Business NewsFront Page

Treasury closes year with K497bn deficit

The Treasury has posted a K497.85 billion deficit in the 2020/21 financial year (FY), higher than K425.31 billion in the previous financial year, data from the Reserve Bank of Malawi (RBM) show.

The RBM data contained in the Monetary Policy Report for July shows that although budgetary operations closed in the last quarter of the previous financial year with a narrower deficit of K56.89 billion than a deficit of K189.23 billion realized in the prior quarter, revenues have continued to be dwarfed by expenditure .

In view of the revenue under collections, the 2020/21 budget 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 gross domestic product.

The increase also triggered a yawning deficit from K755.1 billion to K810.7 billion, representing 8.8 percent of GDP which was to be covered through foreign financing of K246.3 billion, with the balance of K564.4 billion programmed to be financed through domestic borrowing.

Economists have since expressed concern over rising deficits, saying they affect budget implementation which largely depends on domestic revenue.

In an interview on Wednesday, University of Malawi economics professor Ben Kaluwa said continued budget deficits have several implications particularly on the successful implementation of the budget if the government fails to finance the deficit.

“The deficit increases the national debt, which causes economic instability if it reaches the levels that cannot be sustained,” he said.

On his part, Malawi University of Business and Applied Sciences associate professor of economics Betcheni Tchereni said while the rising fiscal deficit is a concern to macroeconomic stability, its use is key.

He said: “Financing deficits is mostly done through borrowing on the financial market within the country which may end up becoming very unsustainable and disturb the macro-economic environment.”

The World Bank, in the latest Malawi economic Monitor, also cautioned on the large fiscal deficits saying high fiscal deficits funded by high-cost domestic borrowing pose a considerable risk to fiscal sustainability, with domestic debt service comprising an increasing share of revenues.

The bank said Malawi needs a sustainable fiscal policy so that it can reduce debt service costs saying fiscal consolidation in the medium term will be needed.

Said the bank: “Instead of borrowing from domestic sources for recurrent expenditure, this should be covered as much as possible by domestic revenues. This will require prioritising expenditure in a sustainable medium-term fiscal framework, based on realistic revenue and grant assumptions.”

Meanwhile, the bank has projected that the fiscal deficit could go up to 9.4 percent of GDP saying there are risks that it could go even higher.

Minister of Finance Felix Mlusu, however, indicated that for the 2021/2022 financial year, the overall balance is estimated at a deficit of K718.3 billion, which is seven percent of the rebased GDP.

This deficit, according to Mlusu, will be financed through foreign borrowing amounting to K134.8 billion and domestic borrowing amounting to K583.5 billion.

Related Articles

Back to top button