Minister of Finance, Economic Planning and Development Goodall Gondwe yesterday trimmed the 2016/17 budget by K20 billion following poor performance of grants and development support from donors in the first-half of the year.
The downward revision of the budget from K1 149.2 billion to K1 129.4 billion has also been attributed to interest payments on arrears for which the government issued promissory notes to the private sector ranging from one to three years, which have started maturing.
But, on several occasions, Gondwe lamented the “disappointingly low” grants and funds for foreign financed projects, where only K30 billion was received by December 31 2016 against a target of K103.3 billion reflecting an underperformance of 71 percent.
The Finance Minister had projected an ambitious 45.5 percent increase in grants compared with the 2015/16 revised budget, but there is a high likelihood that this will not be realised.
“Grants from donors have been revised downwards from K197.4 billion to K158.7 billion. This is mainly due to lower than anticipated disbursements in project and dedicated grants,” he said.
But an optimistic Gondwe told Parliament yesterday: “It is anticipated, however, that the shortfall can be made up for during the second half of the financial year. This has already started to occur.”
Apart from putting his trust in grant disbursements picking up, Gondwe is buoyed by the good performance of domestic revenues between July and December which resulted in a K400 billion collection beyond the K378 billion target.
To this end, he expects Malawi Revenue Authority (MRA) to collect an additional K57.2 billion in domestic revenue, an upward revision based on the tax revenue collections between July and December, 2016.
However, the blame cannot be heaped solely at the door of donors who made pledges in grants and development support as Gondwe has attributed low disbursement by donors to the slow pace in project implementation by ministries.
The conclusion by Gondwe supports an analysis by The Nation late last year, which stated that there is poor project management which results in scores of projects going off track and government losing money due to cost overruns.
However, the poor performance of grants has not stopped the minister from effecting large increases to the personal emoluments (PE) budget lines of several sectors among them State Residences and Office of the Vice-President.
The State Residences allocation will get a K563 million increase, pushing up its allocation to K5.9 billion from K5.3 billion as well as the Office of the Vice-President whose K252 million increase is a result of additional funding to PE.
Gondwe has also looked at the sectors of health, education and agriculture favourably, with the PE for Ministry of Education being increased by K1.2 billion, K5.9 billion for the Ministry of Health, and the Other Recurrent Transaction (ORT) for the Ministry of Agriculture being increased by K3.7 billion and K1.1 billion for PE.
Budgetary support outlook
The Minister of Finance continues to be optimistic that multilateral partners such as the World Bank and the International Monetary Fund (IMF) would come to his rescue between now and June 30 2017, to support his budget.
The government is expecting $80 million from the World Bank after it expressed confidence in the success of the public finance management reforms which are a prerequisite for obtaining the support.
“On the basis of this improvement, we are now more likely to receive budgetary support from multilateral organisations. In particular the World Bank has expressed publicly its confidence that their earmarked amount of $80 million as budgetary support could be disbursed this financial year assuming all their conditionalities would have been achieved,” Gondwe said.
A further $20 million from the European Union is expected in addition to what the African Development Bank has already disbursed, he said.
Gondwe is also optimistic of a $20 million disbursement from the International Monetary Fund (IMF) when they complete their ninth review of the Extended Credit Facility (ECF) within the financial year.
But just like last year, economic recovery would be premised on the 2016/17 agricultural production.
“The government is, therefore, consciously optimistic that an economic recovery could emerge this year. Therefore, a continuation of sound fiscal and monetary policies is crucial,” said the minister.
But he warned that budgetary adjustments would continue in order to balance revenue and expenditure to minimise domestic borrowing.
On the domestic borrowing front, Gondwe patted himself on the back for “only” borrowing K25.1 billion instead of the IMF threshold of K40.1 billion.
Mvac report exaggerated
The minister of finance also disclosed that the May 2016 Malawi Vulnerability Assessment Committee (Mvac) report as well as crop estimates by the Ministry of Agriculture, Irrigation and Water Development which government used as a basis for planning maize purchases in the 2016/17 budget were exaggerated. n