By Kingsley Jassi:
Finance Minister Simplex Chithyolo is expected to face Parliament, again, next week Friday to present the 2025-26 National Budget. It comes on the heels of a volatile economy characterised by soaring commodity prices. Also, the current budget is not devoid of challenges as Kingsley Jassi writes.
As Finance Minister, Simplex Chithyola Banda, finalises the 2025-26 National Budget to be presented to Parliament on February 28, there is high anticipation on what is in store for an economic turnaround.
Commodity prices continue to rise, with the cost of basic needs getting beyond low income earners’ reach as more people fall into the abyss of poverty, according to several recent research studies.
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Economic imbalance appears to be worsening as all indicators show red signs and according to economic expert, Lesley Mkandawire, any efforts being employed appear to have failed.
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“The economy is doing badly. Prices of goods are rising rapidly and it is everyone’s expectation that the next budget should bring recovery,” Mkandawire said.
However, several experts see a very difficult year as the treasury has to balance between cutting costs to reduce budget deficit and handling the spending appetite that normally rages in an elections year.
The Unites States government’s aid policy shift to cut support also presents a new wave of external pressure that might bring additional spending obligations to cover the gaps.
The outturn for the current budget appears to point to missed targets and fiscal discipline concerns as development expenditure suffered cuts while recurrent expenditure had some slippages in the budget lines.
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The recent Malawi Economic Monitor (MEM) observes underperformance in revenue that affected overall implementation of the budge at half year mark.
“At K2.677 trillion, overall spending was 14.2 percent below the midyear target of K3.2 billion due, in part, to the back loading of expenditures. For example, fertiliser payments were shifted from the first half to the second half of the fiscal year,” the bank observes.
However, recurrent expenditures, in particular spending on wages and salaries, surpassed the midyear target by 26.1 percent and a further increase in public sector wages was announced in the midyear budget.
“To accommodate the surge in the wage bill, the government reduced expenditures on domestically financed projects and social grants, as liquidity constraints in the domestic securities market hindered efforts to bridge the revenue shortfall through domestic borrowing,” the bank noted.
There have also been concerns on budget framework, with most of the assumptions turning out to be wrong, making possibilities of budget implementation off track high.
The current budget, for example, was premised on the 2024 growth rate at 3.2 percent but it turned out to have slowed down to 1.8 percent, a scenario that have effects on revenue collection.
Another key assumption that went off the fiscal target is inflation, closing the year 2024 at 32.2 percent from the budgeted 28.9 percent, a development that affects the actual cost of expenditure.
To fix the economy, Economics Association of Malawi President, Bertha Bangala Chikadza, urges the fiscal authority to consider a budget that channels resources towards production.
“The budget should be in line with MIP1. We need production, so productive sectors need serious investments,” Chikadza said.
National Planning Commission Director General Thomas Munthali echoes the sentiments when he reacted to the State of the Nation Address saying beyond the mentioned development projects, there is need to create a sustainable base for revenue collection to sustain the development.
“If we are relying on borrowing and resources from external partners it is not going to work. It’s high time we developed internal capacity for revenue generation and mobilization for sustainable development” Munthali said.
Although the State of the Nation Address fell short of tipping on the economic policy moving forward, Finance Minister Simplex Chithyola Banda hints on efforts to cut deficit and Finance production more.
