Malawi’s reliance on grants risky, says CfSC
The Centre for Social Concern (CfSC) says while grants are crucial for budget execution, a substantial reliance on international grants could pose risks to fiscal sustainability and budget implementation.
In its paper titled ‘Navigating Malawi’s fiscal landscape: A comprehensive and critical analysis of the 2024/2025 Budget, the faith-based economic think-tank argues that while Malawi’s commitment to recovery and development is outlined in the 2024/2025 National Budget, efforts to diversify revenue sources and reduce dependency on external aid are necessary for long-term economic resilience.
Speaking in an interview yesterday, CfSC executive director James Ngahy said while rising grants are an indication of increasing donor confidence, grants in a long run do not sustain the country.
He said: “No matter the case, dependency syndrome destroys a country’s economy. I am fully convinced that our revenues, if well utilised, could assist the country to go a long way.”
“We have lots of natural resources, do we gain anything out of them? Where does the gain go?”
Ngahy also argues that high assumed average inflation rate of 23.4 percent and estimated fiscal deficit of K1.43 trillion, which is 7.6 percent of the gross domestic product (GDP), could pose risks to fiscal sustainability.
In the 2024/25 proposed fiscal plan, Treasury estimates grants at K1.17 trillion, of which K1.1 trillion will come from international organisations and K72.69 billion from foreign governments.
This is a rise from the K568.7 billion Treasury collected in the previous financial year.
However, at the start of the 2023/24 financial year, Treasury had approved grants comprising K299.1 billion from international organisations and K12.4 billion from foreign governments, but these were revised at mid-year to K614.7 billion and K18.4 billion, respectively.
At the end of the financial year, it is projected that the grants will have an overall shortfall of 18 percent.
In his response to the proposed 2024/25 fiscal plan on Monday, Democratic Progressive Party finance spokesperson and former minister of Finance Joseph Mwanamvekha doubted the expected rising grants, saying their materialisation is subjective.
He said: “The K1.1 trillion projected inflows from grants is subject to our readiness and capacity to absorb.
“Based on the existing absorption capacity, the K1.1 trillion may not wholly find itself into the economy.”
In his 2024/25 National Budget Statement, Minister of Finance and Economic Affairs Simplex Chithyola Banda said the resumption of direct budget support, among others, demonstrates recovery efforts that government has been implementing.
The 2024/15 National Budget is built on the assumption that domestic revenue will increase to K4.55 trillion.
