or 69.93 percent of GDP. Out of this stock, K4.43 trillion is domestic debt while K3.47 trillion is external debt. Compared to end- March 2022, total Public Debt Stock amounted to K6.38 trillion, representing an increase of 23.8 percent; mostly out of issuance of treasury securities to finance budget deficits and refinancing of old maturing debts.

The pace of borrowing that I have just cited is unsustainable and needs to be curtailed. That can only be done by ensuring that most of our expenditures are met from our domestic resources and we thus need to boost our domestic revenue capacity. Our utility parastatals need to improve on efficiency and most importantly be able to have a pricing mechanism that recovers cost at the minimum. Government will re-double its fight against corruption, fraud, abuse and pilferage of public resources.

Government will also continue its debt restructuring strategy which, through a combination of fiscal consolidation and debt treatment, is expected to bring public debt levels to moderate risk in the medium term.

On debt restructuring, the Government already engaged its external commercial creditors and is now engaging its bilateral creditors notably China and India for a possible debt treatment. So far, the response has been positive. Government is also exploring debt swap arrangements to supplement restructuring and discussions are at an advanced stage.

In order to institutionalise debt management, I am pleased to inform the Honourable House that in-line with the PFM Act 2022, Cabinet approved a Medium-Term Debt Management Strategy for the period 2022-2026. The Strategy outlines the Government’s plan to achieve the optimal debt portfolio, grounded in a ranking of the cost and risk trade-offs of alternative debt management instruments.

Budget Performance

Let me now turn to the 2022/23 budget performance. The likely outturn for total expenditure for the 2022/2023 fiscal year is estimated at K3.04 trillion, representing 26.7 percent of Gross Domestic Product (GDP), comprising K2.35 trillion of recurrent expenditure and K688.45 billion development 10 expenditure. The estimated recurrent expenditure comprises the following major expenditure lines: i. Compensation of Employees at K771.16 billion; ii. Interest Payment at K645.20 billion; iii. Generic Goods and Services at K254.95 billion; iv. Grants to Other General Government Units at K245.74 billion; v. Affordable Input Programme at K140.27 billion; and vi. Pensions and Gratuities at K115.75 billion.

Overall balance

Based on the likely outturn of revenues and expenditure for 2022-23 fiscal year, the overall budget deficit is projected at K1.01 trillion, representing 8.8 percent of the country’s GDP. The estimated likely outturn is higher than the approved deficit of K884.04 billion. The increase in deficit was mainly on account of higher than planned salary adjustment, Public Debt Interest, Pensions and Gratuities, and other critical expenditure needs.

The deficit is being financed through domestic and foreign borrowing at K745.79 billion and K261.11 billion, respectively. 11 Progress on Selected Projects in the 2022/2023 Fiscal Year 19. Madam Speaker, I am delighted to report that the Government has made substantial progress in some of the projects that were budgeted for in the 2022-23 financial year.

As you are aware, our development projects are financed by loans and grants from foreign sources as well as direct financing from our domestic resources. To meet the growing demand on infrastructure, we have also been raising finances from the domestic market through local currency bonds.

What has the 2022-3 budget achieved?

Government realises that modern infrastructure and equipment are important building blocks to the delivery of quality health services. It is with great pleasure that I stand before you to report on the progress of the health sector.

His Excellency the State President, Dr. Lazarus McCarthy Chakwera officially opened the 250-bed capacity Phalombe District Hospital in October 2022. I further wish to report that Government completed and handed over Nsanje, Chitipa, 12 Salima, Nkhotakota Emergency Treatment Units and expanded the Queen Elizabeth Central Hospital Intensive Care Unit.

In addition, an oxygen gas plant house has been constructed at Mzuzu Central Hospital and the gas plant installation is underway and expected to be completed by end March 2023. Government also completed rehabilitation of area 23, Chilanga, Namcholi health centers and Umoyo Houses in Thyolo and Chikwawa.

The construction of the bunkers for the Cancer Center is in progress and construction of superstructures at Mponela Community Hospital is at an overall progress of 40 percent. 21. Madam Speaker, the construction of state-of-the-art Lilongwe Institute Orthopedic and Neurosurgery at Kamuzu Central Hospital is near completion. The facility will provide neurosurgical, orthopedic services, laboratory, CT scan, operating theaters and MRI scan. To better address road traffic accidents, Government completed construction of trauma centers at Dedza, Ntcheu, and Balaka District Hospitals along the M1 road and also at Lusungwi Health Center and Queen Elizabeth Central Hospital. The Capital hill clinic has been completed and the allocation in the 2023/24 budget is now for furnishing and medical equipment. This Madam Speaker is a 13 clear testimony of a government committed to improving both access and quality of health care services for all Malawians. 22. Madam Speaker, In the Education Sector, three Teachers Training Colleges in Mchinji, Chikhwawa and Rumphi, have been successfully constructed and will open next month, April 2023. 1800 students have been selected, names to be released soon.

The allocation in the 2023- 24 budget will only be for landscaping and ancillary works. 23. In the primary education, Madam Speaker, in order to increase the number of primary school teachers, in 2022-23 FY the Ministry recruited 4,125 primary school Auxiliary Teachers under the Malawi Education Reform Programme. It also completed expansion of 14 urban primary schools and provided the necessary equipment to those schools.

The ministry also recruited and deployed 2,644 secondary school teachers. 24. Madam Speaker, Government through the Secondary Expansion for Development Project is constructing 250 Secondary Schools across the country. Phase 1 of the project involved the expansion of 30 Urban Community Day Secondary Schools which were dully completed.

Fifty-one more are 14 expected to be constructed and completed in the 2023/24 fiscal year. The Government also plans to construct 34 Secondary Schools of Excellence and currently, sites have been identified in the six pilot education districts. The 2023/2024 budget has allocated resources for the construction of initial 6 schools of Excellency in the six education districts as follows: One in Chikwawa, then Phalombe, Mangochi, Lilongwe, Nkhotakota and one in Rumphi. 25. In the higher education, Madam Speaker, Government is committed to provide the necessary infrastructure for the new delinked Public Universities, as such, construction of various structures is underway. In addition, with support from Japanese Government, our Government has completed the expansion and upgrading of Domasi College of Education in Zomba. Furthermore, Government has partnered with the private sector to construct hostels in all Public Universities through Public Private Partnership Commission.

In this regard, Old Mutual Group has constructed and handed over a 154-bed space hostel to Kamuzu University of Health Sciences. 26. Madam Speaker, in a quest to provide our men and women in uniform decent accommodation, the Government has so far 15 completed and handed over 35 houses to beneficiary institutions and it is envisaged that a total of 300 houses will be completed by next month.