Budget balloons

Minister of Finance Felix Mlusu has increased the fiscal plan by K144 billion, a move experts say spells doom for the economy given increased borrowing to finance the budget deficit.

Mlusu was presenting the Mid-Term Budget Review Statement in Parliament yesterday to account for spending in the six months between July and December 2020.

This upward revision of the budget comes at a time domestic revenue continues to shrink due to the impact of Covid-19 pandemic on businesses and the economy at large.

The increase means the budget has ballooned from K2.190 trillion to K2.334 trillion with total revenues and grants revised upwards from K1.435 trillion to K1.523 trillion, representing 16.5 percent of the country’s gross domestic product (GDP).

The increase has also triggered a yawning deficit from K755.1 billion to K810.7 billion, representing 8.8 percent of GDP.

According to Mlusu, the deficit is expected to be covered through foreign financing of K246.3 billion, with the balance of K564.4 billion programmed to be financed through domestic borrowing.

The minister said the projected upward budget performance for the second half of the 2020/2021 fiscal year has been drawn with full consideration of developments in the first half, remaining Government payment obligations and expected continued improvement in revenue inflows.

During the second half, he said Government will continue to enhance domestic revenue collection in order to achieve set targets for smooth budget implementation.

“The Malawi Revenue Authority will continue implementing turnaround strategies aimed at achieving efficiency and enhanced taxpayer compliance,” said Mlusu.

In the second half, Treasury is projecting total revenue and grants at K875.8 billion of which K621.6 billion is domestic revenue and K254.2 billion are grants.

In the budget, total expenditure and net lending is projected at K1.336 trillion of which K888.1 billion is recurrent expenditure and K447.4 billion is development expenditure.

Of the K888.1 billion recurrent expenditure, K269.3 billion is for wages and salaries, K236.6 billion is for interest payment, K156.9 billion for goods and services and K122.4 billion is for social benefits.

In terms of macroeconomic fundamentals, the revised budget is projecting GDP at 3.5 percent in 2021 from growth rate of 0.9 percent in 2020, and average inflation rate of 8.0 percent during the fiscal year and a policy rate of 12.0 percent.

There is also an upward revision in domestic revenues which are now projected at K1.186 trillion from K1.179 trillion in the approved budget.

Non-tax revenues are projected to increase from K63.1 billion to K69.6 billion in the revised budget on account of the expected increase in dividends and surpluses.

Grants are projected to increase from K255.7 billion to K337.5 billion by the end of the fiscal year on account of the increase in resources from development partners, which were approved during the course of the fiscal year and have now been included in the budget framework.

Ben Kaluwa, who is an economics professor at Chancellor College, a constituent college of the University of Malawi (Unima) said yesterday that Treasury had run out of options apart from initiating the upward revision of the budget.

He said the Covid-19 pandemic emergency expenditure was necessary to afford recruitment of health care workers and procurement of medical supplies.

Said Kalua: “It was envisaged that the budget was going to increase, the Minister had no choice but to accommodate emerging expenditures in addressing the pandemic”.

He was, however, optimistic in the projected growth from last year’s 0.9 to 3.5 in 2021 saying the nation is poised to realise bumper yield from maize owing to the Affordable Inputs Programme.

Another economics professor Betchani Tchereni who teaches at the Polytechnic, another constituent college of the Unima, said the yawning deficit from K755 billion to K810 billion is a cause for worry.

He feared that if the deficit is widened at mid-year it is likely to worsen by the end of the financial year.

“This points to the fact that we are not producing enough as a country to finance the budget. As a remedy, the budget needed to have a private sector stimulus to ensure increased productivity which would result in more revenue generation,” said Tchereni.

Development expenditure has been increased from an approved K511.2 billion to K615.8 billion, representing an increase of K104.7 billion.

Of the K104.7 billion, foreign financed projects amount to K100.8 billion on account of projects which became effective during the course of the financial year.

Domestically financed project budget has also been increased from K100.9 billion to K104.7 billion on account of increased allocation to finance the new Integrated Financial Management Information System project and also to develop detailed designs for the Judicial complex.

The provision for Goods and Services has been revised upwards from the approved K309.2 billion to K346.0 billion on account of an increase in the unforeseen budget line of about K23.2 billion, of which K17.5 billion is towards Covid-19 pandemic management and treatment efforts and K4.5 billion is programmed for re-administration of the Malawi School Certificate of Education examinations.

The budget has, however, a reduction in the Other Recurrent Transactions (ORT) for most votes reflecting the scaling down of both local and external travel as a result of the pandemic.

The Affordable Inputs Programme has been revised downwards from K160.2 billion to K142.0 billion as the number of beneficiaries in the database at the Ministry of Agriculture was revised down from 4.2 million farming families to 3.7 million.

Resources for maize purchase have been marginally increased from K10 billion to K10.4 billion, all of which was already spent during the first half but going forward, government banks on financing facility from the banks to the tune of K22 billion to facilitate early entry of Admarc on the market.

But spokesperson on finance matters in Parliament for the Democratic Progressive Party (DPP) Joseph Mwanamvekha said if excessive borrowing continues government will be impacting the private sector.

He said there is nothing new in the budget that can be good news for the country to celebrate about.

“If you look at the figures, it tells you that the budget is off track, there is a deficit of over K810 billion from K755 billion. The budget has not spelt out how the government will fulfil its promises, which means there is nothing for a common man,” said Mwananmvekha.