The World Bank says optimistic growth assumptions, combined with the effects of natural disasters, have contributed to consistent deviations of revenue and grants against their projections.
According to the Bretton Woods institution, gross domestic product (GDP) growth has, on average, underperformed budget projections by 2.1 percent since the 2012/13 Financial Year, a situation which had negative implications on tax revenue, consequently performing below their forecasts in four of the last five fiscal years.
In its December 2019 Malawi Economic Monitor, the bank said compounded with the loss of donor confidence which resulted in poor disbursements of grants, this has affected overall revenue and grants, which have in total underperformed their projections since 2013/14 Financial Year, except in the 2015/16 Financial Year.
The bank observes that while revenue regularly performs below budget, expenditure is consistently over budget, although the gap has declined somewhat in recent years, which has been contained by reduced development expenditure.
Said the bank’s senior country economist Patrick Hettinger in the report: “The government has sustained high fiscal deficits, which are consistently above budgeted levels. This deviation has been increasing recently, driven by poor performance in both revenue and grants and expenditure.
To finance these deficits, the government has relied on borrowing, largely from the domestic market, which has led to domestic debt and total public debt increasing beyond 30 and 60 percent of GDP, respectively, in 2019.”
The bank has since called for stronger fiscal restraint is needed to reduce domestic debt.
“The first step in this is to improve budget revenue assumptions, including by taking into consideration the effect of shocks in projections, drawing from historical performance. Additionally, stronger fiscal management calls for focusing on the lines for which the government has been consistently overspending,” said Hettinger.
Minister of Finance, Economic Planning and Development Joseph Mwanamvekha said in his 2019/20 National Budget statement last that through the Medium Term Debt Strategy, government aspires to reduce domestic debt to 20 percent of GDP by 2023 in order to reduce public debt.
“Government recognises that a reduction in domestic debt requires an increase in revenue and reduction in expenditure to create fiscal space for retiring debt,” he said. n