Finance Minister Sosten Gwengwe must have one of the toughest jobs when revisiting the 2023-24 national budget, as almost all parameters have gone rouge, as there are glaring mismatches between assumptions anchoring the financial plan and reality on ground. Justin Mkweu writes.
In the 2023-24 national budget, the third under the Tonse Alliance administration, the Treasury assumed that the local economy would swell by 2.7 percent this year.
But due to subdued activity and effects of Cyclone Freddy, fresh estimates point to a 1.9 percent real Gross Domestic Product growth.
Already, most macroeconomic fundamentals are in red.
Headline inflation— the rate at which commodity prices change at a given period in an economy—maintained an upward spiral for a greater part of the year, albeit easing marginally to 27.3 percent in June.
Initially, the Treasury projected inflation to average 17.9 percent in 2023, but the Monetary Policy Committee (MPC) of the Reserve Bank of Malawi sees it at 29.5 percent.
Last week, the MPC also adjusted upwards the policy rate by two percentage points to 24 percent, which is 600 basis points above the 18 percent projection by end of the year made by the Treasury.
In an interview, Gwengwe attributed the situation to volatility of the economy largely due to effects of Cyclone Freddy and exogenous shocks.
He said the Treasury would review the assumption in the mi d-year budget.
“Freddy wiped out things at a time when the budget was already laid. Therefore the only chance we have to correct the assumptions is during the mid-year budget review because nobody would have known the devastation that the cyclone would have caused,” Gwengwe said.
He said already, the government is using a quarterly allotment system of funding for periodic tracking of revenue and expenditure trends.
He said using the system, the government adjusts and collects according to fundamentals appearing on the ground.
“Our budgeting is not the traditional budget which people know because we give funding on a quarterly basis. We do not want to have a budget which has been overrun while we are unaware,” Gwengwe added.
Economist Betchani Tchereni said the missing targets have a grave impact on the economy and entails exerted pressure.
He, however, said a mid-year budget review will give the government a chance to take some serious measures to resuscitate the economy.
“Apart from the realignments, we are expecting stringent policy measures from the minister [of finance] which will have more control in terms of expenditure, import substitution and adjust some figures,” Tchereni said.
Another economist Edward Chilima said the assumptions were over-ambitious.
“Future budgets have to avoid the temptation of a budget building on most optimistic assumptions because the economy is currently volatile,” Chilima said.
At K3.87 trillion, or 25.5 percent of gross domestic product, the 2023-24 budget is almost K1 trillion higher than the K2.85 2022-23 financial plan.
