Government has revised downwards fiscal deficit whch includes grants from K171.2 billion, representing four percent of gross domestic product (GDP) to K130.3 billion, about three percent of GDP, according to Minister of Finance, Economic Planning and Develoment Goodall Gondwe.
But excluding grants, the fiscal deficit—a situation where government’s total expenditure exceeds the revenue that is generated— has been revised from K365.9 billion, which represents 8.5 percent of GDP to K289 billion or 6.7 percent of GDP.
Gondwe said this on Friday in Lilongwe when presenting the 2016/17 Mid-Year Budget Review. The budget has been revised downwards by K20 billion from K1.149 trillion to K1.129 trillion.
The minister explained that the K130 billion deficit will be financed as follows; K76.6 billion in foreign borrowing and K42.3 billion in domestic borrowing and government will be carrying forward K11.3 billion in privatisation proceeds realised from the sale of the Malawi Savings Bank (MSB) and Indebank in July 2015.
Gondwe said the level of domestic borrowing agreed with International Monetary Fund (IMF) under the Extended Credit Credit (ECF) is K60 billion, but government has revised the budget in such a way that the borrowing will be much less than anticipated the global lender to build a cushion to enable it to sustainably respond to shocks and guarantee a speedy attainment of macroeconomic stability.
He said: “The result of the fiscal operations during the first half of the financial year was an improvement in the fiscal deficit that required a domestic borrowing of only K25.1 billion instead of the IMF target of K40.1 billion.
“This means government is within the IMF target amount by some K15 billion which is a commendable result and means that our total operations were markedly sound.”
Domestic overborrowing in a monster that crowds out the private sectors and pushes interest rates to unsustainable levels, which in turn escalates inflation levels.
Gondwe said IMF supported programme has continued to be on track, adding that the result is due to an increasing perceptible improvement in public finance management in a majority of ministries which includes efforts to institute and establish routine bank reconciliations that have been elusive for a long time.
Expenditure on the other hand amounted to K506.1 billion against a target of K586.2 billion, which means spending was within the target by 17 percent.
Gondwe has revised downwards overall expenditure by K20 billion, representing a reduction of 1.7 percent due to an expected decrease in disbursements of foreign financed projects.
In earlier comments on government budgetary operations, University of Malawi (Unima) Chancellor College economics professor Ben Kaluwa advised government not to relax, but ensure that it holds on to the direction that it has taken.
“We have the scale of biting the bullet (making tough decision) and it seems government has taken this direction. Going forward, government needs to consider the zero-based budgeting. n