Economists warn budget implementation under threat
Economic analysts have cautioned that implementing the 2023/24 National Budget could be compromised after the World Bank trimmed Malawi’s growth projection for the year 2023.
In its June 2023 issue of the Global Economic Prospects report published on Tuesday, the World Bank projects that the local economy will grow by 1.4 percent, 1.6 percentage points lower than the three percent expected in January.
Reads part of the statement: “Recovery prospects are also less favourable for many small agricultural commodity producers coping with food insecurity, increased prices and shortages of farming inputs, the lingering effects of past weather shocks, and violence.
“More broadly, elevated financing needs, high levels of debt and limited fiscal space are expected to weigh on activity and exacerbate unfavourable debt dynamics in several countries.”
The economy is, however, expected to rebound to 2.4 percent in 2024, 0.1 percentage points lower than the projection made in January.
The World Bank’s projection is also 0.5 percentage points lower than the 1.9 percent projected by the Reserve Bank of Malawi in its June 2023 issue of the Finance and Economic Review.
Both projections are lower than the 2.7 percent the Ministry of Finance and Economic Affairs based its 2023/24 budget on and significantly lower than the regional average for Sub-Saharan Africa (excluding Nigeria, Angola and South Africa) which is pegged at 4.6 percent.
In reaction, Joseph Mwanamvekha, the Democratic Progressive Party (DPP) spokesperson on economic affairs in Parliament said the downward revision is not surprising considering the country experienced an acute shortage of forex that undermined the imports of critical products such as fuel, raw materials and fertiliser.
In a separate interview, economic researcher and consultant Exly Silumbu said Malawi’s subdued performance will undermine the implementation of the budget because it will collect less revenue than originally expected.
“This will mean more fiscal consolidation, that is, reducing expenditure or increasing taxes to reduce additional borrowing. Because if the government borrows more, it will lead to higher public debt and worsen the country’s debt burden,” he said.
Agreeing with Silumbu, Mwanamvekha, a former minister of Finance in Peter Mutharika’s DPP-led administration said the downward revision and the subdued revenue collection that will follow it will worsen the country’s budget deficit.
He said: “The problem is they [Tonse Alliance] already committed the expenditure projections. However, the slowdown of the economy will reduce revenue. The government can only meet those commitments if it collects more revenue. The gap will certainly get bigger.”
On his part, Catholic University of Malawi economics lecturer Greenson Nyirenda said: “The deficit may come on the basis that lower growth rate implies a downturn of economic activities which can affect the revenue collection to support the budget.”
