2018/19 Budget cut by K25 billion

Finance Minister Goodall Gondwe yesterday revised downwards the 2018/19 National Budget by K25 billion from K1.454 trillion to K1.429 trillion on account of non-disbursement of the budget support by the World Bank, among other factors.

Gondwe made the announcement to Parliament in Lilongwe when he presented the 2018/19 Mid-Year Review Budget Statement.

But economic experts have cautioned that the trimming of the budget could potentially affect key macroeconomic indicators underpinning the budget hence threatening economic gains that the country has accrued recently.

Gondwe told Parliament that at the time of budget formulation, Treasury assumed a disbursement of K60 billion from the World Bank but painfully admitted that such budget support would not be factored into the 2018/19 budget but rather into the next fiscal plan covering 2019/20 financial year.

“The budget has, therefore, been revised downwards partly to accommodate this loss in revenue,” said the minister.

According to Gondwe, this means that local resources from the development budget have been reduced.

The minister also said the approved estimate of the inflow of revenue and grants at K1.249 trillion have also been revised downwards to K1.173 trillion, representing 22 percent of gross domestic product (GDP).

“The 2018/19 financial year’s approved budget has, therefore, been revised based on budget performance during the first half of the financial year and projected performance in the second half. It has also taken into consideration emerging fiscal pressures due to the withdrawal of budget support by the World Bank,” said the minister.

Commenting on the highlights on expenditure categories in the first half, the government purse keeper said by end December 2018, actual outturn for wages and salaries amounted to K191.2 billion, which was lower than the mid-year target of K193.2 billion.

He said this was mainly on account of delayed recruitment in ministries of Health and Education, delayed processing and payment of leave grants by some government departments and agencies (MDAs) as well as delays in the introduction of Adult Literacy Instructors on the payroll in district councils.

However, government has overspent on the Farm Input Subsidy Programme (Fisp) in the first half of the financial year to K19.9 billion, against a midyear target of K15.5 billion.

Explaining such over-expenditure, Gondwe said this was as a result of the early commencement of the programme than planned.

“This meant government had to redeem more fertiliser coupons in the second quarter rather than the third quarter of the financial year. An additional K4 billion was spent, over and above the target on fertiliser purchases only,” he said.

The minister explained that it is the Malawi Defence Force (MDF) and the Malawi Police Service (MPS) that have overspent their budget allocation in the first half but justified that the over-expenditure was necessary as the two institutions had to buy new equipment for crowd control.

Reacting to Gondwe’s budget balancing, Ecama executive director Maleka Thula, yesterday warned that the budget cuts as envisaged by Gondwe would have serious multiplier effects in the economy more especially if he has slashed the development budget.

“Failure by donors to disburse the funds would widen the budget deficit. This would more likely result into increased government borrowing and crowding out of private sector borrowing,”he feared.

Consequently, Thula warned that the situation would disturb the overall macroeconomic stability which the country currently enjoying.

He  said in terms of prioritisation of actual implementation of the budget, Ecama expects that the main focus should be on ‘very critical’ areas of the economy that need the resources most.

“More often than not, development expenditure suffers the cuts when we fail to hit our revenue projects. We hope this does not happen this year and going forward,” Thula said.

Fears of a yawning budget deficit in the 2018/19 budget have grown in recent times as government expenditure is already under pressure on account of expected increased expenditure towards the tripartite elections, slated for May this year.

The elections budget is estimated at K31.5 billion and will cover voter registration and verification, education and outreach, among other services. n