By William Kumwembe
The Ministry of Finance recorded a deficit of K89.9 billion between July and September 2020, representing 1.3 percent of Gross Domestic Product (GDP), recently published figures by the Reserve Bank of Malawi (RBM) show. In its Financial and Economic Review published on Monday, the central bank says central government budgetary operations for the third quarter of 2020 recorded total revenues amounting to K306.6 billion against expenditures of K396.4 billion.
At K306.6 billion, total revenue collected during the quarter under review represents a slight decrease of K4.2 million compared to the previous quarter.
According to the RBM report, this outturn largely reflected the decline in foreign receipts, which outweighed the increase in domestic revenue collections by K4.2 million. Foreign receipts decreased to K28.5 billion in the review period from K42.4 billion recorded in the preceding quarter.
“There were substantial Covid-19 grants in the second quarter of 2020 which explained the huge variation in grants when compared to the current quarter and the corresponding period of 2019. Meanwhile, domestic collections increased to K278.1 billion from K264.2 billion recorded in the second quarter of 2020,” the report reads.
Tax revenue collections reported an increase of 11.6 percent to K272.7 billion while non-tax revenue collections dropped by 72.6 percent, to K5.4 billion.
The decrease in nontax collections was mainly due to a drop in the volume of dividends received in the quarter under review compared to the previous quarter.
During the period, government expenditure decreased by 13.9 percent to K396.4 billion, following another decline of 13.1 percent to K460.7 billion reported in the previous quarter.
The drop in expenditures was reported in both recurrent and development expenditures, according to the central bank. Recurrent expenditures declined by 8.3 percent to K335.7 billion mainly because of fiscal restraint on generic goods and services, and a reduced interest rate bill that dropped by 11.5 percent to K83.2 billion and 30.6 percent to K50.1 billion, respectively.
Development expenditures recorded a decline of 35.9 percent to K60.7 billion in the quarter under review, emanating from a fall in the domestically financed components, which fell by 62.4 percent to K21.1 billion from K56.2 billion recorded in the previous quarter.
In an interview yesterday, Treasury spokesperson Williams Banda said the deficit to GDP ratio went down during the quarter under review on the basis of prudence public finance management.
He said Treasury borrowed domestically through issuance of Treasury Notes to cover up for the deficit.
“The outlook is promising now as businesses seem to be picking up. We anticipate further improved revenue collection and continued prudence in financial management,” Banda said.
For the 2020/21 financial year, the Treasury projected domestic revenue at K1.179 trillion (about 16.5 percent of GDP) while expenditures are estimated at K2.190 trillion (about 30.6 percent of GDP).
The Ministry of Finance projected a fiscal deficit of K754.8 billion, to be financed through foreign and domestic borrowing, estimated at K224.8 billion and K530.1 billion, respectively.