Treasury could lose between K128 billion and K179 billion in domestic revenue in the 2020/21 financial year due to the impact of the Covid-19 pandemic, the International Food Policy Research Institute (Ifpri) has projected.
This is contained in the Ifpri’s April 2021 Update on the Short-Term Impacts of Covid-19 on the Malawi Economy.
Reads the update in part: “In the 2019/20 financial year, government revenue fell by K8.8 billion in the fast recovery scenario and about K8.9 billion in the slow recovery scenario.
“In the 2021 calendar year, the largest revenue losses occurred in quarter one, with indirect tax revenue falling by K2.5 billion to K3.1 billion and direct tax revenues by K2.3 billion to K2.9 billion.”
In the 2020/21 fiscal year, Treasury projected the fiscal deficit at 8.8 percent of gross domestic product (GDP) or K810.7 billion on account of developments in both revenues and expenditures.
In the first half of this financial year, Treasury collected K564.2 billion in domestic revenue, representing 94 percent of the target while expenditure stood at K974.6 billion, 2.5 percent above the target.
Consequently, Treasury revised upwards domestic revenues to K1.186 trillion from K1.179 trillion in the approved 2020/21 budget, with total expenditure revised upwards from K2.19 trillion to K2.33 trillion.
In his presentation of Mid-Year Budget Review Statement on February 26, Minister of Finance Felix Mlusu explained that 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.
Ifpri observed that the recovery of the economy in the remaining three quarters of 2021 rests on easing of restrictions and external shocks.
According to Ifpri, people in the bottom three income quintiles have experienced per capita incomes losses of 13 to 14 percent during the first two months of social distances, which translate into increases in the poverty rate (using the national poverty line) of 6.5 and 6.7 percentage points (from 51 to around 57.5 percent) in the second quarter of 2020 or an additional 1.6 million poor people.
To cushion vulnerable and low-income households from Covid-19 socio-economic impacts, government has been disbursing funds under the K19.5 billion emergency cash transfer programme.
The three-month programme (January to March) was meant to support about 199 640 households in Zomba, Mzuzu, Blantyre and Lilongwe with a monthly payout of K35 000, beginning January to March 2021.
In May 2020, government also set aside K38.9 billion for social cash transfers for six months from May to December to relieve vulnerable people in urban areas from effects of Covid-19, but the money was not disbursed to beneficiaries.
The World Bank observed in its recent Malawi Economic Monitor that Malawi Government should pay attention to poverty reduction policies such as social cash transfers to reduce poverty levels.