Slow economic growth affects national budget

Despite the country’s budget growing by 20.5 percent on average annually in nominal terms, United Nation’s Children Fund (Unicef) says the growth has been slow due to sluggish GDP growth.

In its Child Protection Budget Analysis in Malawi on the levels and trends in government budget allocations to child protection from fiscal years 2012/13 to 2018/19, Unicef says the national budget’s slow growth in real terms is symptomatic of a sluggish economy during the years reviewed.

According to the study, while real gross domestic product (GDP) growth averaged 3.7 percent between 2012 and 2017, with a low of 1.9 percent in 2012 and a high of 5.7 percent in 2014, the national budget increased from K476 billion ($1.76 billion) in 2012/13 fiscal year to K1.45 trillion ($2 billion) in 2018/19 fiscal year.

This is an annual average increase of 20.5 percent in nominal terms, but a 2.2 percent annual average increase in dollars terms.

When the budget was adjusted for inflation, it grew at an annual average rate of  one percent between 2012/13 and 2018/19 fiscal year.

In 2018/19 fiscal year, the total budget increased by 10.7 percent in nominal terms from K1.31 trillion in 2017/18 to K1.45 trillion.

However, the total budget went down by 0.2 percent when inflation is accounted for.

“The slow economic growth was largely caused by low electricity generation, drought and flooding.The drought and flooding combined to create the humanitarian food crisis in 2016,” reads the report in part.

The study found that sluggish economic growth has constrained government’s revenue base,.

“To improve revenue collections, government may consider reforms that reduce losses in the following areas; trade mis-pricing [falsification of prices]; quality and quantity values of traded goods;  tax evasion and illegal export of foreign exchange.

“It is estimated that Malawi loses 10 percent of its GDP annually through illicit financial outflows, which translates to about $300 million [K135 billion],” reads the report.

Last month, Reserve Bank of Malawi (RBM) Governor Dalitso Kabambe advised Treasury to rein in on both domestic and external borrowing, warning that there is insufficient room for further borrowing. He said Minister of Finance, Economic Planning and Development Joseph Mwanamvekha assured him that Treasury will tackle domestic borrowing in the 2019/20 financial year and other subsequent financial years.