Minister of Finance and Economic Affairs Simplex Chithyola-Banda yesterday presented in Parliament the 2024-25 Mid-Year Budget Review Statement highlighting efforts to salvage the fiscal plan in the second half.
But the fiscal plan has proposed modest adjustments to the initial budget that rolled out on April 1 this year.
Tabling the budget, Chithyola-Banda said government had recalibrated its fiscal strategy to address significant shifts in macroeconomic fundamentals.
He noted that inflation and real gross domestic product (GDP) growth projections forecast in March have changed substantially due to external pressures.
Real GDP growth is now expected to slow by 1 400 basis points, declining from the initial 3.2 percent projected in March to 1.8 percent due to the impact of El Niño weather phenomenon which has ravaged farmlands and infrastructure across the Southern, Central and Eastern regions.
In the meantime, inflation rate has surged to an average of 33.8 percent between January and October 2024, driven by rising food prices, especially maize which has a greater weight in the consumer price index, an aggregate basket National Statistical Office uses to compute inflation.
Perennial foreign exchange shortage is another factor highlighted as contributing to rising inflation rate.
Budget performance
The minister acknowledged that the highlighted economic challenges have placed considerable strain on the government’s fiscal position.
He said total revenues and grants for the first half of the financial year amounted to K1.72 trillion, falling short of the projection of K2.22 trillion.
In his breakdown, Chithyola-Banda said d o m e s t i c r e v e n u e underperformed by 8.2 percent with tax revenues reaching K1.44 trillion against a target of K1.56 trillion.
Non-tax revenue, on the other hand, also fell short, with an outturn of K65 billion compared to the K79.3 billion target, representing an 18 percent shortfall.
Similarly, grants underperformed , amounting to K223.4 billion against the expected K584.2 billion due to delays in the implementation of some donor-funded projects.
However, despite revenue shortfalls , government expenditure remained largely on track, totalling K2.68 trillion. Of this, K2.24 trillion was recurrent expenditure and K438.8 billion allocated to development projects.
But a combination of lower-than-expected revenue and sustained spending resulted in a fiscal deficit of K950.9 billion, surpassing the projected K897.2 billion. The deficit was financed through net domestic borrowing of K908.2 billion and foreign borrowing of K42.8 billion.
Secondhalf projections
For the second half of the financial year ending on March 31 2025, total revenue and grants are projected at K2.9 trillion, comprising K1.88 trillion in domestic revenue and K1.02 trillion in grants. Expenditure for the same period is estimated at K3.36 trillion, with K2.22 trillion earmarked for recurrent expenses and K1.14 trillion for development initiatives.
Revised full-year projections
Following the adjustments , total expenditure for the 2024/25 fiscal year is now projected at K6.04 trillion, reflecting a 0.7 percent increase from initial estimates.
However, development expenditure has been revised downward from K1.77 trillion to K1.58 trillion.
Revenue and grants have been revised upwards, now expected to reach K4.63 trillion, a marginal increase from the original K4.55 trillion. On the current terms, this means revenues can only cover 76 percent of the total expenditures.
Domestic revenue is anticipated to rise slightly from K3.38 trillion to K3.39 trillion. Consequently, the fiscal deficit is expected to narrow from K1.45 trillion, which is about 7.7 percent of the GDP, to K1.4 trillion, representing around 7.5 percent of the GDP.
