Finance, Economic Planning and Development Minister Joseph Mwanamvekha yesterday presented the Mid- Year Budget Review Statement which has seen the 2019/2020 financial plan swelling by K100 billion from K1.74 trillion to K1.84 trillion.
The ballooning of the budget comes despite a weak performance in revenue streams in the first half of the fiscal year which saw tax, non-tax and grants underperforming.
Mwanamvekha said the increase in expenditure has been necessitated by a jump in wages and salaries, security-related expenditures, court case expenditures and probable fresh presidential elections.
“I also wish to invite the Honourable Members to note that it will be very difficult to finance the proposed fresh presidential elections as the budget is under extreme pressure, especially from mandatory expenditures which constitute about 60.0 percent of total expenditure. These cannot be deducted or deferred to accommodate the elections budget.
“It, therefore, remains for government to either increase borrowing or cut the budget significantly, which can cripple government operations and service delivery, including spending in the social sectors such as health and education. In this regard, government has engaged donors for financial support towards these elections. Though the response is favourable, it will require time to get tangible commitments,” Mwanamvekha said.
The local Chancellor of the Exchequer said the Malawi Electoral Commission has submitted a provisional budget of K32.8 billion for the fresh presidential elections, adding that the revised budget has provided K29.1 billion for that purpose.
Mwanamvekha said government is still discussing with development partners for financing of the difference and possible run-off elections.
“The Honourable House may wish to know that it will be extremely difficult for government to finance this election due to the fiscal pressures that have been highlighted above. Should we not get positive response from the donors, government will have no option but to either increase borrowing or drastically cut expenditure which will likely affect service delivery in all sectors,” he said.
But Budget and Finance Committee of Parliament Chairperson Sosten Gwengwe said there is a lot of idle money in the budget which should be used to finance the elections.
Gwengwe cited an example of K7 billion which Mwanamvekha said remains unused from a maize purchase budget.
“This is just an example. If you look at the development budget, you will see that there are many projects that have not yet started. Let us use that money for the elections,” Gwengwe said.
But Economics Association of Malawi Executive Director Kettie Nyasulu said borrowing could be a better solution to the deficit rather than cutting some crucial budget lines “It is a difficult situation that Malawi finds itself in. But I think borrowing would be a better option to finance the gap,” Nyasulu said.
According to Mwanamvekha, the revised budget is expected to see the fiscal deficit rising from 1.9 percent to 3.7 percent of GDP which, he said, is lower than what was recorded in 2018/2019 at 5.1 percent.
He said the deficit will be financed by domestic borrowing of K203.3 billion, representing 2.4 percent of GDP and the balance will be financed by foreign borrowing.
Mwanamvekha added that the exercise of rebasing the country’s GDP conducted by the National Statistics Office in 2017 has resulted in the GDP figure jumping up by 37 percent.
Previously, Malawi’s GDP was pegged at $7 billion.
A 37 percent growth in GDP means that Malawi’s GDP is now valued at around $9.59 billion.
Mwanamvekha admitted that revenue mobilisation faced some challenges in the first half of the year.
In the budget, government had projected that, by the end of the first half of the current fiscal year, K729.5 billion would be realised, of which total domestic revenue would be K655.2 billion while grants would be K74.3 billion.
However, as at December 2019, K548.6 billion was collected in domestic revenue, representing a performance of 83.7 percent.
Grants, on the other hand, registered lower than budgeted disbursements by about 31.6 percent as of the total projected grants at K74.3 billion, only K50.9 billion was received by end December 2019.
Mwanamvekha said some of the challenges that faced domestic resource mobilisation include the post-election demonstrations which disrupted business both in the public and private sector, resulting in subdued economic growth.
“This coupled with delayed implementation of some tax policy measures and other tax administration reforms led to low tax revenue collection,” Mwanamvekha said.
The situation, however, profited from subdued expenditures which were recorded at K780 billion from the planned expenditure of K842.8 billion.
“This was achieved as Treasury followed the principle of spending within budgeted resources. Further fiscal pressures emanated from security institutions and the road sector,” Mwanamvekha said.
Parliament shifted from February 14 to yesterday presentation of the Mid-Year Budget Review Statement supposedly to accommodate the Constitutional Court ruling that nullified May 21 2019 presidential election and ordered fresh poll within 150 days from the day of the verdict.