Govt closes year With k429bn deficit
Treasury has posted a K428.7 billion deficit in the 2019/20 financial year, published Reserve Bank of Malawi (RBM) figures showed on Wednesday.
During the year under review, total revenues amounted to K1.2 trillion, of which K1.1 trillion was domestic revenues while total expenditure stood at K1.7 trillion.
At mid-year of the 2019/20 fiscus, Treasury had revised downwards domestic revenue to K1.35 trillion from K1.43 trillion while total expenditure was revised upwards from K1.74 trillion to K1.84 trillion due to expected increase in wages and salaries, and generic goods and services.
The proposed revisions resulted in an upward revision of the estimated fiscal deficit from K162.1 billion to K314.9 billion, which was to be financed by K203.3 billion domestic borrowing, with the balance of K111.6 billion financed by foreign borrowing.
The K428.7 billion fiscal deficit for the 2019/20 financial year is, therefore, K113.8 billion shy of the projected K314.9 billion.
In an interview on Wednesday, The Polytechnic associate professor of economics Betcheni Tchereni said while the rising fiscal deficit is a concern to the macroeconomic stability, its use is key.
He said: “The question once ask is how this deficit is going to be financed and its mostly through borrowing on the financial market within the country which may end up becoming very unsustainable and disturb the macro-economic environment.
“How has this deficit been used? Operations? Elections? Or productive and investment expenditures? Mostly, such deficits are usually due to operational expenditures.”
He, however, cautioned that interest rates may rise as well if not careful as government is still operational and costs have to be met, observing that in an environment where government is failing to raise enough resources, the deficit might go deeper.
In its July 2020 Malawi Economic Monitor, the World Bank fiscal deficit which was budgeted to increase prior to Covid-19 pandemic could further widen above 10 percent of gross domestic product (GDP) due to the pandemic.
The mid-year 2019-20 budget revision increased the planned deficit from 2.7 to 4.9 percent of GDP, largely on account of unrealised revenue targets and increased recurrent spending.
The new administration’s provisional budget for July to October 2020 also projects a fiscal deficit of 3.9 percent of GDP for only four months.
Finance Minister Felix Mlusu said domestic borrowing would finance almost 80 percent of his K722 billion 2020/21 provisional budget that Parliament authorised in July.
Since 2015, debt has been driven by widened primary deficits and interest rates, while GDP growth and the real exchange rate have contributed to lowering debt, though the effect of the latter has narrowed in recent years.
World Bank figures show that Malawi’s stock of domestic debt increased from 28.2 to 29.7 percent of GDP between 2018 and 2019 although public debt remained level at 59.4 percent of GDP over the same period, due to a decline in the stock of external debt, from 31.2 to 29.7 percent of GDP.
