Treasury continued to record deficits closing the 2021/22 financial year with a K556.2 billion deficit due to expenditure and revenue imbalances, data compiled by the Reserve Bank of Malawi (RBM) show.
The RBM data contained in the March Economic Review Report show that though budgetary operations closed the final month of the year, which ran for nine months, with a lower deficit, revenues in the entire financial year continued to be dwarfed by expenditure.
In March alone government budgetary operations closed with a deficit of 0.4 percent of GDP in, an improvement from a deficit of one percent of GDP recorded in February, and a deficit of 0.9 percent of GDP recorded in March 2021.
According to the data, cumulatively, revenue collections in the financial year totalled K1.21 trillion while government expenditures amounted to 1.77 trillion.
Fiscal deficit—a situation when a government’s total expenditures exceed the revenue that it generates, excluding resources from borrowings— according to economists, is thus a cause for concern.
Malawi University of Business and Applied Sciences economist Betchani Tchereni observed that the piling deficits are fueling debt whose levels are becoming unsustainable.
He said: “Because financing deficits is mostly done through borrowing on the financial market within the country, debt may disturb the macro-economic environment but also end up becoming unsustainable.”
Meanwhile, in the 2022/23 budget, overall fiscal balance is estimated at a deficit of K884 billion, which is 7.7 percent of GDP to be financed through foreign borrowing amounting to K230.07 billion and domestic borrowing amounting to K653.98 billion.
But Minister of Finance and Economic Affairs Sosten Gwengwe is upbeat that Treasury’s strategy aimed at reducing the fiscal deficits by reducing the financing gap by a percentage point every fiscal year will eventually close the gap in the medium-term.
He said: “Closing the gap requires two things; firstly is to try and live within our means. This means cuts, expenditure controls and efficiency in public service delivery.
“Second is to enhance revenue mobilisation. We intend to aggressively pursue the recently launched Domestic Revenue Mobilisation Strategy.”
In Malawi, previous experience has shown that fiscal deficits have been financed mainly by costly domestic borrowing.
The rising domestic financing since 2018 as well as borrowing from regional development banks on non-concessional basis has since significantly increased Malawi’s public debt which stands at K5.5 trillion.
For instance, in view of the revenue under collections, the previous financial year was revised upwards from K2.190 trillion to K2.334 trillion with total revenues and grants revised upwards from K1.435 trillion to K1.523 trillion, representing 16.5 percent of the country’s GDP.
In the current financial year, total revenues and grants year are estimated at K1.956 trillion representing 17.2 percent of GDP, while total expenditure is projected at K2.84 trillion, representing 24.9 percent of GDP.
Meanwhile, the Economist Intelligence Unit (EIU) has projected a 10.9 percent fiscal deficit of gross domestic product (GDP), countering the government’s deficit of seven percent of GDP projection in the 2022/23 financial year.
The global economic think tank has specifically attributed the forecast to the impact of weather shocks on agriculture, which will necessitate significant spending on food subsidies.
According to the EIU, revenue underperformance, owing to slow economic growth and the expenditure on vaccine supplies, remain heavy weights on Malawi’s fiscal position.