Minister outlines budget obstacles
Minister of Finance and Economic Affairs Sosten Gwengwe has singled out reducing budget deficits and containing public debt as some of the major challenges in the 2023/24 financial year.
The minister said this in an interview yesterday ahead of the 2023/24 Pre-Budget Consultation Meetings which start today in Blantyre.
He also admitted that key challenges experienced during the current fiscal year ending on March 31 2023 also frustrated achievement of some of Treasury’s projections and derailed budget implementation.
Gwengwe said: “The global slowdown and high fuel prices affected our macro-economic fundamentals like inflation and interest rates.”
Treasury data shows that in the 2022/23 financial year, Parliament approved a budget of K2.839 trillion which was projected to be financed by domestic resources estimated at K1.6 trillion, grants amounting to K320.3 billion and borrowing of K884 billion.
During the first half of the financial year, domestic revenues were projected at K821.6 billion of which, K750.5 billion was expected to be tax revenue while non-tax revenue was projected at K71.1 billion. However, during the period under review, total domestic revenue outturn was K805.8 billion of which taxes were K766.6 billion and other revenues was K39.2 billion.
On the other hand, during the review period, Treasury expected to receive K153.84 billion as grants from international organisations, notably multilateral donors and K27.87 billion from foreign governments.
However, overall, grants underperformed by K49.56 billion largely due to lower than anticipated disbursement from both foreign governments and internal organisations, resulting in reduced activities.
In an interview yesterday, former Finance minister Joseph Mwanamvekha pointed out that public debt, energy and forex crisis and fiscal deficit are key issues that need to be addressed in the next budget.
Giving his input on how the next budget should be framed, he said that looking at the debt levels, if government continues on this trajectory Malawi is at risk of becoming bankrupt.
Mwanamvekha said: “The Minister of Finance should immediately stop borrowing and start seeking budgetary support, grants and restructuring of the current debt.
“The Minister of Finance should ensure that the macro-economic and administrative assumptions that he makes in the next budget should be realistic and achievable.
“So far, all the assumptions he has made in previous budgets such as inflation, interest rates and exchange rate to mention but a few, have been unrealistic and have never been achieved.
“If he continues to make such unrealistic and unachievable assumptions, the budget will lose credibility and Malawians will lose trust.”
On foreign exchange shortage, he said Treasury should put in place measures to build foreign exchange reserves and ensure the country has enough foreign exchange to assist in the importation of key items such as raw materials for manufacturers, medicines, fuel and fertiliser.
Mwanamvekha, who served as minister of Finance and Economic Planning and Development during the Peter Mutharika administration, said if this is not done, the country will never achieve macroeconomic stability and/or reasonable economic growth rates.
He said: “As a country, we should be moving towards a situation where we are exporting more than we are importing. There are certain imports that need to be slowed down and encourage import substitution.”
To reduce budget deficits, Mwanamvekha said the next budget should put in place measures that will improve tax collection and tax compliance whilst simultaneously reducing government over-expenditure.
On her part, International Monetary Fund resident representative Farayi Gwenhamo said given the need to restore sustainability of Malawi’s public debt, the budget plan for 2023/24 financial year should ensure that spending is prudent and prioritised while revenue mobilisation is critical.
“At the same time, implementation of the new Integrated Financial Management Information System and institutionalisation of fiscal reporting are critical for improved budget execution and strong commitment controls,” she said.
Last week, Malawi Economic Justice Network (Mejn) also urged Treasury to exercise fiscal discipline in the forthcoming budget if the country is to progress and achieve meaningful development.
Mejn executive director Bertha Phiri said fiscal discipline remains a challenge that needs to be addressed.
She said: “We are delighted by the announcement of the European Union and Germany on the possibility of resuming direct budget support, but this needs to be guarded by doing what is necessary.”
The K2.84 trillion fiscal plan has faced criticism, with analysts branding it more consumptive than productive with only K626.6 billion allocated for development expenditure.
Meanwhile, the budget has a projected deficit of K842.1 billion, representing 7.1 percent of gross domestic product (GDP).
Treasury data shows that at end September 2022, the country’s public debt stood at K7.3 trillion, up from K6.38 trillion in March 2022, an increase of 14 percent.
Of this amount, external debt accounted for 45 percent of GDP or K3.3 trillion while domestic debt accounted for 55 percent of GDP or K4 trillion of the total debt.
