Thursday, May 26, 2022
  • About Us
  • ImagiNATION
  • Adverts
  • Rate Card
  • Contact Us
The Nation Online
Advertisement
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
No Result
View All Result
Home News National News

Maiden Tonse budget hitches

by Dumbani Mzale
10/05/2021
in National News
5 min read
0
Share on FacebookShare on TwitterShare on WhatsAppShare on LinkedinLinkedinShare via Email

 With barely a few weeks before Finance Minister Felix Mlusu tables his second national budget, an analysis of the performance of key economic indicators of the maiden budget reveals the past 11 months have been turbulent.

The Nation analysis also reveals that despite inheriting a weak fiscal environment, frequent expenditure overruns combined with repeated revenue shortfalls have contributed to high fiscal deficits and rapidly increasing high-cost domestic debt.

Worsening the fragile situation has been Covid-19 external shock which has over the past year reduced demand for Malawi exports, increased trade costs, reduced remittances from abroad, revenue from the tourism industry as well as a shrink in foreign direct investment (FDI) inflow.

Was initially optimistic: Mlusu

A close surveillance of major macroeconomic assumptions of the 2020/21 National Budget shows that the Tonse Administration’s first budget has been dealt a heavy blow on the projected real gross domestic product (GDP) for the year 2020 as well as on the projected exchange rate underpinning the budget framework. The budget has, however, successfully manoeuvred the projected inflation target of 9.9 percent and a policy rate target of 13.5 percent.

Macro – e c o n o m i c variables in focus

In the 2020/21 National Budget, Mlusu forecast an economic growth of 1.9 percent in 2020 and 4.5 percent in 2021.

Said the Finance Minister: “This budget, the 1.9 percent growth rate for 2020 and 4.5 percent for 2021 scenario, has been assumed, translating to a fiscalised GDP growth rate of 3.2 percent for 2020/21 fiscal year.

“This is mainly because globally, economies have started easing containment measures and restrictions on movement, thereby allowing businesses to slowly start returning to normality. Economic activity is therefore expected to pick up by September 2020.”

However, contrary to his expectation, by September 2020, economic activity had not picked up that much. In fact by December 2020, Mlusu admitted that the Malawi economy had marginally grown by 0.9 percent.

This was a downward revision from his earlier 1.9 percent growth rate estimated in the 2020/21 budget formulation.

Presenting the Mid-Year Revised Budget in Parliament on February 26 2021, Mlusu bemoaned the pressure that Covid-19 had exerted on the economy.

He said: “This economy, Madam Speaker, continues to suffer from the adverse effects of the Covid-19 pandemic which compelled government to impose containment measures, including partial lockdown and restrictions on mobility.”

Distraught with the Covid-19 effects on the economy, the minister then toned down on the 2021 projected growth rate, stating that a preliminary GDP growth rate for 2021 was now seen at 3.5 percent, one percentage point lower than his earlier projection of 4.5 percent as embedded in the initial 2020/21 budget design.

However, at 3.5 percent projected growth in 2021, Mlusu seems to be ambitious still and could be knowingly or unknowingly defying realities on the ground as international finance institutions such as the World Bank think otherwise.

The minister’s projection also contradicts that of the Reserve Bank of Malawi (RBM) which expects domestic real economic growth to strengthen to 3.8 percent in 2021 on the back of the ongoing vaccination campaign, coupled with the above-average agricultural production during the 2020/21 season as well as recovery of the global economy.

Current projections by the World Bank are that economic growth in Malawi will recover gradually to 2.8 percent in 2021 and 3.0 percent in 2022, according to the newly-framed Country Partnership Framework (CPF) for the bank and Malawi which will run from 2021 to 2025.

Economist Farai Chigaru seems to agree with the World Bank reasoning: “The GDP was forecast based on the extent of the first Covid-19 wave (that did not relatively affect Malawi significantly).

“Going forward after the [Covid-19] second wave, however, aggregate demand is expected to decrease and aggregate supply is expected to decrease, thus simultaneously reducing GDP. This simultaneous reduction entails increased unemployment.”

The central bank has already forecast that inflation is projected to average 8.4 percent in 2021, up from 7.6 percent projected in January.

The revision has, among others, taken into account the impact of the lagged effects of the recent upward adjustments of fuel prices.

And as the World Bank rightly warns, inflationary pressures in Malawi could re-emerge as food prices will continue to be vulnerable to weather shocks, although a strong 2021 harvest is expected to reduce food price pressures in early 2021.

“As global oil prices pick up, they will exert upward pressure on fuel and transport costs, as well as energy prices. In addition, increased exchange rate could contribute to imported inflation,” says the bank in the latest CPF.

Government has also done well in managing interest rates in line with the assumption in the budget framework. Malawi’s policy rate— the rate at which commercial banks borrow money from the central bank—has remained steady at 12 percent since November 2020, representing a 1.5 percentage points lower than the projected 13.5 percent envisaged by Mlusu.

Monetary authorities led by RBM Governor Wilson Banda are wary of the need to support and sustain economic recovery, while at the same time managing upside risks to the inflation.

Undeniably, the rise in the public debt over the past year could be deemed as Tonse administration’s most pressing eyesore as public debt under its regime keeps surging.

For instance, government borrowed K630 billion over a six-month period from July to December last year, pushing the Total Public Debt Stock (TPD) to K4.76 trillion, which policy analyst Alex Nkosi in an interview said was worrisome.

He said the country is spending more resources on interest payments than on critical social services. Debt servicing costs alone had increased to 35 percent of revenue and grants in the 2020/21 Budget.

Previous Post

Minister admits crowds may park Covid-19 third wave

Next Post

Chakwera u-turns on Ex-minister kandodo

Related Posts

Gwengwe: We have started negotiations
Front Page

Govt, IMF talk deal

May 26, 2022
Front Page

Minister orders Martse’s death inquiry

May 26, 2022
The cyclones left destruction in their wake
National News

Dodma raises K35bn for cyclone response

May 26, 2022
Next Post
Chakwera: You are suspended with immediate effect

Chakwera u-turns on Ex-minister kandodo

Opinions and Columns

Business Unpacked

Tame egos, take risks to grow economy

May 26, 2022
People’s Tribunal

What was that press briefing all about?

May 22, 2022
Big Man Wamkulu

Wife, in-law plotting my downfall

May 22, 2022
My Thought

Tonse Alliance died on arrival

May 22, 2022

Trending Stories

  • Mutharika on the campaign trail in 2019

    APM under pressure

    0 shares
    Share 0 Tweet 0
  • Musician Martse in hospital after fire accident

    0 shares
    Share 0 Tweet 0
  • Kalindo earmarked for diplomatic post

    0 shares
    Share 0 Tweet 0
  • Nyasa Mobile Limited partners Vodafone

    0 shares
    Share 0 Tweet 0
  • Musicians, fans mourn Martse

    0 shares
    Share 0 Tweet 0

Malawi-Music.com Top10

  • Values
  • Our Philosophy
  • Editorial policy
  • Advertising Policy
  • Code of Conduct
  • Plagiarism disclaimer
  • Disclaimer
  • Privacy Policy
  • Terms of use

© 2022 Nation Publications Limited. All Rights Reserved.

No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation

© 2020 Nation Publications Limited. All Rights Reserved.

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.