Last Monday, the nation turned its attention to the economic pulse of the country as Minister of Finance Simplex Chithyola Banda presented to Parliament the 2023- 24 mid-year budget statement.
Against the backdrop of a rapidly changing global landscape and on-going local economic woes, the eagerly anticipated fiscal statement has become a crucial barometer for assessing the government’s financial strategies.
As citizens, businesses, and policymakers digest the details, The Times Business, took time to analyse the contents and review the underlying implications.
Firstly, in his introductory remarks, Chithyola- Banda highlights the recent devaluation of the Kwacha as a necessary evil.
- Advertisement -
He said the financial benefit from the misalignment accrued only to a few individuals at the expense of the majority of Malawians.
- Advertisement -
However, the Taylor Rule of Reserve Banking necessitates that policy should be communicated beforehand to the populace in order to reduce effects of shock as the people are allowed leeway to make consumption adjustments.
In his report, the finance minister said global developments, coupled with the kwacha devaluation, will exacerbate the upward trajectory in inflation.
He said average inflation for 2022 was 20.9 percent and is projected to rise to 29 percent in 2023 before it stabilises and starts to decline in 2024 with an average projection of 27.1 percent.
However, his stance does not take into account the seasonal fluctuations experienced due to seasonal farming.
- Advertisement -
Availability of commodities the devaluation promises does not translate to effective demand as purchasing power has substantially dwindled. A quick example is the prevailing market price of fertiliser.
The sticky nature of such commodities tells that the trend is upward, in terms of price. This also reflects on the price of maize.
Chithyola Banda then told Parliament that at mid-year total revenue and grants amounted to K1.45 trillion against a midyear projection of K1.25 trillion.
The mid-year outturn for domestic revenues is estimated at K1.18 trillion against a projection of K1.09 trillion.
Of the domestic revenue, tax revenue is estimated at K1.03 trillion while other revenue (non-tax) is estimated at K151.8 billion.
This exposes the government’s heavy reliance on tax revenues and its lack of ideas and innovation in parastatals that operate in monopolistic markets.
The revenue and expenditure performance, as outlined by Chithyola Banda indicates that the government ran a deficit of K569.79 billion with total expenditure for the first six months of the financial year estimated at K2.02 trillion while total revenue and grants amounted to K1.45 trillion.
A majority of the budget deficit will be financed domestically at a higher interest rate than foreign debt.
This in itself signifies the lack of appetite of foreigners for Malawian debt securities. Most foreign investors look for high yielding short term securities in troubled economies because interest rates are relatively higher than in economies that are doing better.
The Treasury projects a deficit of K710 billion in the second half which is higher than K569.79 in the first half by roughly K140.21 billion.
A K1.28 trillion deficit at the end of the fiscal year which is an astronomical figure. An unprecedented and worrying number which will be taken for granted and justified by the effects of devaluation.
Although this may be true it is only partially true as this trend of ever-increasing deficits has historical precedent of over 18 years.
The development expenditure has been increased from an approved provision of K831 billion to K1.08 trillion. Inflation plays a big role in this process as well.
In an earlier interview, International Monetary Fund former chief economist Godfrey Kalinga said there is need to have the president directing and giving in where political priorities are, for the economy to work.
He cited big and monumental programmes like the carriage ways in Lilongwe that need to be rethought before they go on.
