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Government blames deficits for high public debts

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Sosten Gwengwe

With Malawi’s finance scenario akin to a person who ‘wants to live lavish while on a shoe string budget’ critics believe it is time Capital Hill watched its spending appetite

By Serah Chilora & Justin Mkweu

Minister of Finance Sosten Gwengwe has attributed Malawi’s heavy debt levels, in part, to budget deficits that have been a trend over the past 30 years.

Gwengwe said this in an interview with Malawi News Friday, amid concerns over the country’s galloping public debts.

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In December 2020, Malawi’s public debts stood at K4.75 trillion, according to the 2020-21 Mid-Year Public Debt report by the Ministry of Finance.

In just under two years, the debt stock has shot to K6.38 trillion by March 2022, with K730 billion of that amount accumulated in 9 months between June 2021 and March 2022.

Gwengwe said while the general public is of the view that government borrows for luxury, the fact of the matter is it borrows for the financing of the budget because the country has been running on deficit budget for many years now.

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“It is only during Kamuzu’s era that we used to have surplus budgets but since multiparty era, we have been having deficit budgets and they have been increasing year by year until now as we are talking the amount got to K800 billion or thereabout [in deficit].

For instance, the 2022- 23 overall fiscal balance was estimated at a deficit of K884.0 billion which is a 7.7 percent of GDP.

In the 2021- 2022 fiscal year, the budget deficit stood at K811.7 billion, representing 8.8 percent of GDP.

In the 2020 -2021 fiscal year, the overall deficit was estimated at K651.5 billion, which was 9.1 percent of the GDP.

To plug these budget holes, government has been resorting to both foreign and domestic borrowing.

“So, the key thing is not so much about government borrowing.

The issue right now is that as Malawians, how do we deal with these issues? Because at the rate we are going we will get to a point where we will have to borrow to pay salaries and it is never good for a country.

“The key thing is it is time we start living within our means because we can optimise the budget but the backlash is huge. If we, as a country, were united then we would live within our means.

“As a nation, we need to be able to live within our means. That is the solution to all this so, as a nation, we should do some soul searching to see if we are able to finance our own living,” he said.

Gwengwe further said government plans to reduce the deficit by 1 percent each financial year.

“Our plan is to reduce the deficit by 1 percentage GDP every financial year. We were at 8 percent; this time we are at 7 percent so we hope we can hold the 7 percent by next year.

“We are mindful that there are pressures because of the situation we are currently in. If we are disciplined enough to continue on that trajectory, we can be having a sustainable way out of the accumulated deficit by maintaining that policy of 1 percent drop every financial year as we did this March,” he said.

Spokesperson on finance matters for the main opposition Democratic Progressive Party (DPP) Ralph Jooma said government has to watch against unnecessary expenditure.

“There were austerity measures that were apparently laid out to help save resources but what is seen on the ground is totally different. It is high time those in authority walked the talk and not just wish for a turnaround of things,” he said.

Economists Betchani Tcheleni from the Malawi University of Business and Applied Sciences (Mubas) and Milwad Tobias said government must deal away with unnecessary spending and go back to the drawing board to revise what is needed to resuscitate the economy.

Tcheleni said government has to ensure that it creates a good environment for the private sector.

“If we are going to continue spending on consumption, it means we can borrow but we are not going to have a plan to pay back that money. But when we borrow to invest it means that money can be paid back in the sense that what we you are investing in is going to be giving you some dividends at the end of the day. So that is a plus actually.

“The other thing is that while living within our means is possible but what we also need is to create a good environment for the private sector to thrive because we need to have taxes so if the private sector is too thin it means that taxes will be thin,” Tcheleni said.

On his part, Tobias attributed the dwindling of the economy to corruption, which he said is rampant in the country.

“We are running a deficit budget because we are funding corruption and unnecessary expenditure. We have the issue of foreign missions I tell you this is very unnecessary. It was also reported that we have more than needed principal secretary’s in government. We need to satinise the system you will find that the factors that drive you to need more resources that you can collect begin to go down and the need to borrow goes down then the you reduce the borrowing the get the economy on track,” he said.

Tobias said it not a secret that Malawi runs a deficit budget but what should be of concern now is how the deficit budget will be dealt away with.

“The issue is what are we doing about the deficit budget, what it means is that you want to spend more than what you have. We have to look at what we are getting now he himself [Gwengwe] in his 2022 budget statement proposed reforms signalling the fact that government is aware that the situation needs treatment. Reviewing senior public officer’s benefits. Dealing with fleet, direct procure fertiliser and other stuff that require other money. To my recollection until today we are now half way the budget period I have not heard of any progress of those reforms. We have to scrap off those unnecessary amounts that are not in line with our economy,” he said.

In his address to the United National General Assembly on Thursday, President Lazarus Chakwera pleaded with the world’s major lenders to write off debts for countries such as Malawi.

“Even loans that were given and received in good faith have become unsustainable in the recent and current climate of relentless and unforeseen external shocks,” he said.

He said that the resources freed from debt relief would be used prudently.

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