Government’s fiscal deficit is projected to worsen to 9.9 percent of Gross Domestic Product (GDP) in 2025 from 7.7 percent expected this year, latest World Bank projections show.
The projection is contained in its latest macro poverty outlook indicators for Malawi.
The figures indicate a deteriorating fiscal position despite government efforts to contain spending, though the deficit is expected to improve to 6.4 percent by 2026.
Meanwhile, revenue collections are forecast to reach 16.7 percent of GDP in 2025, marginally higher than the projected 16.6 percent in 2024 but still below the 16.8 percent recorded in 2023.
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The primary balance, which excludes interest payments, is expected to worsen to negative 5.7 percent of GDP in 2025 from negative 3.3 percent in 2024 before improving to negative 3.1 percent in 2026.
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This is coming at a time Minister of Finance Simplex Chithyola Banda is soliciting views from various stakeholders on what should be contained in the 2025/26 national budget.
During a one of such meetings in Lilongwe recently, Malawi Economic Justice Network (Mejn) Executive Director Bertha Phiri agreed that the fiscal pressure remains high.
According to Phiri, budget deficit is widening, foreign support (grants) is declining and debt levels are rising.
“Enhanced domestic resource mobilisation is the only means out towards easing the pressure, leading to macro-economic stability. Ease up on the fiscal pressure by countering tax avoidance and tax evasion. Tax is bemoaned to still be benefiting the rich much more than the poor to the extent that the gap between the rich and the poor is getting bigger,” Phiri said.
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In an interview, economist Marvin Banda said the outlook dampens the hope and optimism that the leadership is projecting, though not entirely counterfactual, it offers a modestly timid outlook because the expectation is that revenues may not underperform in a significant manner.
He said specifically grants from foreign governments, which were health and educational sector oriented, were projected at K36.346 million or 6.22 percent of K584.206 million of total grants yet only K4.289 million or 1.92 percent or actual receipts or 11.8 percent of what was envisaged in assistance from foreign governments.
“It comes as no surprise that there is an expectation that these receipts will pick up in 2025 for what reasons the administration deems appropriate. These revenues aided further by an increase in International Organisations which fared a bit better than those from the other grants category due to the increased heterogeneity of the sectors they are aimed to be involved offers hope.
“What remains baffling to the regular Malawians is that, these underperformances are occurring in the midst of the implementation of the IMF’s ECF program, which was touted as a game-changer in fostering relationships with foreign governments and organisations yet the evidence from the first 3/4 of the 24/25 paint a picture of stagnant or even dwindling confidence, which raises questions of the legitimacy of claims that revenues will increase,” Banda said.
He added: “If they are to increase, it would most likely be marginally nominal increases due to the quotient of taxes edged on by inflationary forces whereas the story would be different in real terms. Although the World Bank estimates that the tax to GDP ratio required for developing nations to provide goods and services is minimally 15 percent, United Nations estimates that developing countries need to raise at least 20 percent of their GDP through taxes to meet SDGs by 2030, which is also the aim of the nearly expired Domestic Revenue Mobilisation Strategy 2021-2026 that the MRA is currently enacting.”
