Malawi fiscal deficit widens to K18.2bn

Malawi’s fiscal deficit this year is estimated to hit K18.2 billion (about $45.5m), 35 percent up from K13.5 billion (about $33.7m) gap projected mid-year, indicates the 2013/14 Ministry of Finance financial statement.

A fiscal deficit otherwise described as the gap between government revenue and expenditure may be responsible for the recent rise in government borrowing, consequently crowding out private sector and inevitably causing the current exorbitant commercial interest rates.

But, during the budget statement presented last year, Malawi Government promised to be committed to spend within its means and control expenditure. It further emphasised that the projected fiscal deficit of K13.5 billion will be entirely financed from foreign sources in programme and project grants and loans and hence reflecting the main fiscal anchor of no net domestic financing.

However, the Ministry of Finance financial statement estimates that the deficit will balloon at the end of this fiscal year and widen further next year.

“However, with net foreign loans amounting to K26.8 billion (about $67m), government will be able to repay K18.6 billion (about $46.5m) domestic debt which translates to 1.5 percent of gross domestic product (GDP) debt repayment. The 2013/14 financial year is estimated to end with a fiscal deficit position of K34.8 billion (about $87m). However, it is also expected that there will be net foreign loan to the tune of K41.9 billion (about $104.7m) which will offset the deficit and allow domestic debt repayment of 0.5 percent of GDP which is equivalent to K7.2 billion (about $18m),” reads the statement in part.

Ministry of Finance spokesperson Nations Msowoya in an interview on Wednesday pushed the blame in the widening gap to the under-performance in grants and donor support.

“Estimated grants for the year have gone down while projected expenditures have gone up. This has consequently caused the widening of the deficit. The recent borrowing through T-bills is a temporary measure and will not affect the deficit,” said Msowoya.

However, the World Bank has since released $ 50 million for budget support, the first in a programmatic series of three Economic Recovery Development Policy Operations (ERDPO) approved on Tuesday.

Meanwhile government, through the Reserve Bank of Malawi (RBM) has engaged in heavy borrowing raising over K5 billion (about $12.5m) through T-bills every week to finance among others rolling debt.

RBM spokesperson Efford Goneka in an interview while commenting on the recent upsurge in government borrowing, noted that RBM issues T-bills if there is no money to retire maturing debt but otherwise it is retired without the issuance of the securities.

Since January this year, government borrowed over K50 billion (about $125m) through treasury bills (T-bills), thereby choking the financial market and causing commercial bank interest rates to rise over 50 percent.