Minister of Finance Sosten Gwengwe insists that the government is working tirelessly towards reducing the budget deficit-to-gross domestic product (GDP) ratio by at least one percent each financial year among the steps towards prudence in financial management.
This is despite that the fiscal space remains volatile due to elevated debt levels coupled with rising cost of living and a shaky revenue base.
Public debt, now at K6.38 trillion or 63 percent of GDP, has been a major headache for the treasury.
One of austerity measures which will come on top of other measures which included limited international travels for senior government officials and a ban on lakeshore conferences and meetings for government ministries, departments and agencies.
The 2021-22 nine-month plan was projected with a fiscal deficit of K811.7 billion, representing 8.8 percent of GDP which was financed through foreign borrowing at K246.3 billion and domestic borrowing at K565.4 billion, or 6.1 percent of GDP.
In the current fiscal year, overall fiscal balance is estimated at a deficit of K884.0 billion, which is 7.7 percent of GDP which will be financed through foreign borrowing amounting to K230.07 billion and domestic borrowing amounting to K653.98 billion.
The developments within these two years indicate that the fiscal deficit reduced by 1.1 percentage points, which the administration dreams of having every year.
However, the economy has met hitches stemming from the sluggish recovery from the Covid pandemic and recently the war between Russia and Ukraine which has heightened inflation foretelling the need to increase expenditure.
GDP growth estimate has already been slashed to 1.7 percent.
But economists believe the government can attain the narrowed budget deficit aspiration if it is prudent in public finance management.
Economics Association of Malawi (Ecama) Executive Director Frank Chikuta said the reduction of the deficit can be achieved through economic growth and discipline.
“Going forward, it is possible to achieve that and it can be achieved through reduction of expenditure while on the other side growing the economy for better revenue collection,” he said.
Another economist Milwad Tobias said the dream can be achieved only if the government implements serious austerity measures as outlined in the 2022- 23 National Budget.
He said measures such as a revision of senior government officials’ benefits will help reduce expenditure.
“If measures that were announced in the budget can be implemented, they will help the government channel resources towards development areas while the deficit reduces over time,” he said.
The IMF has set debt sustainability as one area which needs to be addressed if the country is to have chances of having a new Extended Credit Facility programme.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.