Firm outlines budget risks
Investment advisory firm Nico Asset Managers Limited says government faces risks to achieve its target of reducing fiscal deficit in the 2024/25 budget as demands on the public purse are expected to remain high.
The firm says this is against the backdrop of high cost of living and food insecurity, spending on social transfers and the reconstruction of infrastructure damaged by Cyclone Freddy in mid-March 2023, which could also lead to policy slippages on the International Monetary Fund’s $175 million four-year Extended Credit Facility (ECF).
Reads in part the firm’s 2023 Annual Report: “Government faces significant risks to its target of reducing the fiscal deficit, including greater-than-expected expenditures to rehabilitate infrastructure damage and social spending on families affected by cyclone.
“The fiscal deficit is likely to increase in the short to medium-term, putting further upward pressure on interest rates due to increased borrowing to finance the budget.”
However, the firm said it expects public expenditure as a percentage of the gross domestic product (GDP) to fall by 2028 due to fiscal austerity measures required under the ECF, including the removal of subsidies and improvements in spending efficiency.
In recent years, structural fiscal deficits and interest charges have led to an increase in sovereign debt, now pegged at K12.56 trillion.
Treasury data shows that in the five years to 2023/24 financial year, fiscal deficit has jumped from K162.1 billion in 2019/20 fiscal year to the projected K1.27 trillion in the current financial year that ends on March 31.
On the other hand, public debt has risen from K4.13 trillion in 2019/20 financial year to K12.56 billion at the end of December 2023.
Speaking in an interview yesterday, former minister of Finance Joseph Mwanamvekha said apart from the planned expenditure pressure on the fiscus arising from projected cushion programmes, being one year to an election year, pressure on the budget is certain.
He said: “Empirical evidence has shown that everywhere in the world, governments spend more as we move towards elections, putting austerity measures under the ECF under threat.
“Because of increased election spending, there is more money in circulation and rising inflation, which could as well affect budget expenditure.”
Institute of Chartered Accountants in Malawi chief executive officer Noel Zigowa said in an interview yesterday that while the elections have a lot of support from donors, the benefits of the foreign direct support on the national budget might be eroded with misalignment and competing priorities.
“General elections shall impact the national budget by introducing uncertainties. Political transitions may lead to changes in economic policies, affecting revenue generation and expenditure patterns,” he said.
In an earlier interview, economic analyst Bond Mtembezeka said it is common for a country to run fiscal deficits, but what matters is how the government uses the funds to ensure that the deficits are “sustainable and impactful”.
In his Mid-Year Budget Review Statement, Minister of Finance and Economic Affairs Simplex Chithyola-Banda said that government will continue to address persistent budget deficits and ensure that in the medium-term, public debt levels drop by containing the budget deficit.
He said: “Specifically, government will continue mobilising domestic resources to finance the budget and spending will be done according to available resources.”
In the current fiscal year, Treasury expects a deficit of K1.27 trillion, representing 29.6 percent of total expenditures estimated at K4.33 trillion.
This is 4.5 percentage points lower than the 34 percent deficit that was in the initial fiscal plan whose implementation began in April this year.
