It is that time again in the Malawi Government fiscal year when the Minister of Finance and Economic Affairs takes to Parliament a performance review of the national budget for amendments.
Formally called the Mid-Year Budget Review Meeting of Parliament, the platform provides an opportunity to make amends to the national fiscal plan.
Tomorrow, Minister of Finance and Economic Affairs Simplex Chithyola Banda is expected to present the Mid-Year Budget Review Statement which will highlight performance this far and what needs to be done to make the situation better.
It is public knowledge that key macroeconomic indicators have veered off track and the outlook is grim, at least ceteris paribus. For instance, National Statistical Office (NSO) data shows that inflation is currently at 32.4 percent which is above the 27 percent projection the minister stated in the budget earlier this year. Similarly, at 26 percent, interest rates are also beyond projections and stifling private sector growth, a situation that is worsening economic recovery efforts.
Public debt is yet another headache at K15.7 trillion, an equivalent of 81 percent of gross domestic product (GDP). This means debt servicing is suffocating other sectors and left Malawi running one of the highest budget deficits in Africa over the past two years. There have been calls for the government to consolidate its fiscal position through implementation of policies aimed at reducing the budget deficits and accumulation of new debts.
In the 2024/25 financial year that rolled out on April 1, a whopping K1.67 trillion is for debt servicing and out of this only K447 billion is to external creditors. The situation is compounded by low domestic revenue collections amid ballooning expenditures.
Reserve Bank of Malawi data shows that Malawi had a K679.92 billion deficit in the first half of the fiscal year with expenditures pegged at K2.95 trillion against K2.25 trillion revenue.
In terms of budget implementation, my take has always been that fiscal discipline is our main weakness as successive administrations have had a penchant for spending beyond their means, making the government live a borrowed life through borrowing to fill the holes.
To salvage the budget and the economy at large it will require radical changes, including having the right people in critical positions in most of the government ministries, departments and agencies (MDAs). It is a tragedy that some critical MDAs are led by people who, in serious societies, would not be anywhere near such institutions.
Poor or lack of coordination in terms of policy mix also needs to be addressed if things are to turn for the better in budget implementation which is key to economic recovery. The monetary policy and fiscal policy should also read each other to avoid the chaos we see.
Corruption is the major spoiler of successful budget implementation and economic recovery as public procurement tends to import inflation. To finance procurement, the government resorts to borrowing from the domestic scene, crowding out the private sector, a development that influences rising interest rates.
I have always said that economies do not recover through miracles or prayer. They do as a result of making hard choices and strategies that will later benefit the economy at large.
Inflation is one key variable used in managing economies, but Malawi’s inflation is not really about demand as authorities often put it because it remains from the supply shocks with almost all strategic commodities, including maize are being imported. High inflation rate complicates the ability of the Ministry of Finance and Economic Affairs to deliver on all the assumptions.
It has become a trend for the Minister of Finance to table a supplementary budget which essentially has tended to dismantle the initial fiscal plan gone off-track during the first six months of implementation. While it is normal to make adjustments, either downwards or upwards, during the Mid-Year Budget Review, it becomes a matter of concern when the trend is normalised.
National budgets or the expenditure plan play a critical role in fostering economic prosperity and eradicating or reducing poverty. Through the national budgets, governments implement their development plans. This is the more reason budgets should be realistic and based on economic realities.
In revising the budget during the Mid-Year Budget Review, the Minister of Finance should strive to strike a balance and ensure focus is more on economic growth, job creation, economic empowerment and social protection.
Hard choices, trade-offs and credible revenue projections as well as sustainable expenditure will be critical to salvaging the budget.
In the second half of the fiscal year, budget implementation should be taken seriously and public officers who flout the Appropriations Act should be held to account for giving people a raw deal.
