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Budget deficit widens in second quarter

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Sosten Gwengwe

Government budgetary operations resulted in a deficit of 2.4 percent of the country’s gross domestic product (GDP) between April and June 2022, figures in the second quarter Financial and Economic Review of the Reserve Bank of Malawi (RBM) show.

The report indicates that, during the period, total expenditures amounted to K658.9 billion against revenues of K387.4 billion.

The development translates in an increase of 0.5 percentage points in the deficit when compared with a deficit of 1.9 percent of GDP recorded in the first quarter and a 1.3 percentage points rise in the deficit when compared to the 1. 1 percent of GDP recorded in the second quarter of 2021.

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“The total revenue performance represents a 0.6 percent decrease from the K389.7 billion recorded at the end of the previous quarter and 2 percent increase from the corresponding quarter in 2021.

“The decline is primarily due to the absence of grants during the review quarter; otherwise, domestic revenue went up by 6.0 percent from K365.6 billion collected in the preceding quarter. The increase in domestic revenue mainly followed a 9.7 percent increase in tax revenues despite a 34.1 percent decline in non-tax revenues,” the report reads.

According to the report, total government expenditures decreased by 0.7 percent owing to a decline of 64.0 percent in development expenditure despite a 20.8 percent increase in recurrent expenditure during the review quarter.

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The major drivers of the increase were interest payments which went up by 94.6 percent to K154.0 billion, purchases of goods and services which went up by 97.7 percent to K95.6 billion, and wages and salaries at 8.4 percent K183.5 billion,” the report reads.

This means that the government continues to borrow heavily to finance its operations.

In an interview, University of Malawi-based economist Jacob Mazalale said the widening deficit will frustrate the country’s efforts to reduce debt, more so revenue mobilisation through the Malawi Revenue Authority (MRA) which has been beating targets.

“…we have borrowed for a long time. We borrow for consumption and we do not use the borrowed funds efficiently,” Mazalale said.

In a recent interview, Minister of Finance Sosten Gwengwe said the Treasury is implementing a strategy aimed at reducing national budget deficits.

“The aim is to reduce this financing gap by a percentage point every fiscal year until the gap closes in the medium term. Closing the gap requires two things; firstly is to try and live within our means. This means cuts, expenditure controls and efficiency in public service delivery.

“Second is to enhance revenue mobilisation. We intend to aggressively pursue the recently launched Domestic Revenue Mobilisation Strategy,” Gwengwe said.

In the 2022-23 National Budget, for instance, the overall fiscal balance is estimated at a deficit of about K884 billion, which is 7.7 percent of GDP.

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