Malawi’s fiscal deficit—the difference between government expenditure and revenues—was the worst in Africa in 2013, according to World Bank publication Africa’s Pulse for April, apparently due to over-expenditure and aid freeze.
Africa’s Pulse, a publication that analyses issues shaping Africa’s economic future, explains that the largest deterioration of fiscal balances occurred among oil exporters and low-income countries in the region.
“In Malawi, the overall fiscal deficit widened to about 15 percent of gross domestic product (GDP) after rising to 11.3 percent of GDP in 2012.
“Among middle-income countries, Ghana’s fiscal deficit remained high at around 11 percent of GDP in 2013, in Zambia, the fiscal deficit widened sharply in 2013 and in South Africa, the fiscal deficit is forecast to remain unchanged at 4.2 percent of GDP in 2013/14,” reads the publication in part.
In the current budget, government maintained its fiscal anchor of no net domestic financing, whose spirit is to prompt private sector credit and growth.
However, the fiscal plan projected a fiscal deficit of K34.8 billion about five percent of the K640 billion 2013/14 budget.
During the implementation of the financial plan, the government was caught up in heavy borrowing and over expenditure, particularly in the first quarter, prompting a sharp increase in fiscal deficit.
But Ministry of Finance spokesperson Nations Msowoya told Business News yesterday that the government has two scenarios—the Zero Budget Support (ZBS) and a budget with donor support—for the next fiscal year.
He said according to preliminary figures, under ZBS, the deficit is projected at K76 billion while with donor support, the overall budget deficit is projected at K102 billion.
In August 2013, Reserve Bank of Malawi (RBM) said the fiscal deficit worsened to K40.4 billion, prompting government to borrow heavily from both bank and non-bank sectors while the Ministry of Finance blamed it on an increase in government expenditure.
In August 2013, total government expenditures increased by 28.9 percent to K72.3 billion following another monthly increase of 44.7 percent in July 2013.
During the year, donors also announced the withholding of budgetary supporting amounting to $150 million due to the looting of public funds at Capital Hill dubbed Cashgate that has seen the government grapple with its operations.
In the wake of the aid freeze, the Centre for Social Concern (CfSC) warned that this posed a challenge which could lead to a growing fiscal deficit, rising inflation and the depletion of foreign exchange reserves which would impact the lives of poor Malawians.
Last week, at the end of its mission to Malawi, the International Monetary Fund (IMF) warned that overall fiscal conditions will remain tight for the remainder year, but noted that strong revenue performance and the release of some external financing will allow some relaxation of the stringent constraints observed over the past two quarters.