Treasury opens fiscal year with K127bn deficit

Treasury recorded a K127.1 billion deficit in April, the first month of this fiscal year, a rise from K41.2 billion recorded in March, figures from the Reserve Bank of Malawi (RBM) show.

The figures contained in the latest RBM April Economic Review Report show that the April deficit was 1.1 percent of gross domestic product (GDP), a jump from 0.4 percent of GDP recorded in the preceding month.

RBM explained that the deficit was due to under collection, with total revenues at K140.7 billion against expenditures at K267.8 billion.

Reads the s report in part: “The decrease in total revenues follows a 16.7 percent or K26.2 billion decline in domestic revenues and a 4.2 percent or K427.8 million drop in grants.

“Though tax collections increased by 16.8 percent or K17.8 billion, the 95.9 percent or K34.7 billion declines in deposits and reclaimed funds as well as the 62 percent or K9 billion decreases in departmental receipts outweighed the increase in tax collections.”

The figures further show that central government expenditures increased by 28.4 percent or K59.2 billion in April to K267.8 billion from the K208.6 billion recorded in March 2022.

Fiscal deficit, a situation when a government’s total expenditures exceed the revenue that it generates, has become a norm as in the previous financial year, government closed the year with a K556.2 billion deficit.

The piling deficits, according to Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni, are fuelling debt whose levels are becoming unsustainable.

“Because financing deficits is mostly done through borrowing on the financial market within the country, debts may disturb the macro-economic environment but also end up becoming unsustainable,” he said

In the 2022/23 National Budget, overall fiscal balance is estimated at 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.

The Economist Intelligence Unit (EIU) has projected a 10.9 percent fiscal deficit of GDP, which is more than government’s projected deficit.

The EIU said revenue under-performance owing to slow economic growth and the expenditure on vaccine supplies will remain heavyweights on Malawi’s fiscal position.

But Minister of Finance and Economic Affairs Sosten Gwengwe is upbeat that Treasury’s strategy aims to reduce fiscal deficits by reducing the financing gap by a percentage point every fiscal year.

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.”

The rising domestic financing as well as foreign borrowing on non-concessional basis has increased Malawi’s public debt stock to K5.5 trillion.

In the current financial year, total revenues and grants are estimated at K1.956 trillion, representing 17.2 percent of GDP.