Fiscal performance came under spotlight

When former minister of Finance and Economic Affairs Sosten Gwengwe presented his budget statement before Parliament at the onset of the financial year, he envisioned that Malawi would record a K1.3 trillion deficit in the 2023/24 fiscal  year.

In the initial maiden plan, the former minister expected to collect about K2.5 trillion in revenue and to spend about K3.83 trillion. If the budget had gone according to plan, it would have resulted in a deficit of about 34 percent.

However, incumbent Minister of Finance and Economic Affairs Simplex Chithyola-Banda revised the fiscal plan developed by his predecessor.

In the 2023/24 Mid-Year Budget Review Statement, Treasury expects to run 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.

However, the initial fiscal plan presented by Gwengwe projected that the government would borrow K1.1 trillion from the domestic market and an additional K131.5 billion from the foreign market.

Seven months into the financial year, the government has run a deficit of K610 billion, signalling better performance in the budget than anticipated.

In the period under observation, the government collected K1.63 trillion in revenue and spent K2.24 trillion in expenses, representing a deficit of about 27.12 percent. On the revenue side, K1.64 trillion was collected from domestic taxes while K312.55 billion came from grants.

At face value, it would seem the government is on track to reduce the deficit. However, local economic analysts differ on whether the reduced budget deficit, when measured as a percentage of total expenditure, was a positive out-turn for Malawi in terms of the performance of the budget.

In an earlier interview, University of Malawi economist Jacob Mazalale commended the government for ensuring that the deficit is contained at an acceptable level but cautioned that the situation might change, depending on activities and when those activities were supposed to be implemented.

He said: “We can have a lower deficit at the midway point. However, if most of the activities that would have accrued the deficit are scheduled for implementation in the latter half of the year, then the deficit will go up.

“It also depends on the cost-benefit analysis of the activities that the government may have foregone. If the government is cutting on consumptive activities, then that is a positive development.”

In a separate interview, economic analyst Milward Tobias cautioned against reading too much into the statistics before the end of the financial year, saying it is an academic exercise to “read too much into the budget framework before the close of the financial year.

He said: “The government revenues and expenditures fluctuate depending on which payments are due and how the revenue collection side is faring. It would be better to look at the budget at the end of the year.”

On her part, Malawi University of Science and Technology economics lecturer Bertha Bangara-Chikadza said the reduced deficits show that the contractionary monetary policy the Reserve Bank of Malawi implemented to deter expenditures is working.

She said: “RBM has been moving to control inflation by tightening monetary policy and seeing a reduction in the borrowing by the government to finance its expenditures is actually a sign that the tight monetary policy is working.”

For now, the fiscal deficit seems to be at a manageable level. Time will tell whether this is a result of prudent fiscal management induced by the contractionary monetary policy adopted by the central bank or a fluke caused by slow activity in government expenditures in the first portion of the financial year.