Treasury’s budget deficit headache
Ratio to gross domestic product up to 8.7%
The Treasury’s plan to have the budget deficit to gross domestic product (GDP) ratio reduced by one percent each year is far from being met, at least in the 2023-24 fiscal year, as the gap is seen at K1.32 trillion or 8.7 percent of GDP.
The budget deficit has grown by about 30 percent from K1.01 trillion (or 8 percent of GDP) in the 2022-23 budget.
It will be financed through foreign borrowing amounting to K288.78 billion and domestic borrowing amounting to K1.19 trillion, according to Finance Minister Sosten Gwengwe, who presented the national budget statement to Parliament last week.
He attributed the increase to higher than planned salary adjustment, public debt interest, pensions and gratuities, and other critical expenditure needs.
However, Gwengwe reaffirmed the government’s commitment to have the “fiscal deficit minimised to the extent possible”.
Simply put, the government will continue to spend beyond its means.
Malawi University of Business and Applied Sciences-based economist Betchani Tchereni said the dream to narrow the budget deficit could have been attained in nominal terms, but exogenous shocks’ impact to the budget remained deep to ignore.
Tchereni said the dream of reducing the ratio by 1 percent every financial year remains achievable if what has been put on paper can be implemented.
“We should live by what the State of the Nation Address and the budget titles have said, which is sacrificing. The sacrifices that we need to make are either borrowing for development projects or not borrowing at all,” he said.
A recent study by Malawi Economic Justice Network and Tax Justice Network Africa revealed that Malawi’s fiscal performance has resulted in large and increasing budget deficits over past 10 years with the shortfall expanding from K30.7 billion in 2012 to K857.8 billion by 2022.
The report says while the Government of Malawi has made significant fiscal reforms in recent years, the development points to troubling fiscal times ahead.
The sharp rise in annual budget deficits has resulted in an astronomic jump in public debt levels which have increased from 28.6 percent of GDP in 2012 to 66.9 percent of GDP in 2022.
In its most recent Article IV assessment, the International Monetary Fund (IMF) indicated that the external position of the country had deteriorated, largely due to reduced levels of exports of tobacco products amidst the global economic downturn as a result of the Covid induced economic downturn.
Exports also suffered due to a US ban on the import of tobacco products from Malawi. Production of tobacco products and other agricultural products also face severe threats due to the risk of climate change.
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.