Malawi fiscal balance worsened by 168 percent to K15.8 billion (about $40m) deficit due to late donor inflows consequently jeopardising the country’s 2013/14 budget in which grants stand at 40 percent.
The Reserve Bank of Malawi (RBM) July economic review indicates that Malawi’s fiscal balance worsened from K21.3 billion (about $53.2m) surplus in June and further notes that government expenditures in the review month increased by 54.5 percent to K56.4 billion (about $141m) due to both recurrent and developments accounts.
The report adds that the total government revenues declined by 31.3 percent to K41.1 billion (about $102m) in July mainly due to a decrease in grants as domestic revenues increased.
The rise in the July fiscal deficit—the difference between government revenues and expenditures—indicates that the central government spent more than it actually raised therefore, had to borrow to fill the gap, risking incurring interest charges and crowding out the private sector.
The mismatch between expenditures and revenue may also lead to government struggling to meet its obligations which may lead to shortages of critical supplies such as medicines in the country’s hospitals.
Commenting on the deficit, Ministry of Finance spokesperson Nations Msowoya in a telephone interview on Monday argued that the worsening situation was due to a timing problem.
“Most donors had programmed to release their grants between September and December so this is only a timing issue and should not raise an alarm. The government used ways and means instead of Treasury Bills (T-Bills) because government is trying to ensure low interests,” said Msowoya noting that ways and means incur lower charges.
According to the 2013/14 budget statement grants stand at K240.3 billion, representing 40 percent of total revenue and grants, while the annual deficit is projected at K34.8 billion up from K18.2 billion last year.
However Ministry of Finance played down fears of donors affecting the implementation of the budget noting that donors were not contributing more into the recurrent.
In the 2012/13 fiscal year, government borrowed heavily especially in the second and fourth quarters through T-Bills that prompted a rise in yields and consequently interest rates to over 40 percent.
However, specifically the RBM report notes that in July foreign grants declined by 89.4 percent to K3 billion from K28.1 billion recorded in June 2013 which prompted the central government to contract ways and means advances to bridge the financing gap.