Malawi’s fiscal position is under pressure from a weakening domestic revenue collection and high interest rates on Admarc loans, Finance Minister Goodall Gondwe said yesterday.
He admitted that the K1.3 trillion 2017/18 National Budget is so strained that as things are, a downward adjustment of the budget in the second half of the year is imminent, with the travel budget expected to suffer cuts through travel policy changes.
But Gondwe said as government ponders on early purchases of maize to avoid imports, he will have no choice but to propose some budget cuts when he presents the 2017/18 Mid-Year Budget Statement next week Friday, February 16.
However, Gondwe could not go into other sectors or areas that are also likely to suffer the cuts.
Speaking in an exclusive interview with The Nation yesterday, he said government did not foresee the dry spell and fall armyworms and the devastating effects it would have on the implementation of the budget.
Describing the situation as a calamity, the minister said he is expected to move money around to allocate funds that can be used to address the dry spell which has so far affected 270 180 hectares of maize and fall armyworms which have brought destruction to 375 580 hectares of the maize crop.
“We did not foresee this and, therefore, it means we got to have resources. Luckily enough, it’s going to be spread out to next year as well so the resources that we need will have to be allocated in this budget.
“Our view is that we should have resources to enable NFRA [National Food Reserve Agency] and Admarc [Agricultural Development and Marketing Corporation] to purchase maize now and not wait for a particular time,” said Gondwe.
The Finance minister said the unforeseen expenditure allocation of K1.8 billion in the previous financial year will also be increased to cater for logistics of surplus maize in areas which will have good harvests.
Gondwe said looking at the Malawi Growth Development Strategy III, there are measures for mitigating climate change and resources have already been included in the current budget.
The minister is also having to deal with the miscalculation that happened in 2015/16 when the government guaranteed K23 billion in commercial bank loans to allow Admarc to purchase maize at the time when an estimated six million people were facing food shortages.
The government, and Admarc, had anticipated that the purchased maize would be sold to recoup the payments and interest on the bank loans but the widespread availability of humanitarian food through donors resulted in Admarc maize remaining in the warehouses.
“The interest rates were very high so the total amount that we have bailed them out with is about K45 billion. That has got to be part of that budget and, therefore, it means we will have to trim some of the votes to accommodate that. That is one problem that we are going to have,” he said.
Another pressure is that the government had projected a K980 billion domestic revenue collection by June 30 2018 but the Malawi Revenue Authority (MRA) has not performed as expected.
From a target of K451 billion for the first half, July to December, MRA has only collected K410 billion, according to MRA’s revenue report issued last month.
But Gondwe is optimistic that the K41 billion not collected as projected would be reduced by the end of the financial year.
“We think in the second half of the year [MRA] will do better but they have incurred quite a large amount of under collection. But we think that we might end up with a total shortfall of about K15 billion or so,” he said.
Adding to Gondwe’s headache to balance the 2017/18 budget is the inclusion of K55 billion as budgetary support expected from the European Union which the bilateral donor continues to hold on to pending satisfaction of certain conditionalities.
This means the projected K127.7 billion in grants has not performed well due to this money not coming through.
“Worse still is that we had put in an amount of about K55 billion that would come from EU as budget support. We put that figure in too hastily; it did not come through because we had not finished discussing the conditionalities.
The government had expected the domestic revenue to remain buoyant to offset withdrawal of budgetary support and dedicated grants. It had also anticipated that the K946 billion recurrent expenditure of which K346 billion was for development would be wholly financed by domestic resources for government to remain with a balance for other activities but this has so far not come to pass.
As a result, government has been borrowing heavily to meet some budget requirements. Records seen by The Nation on Monday indicate that by December last year, public debt stood at K2.4 trillion, whereby K1.4 trillion was external debt and K1.2 trillion was domestic debt.
Meanwhile, Budget and Finance Committee of Parliament chairperson Rhino Chiphiko said further borrowing from commercial banks will likely increase public debt.
“For a long time, we have been complaining about huge public debts,” he told The Nation in a recent interview.
Meanwhile, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe has cautioned that in shifting the allocations, government should ensure that items to suffer budget cuts are non-essential. n