Minister of Finance and Economic Affairs on February 28 2025 tabled the 2025-26 National Budget in Parliament pegged at K8 trillion.
In a nutshell, the proposed fiscal plan seeks to stabilise the economy in the thick of slow economic growth rate hovering around 1.8 percent, high inflation rate now at 30 percent and a growing debt portfolio whose interest payments are consuming almost half of the domestic revenues.
Expectedly, the minister traded same old excuses on why the economy has remained in the doldrums. These include factors such as changes in the global economic terrain, climate-induced shocks and alleged collusion between some unscrupulous businesspersons and opposition leaders purportedly to throw spanners in the works.
In the fiscal year starting on April 1, the minister has projected the economy to grow by 3.4 percent from the paltry 1.8 percent recorded in the previous years, largely attributed to external shocks and persistent high inflation.
Domestic revenue has a target of K4.44 trillion, representing 17.1 percent of GDP and tax revenue is expected to contribute K4.33 trillion while non-tax revenues are projected at K106.02 billion. On the other hand, grants from development partners are expected at K1.14 trillion.
In terms of expenditures, there is increased spending mostly covering debt servicing, public sector wages and social protection programmes.
Recurrent expenditures have been allocated K6.04 trillion with the development budget, often trimmed extensively during mid-year reviews, has K2.01 trillion, at least on paper.
Interest on debt will take up K2.17 trillion of the recurrent expenditures, an equivalent of 49.2 percent of domestic revenues. This is an increase from K1.46 trillion in the fiscal year ending on March 31 2025. From the interest payments, domestic debt interest accounts for K2.11 trillion while foreign debt interest is estimated at K61.2 billion.
To cover the K2.47 trillion deficit resulting from lower revenue projections against higher expenditure estimates, the Malawi Government will yet again resort to borrowing K2.33 trillion from the domestic market and K145.78 billion from foreign lenders. Total public debt stood at K16.19 trillion, an equivalent of 86.4 percent of GDP, comprising K7.39 trillion in external debt and K8.79 trillion in domestic debt as of September 2024. However, the rising domestic borrowing tends to crowd out private sector investment as it drives up interest rates.
For years, I have heard Ministers of Finance promising to do “business unusual” to stimulate growth and unleash the economy’s potential through creation of enabling environment for businesses to thrive. It was, therefore, not strange to hear the incumbent minister beaming with confidence as he presented the budget.
However, as it is always the case, the devil lies in the detail.
Through Malawi 2063, Malawi aspires to be a lower middle-income economy by 2030 and a middle-income country by 2063. However, the country is already at risk of not achieving the 2030 targets due to paltry growth instead of the desirable minimum of six percent annually.
From the look of things, it remains a tall order to achieve stability given the realities on the ground such as high debt and vulnerability to climate-induced shocks that negatively affect agriculture output.
Instead of engaging in the never-ending blame-game, the minister and his team would do this nation justice by soberly analysing the situation without political and other prejudices despite being an election year. Yes, the public finance management system has been tightened, but then loopholes still exist. This is one area that should be seriously looked into because it is critical to saving public resources and ensuring that they are used efficiently.
For a long time, as a nation, we have talked about tracking foreign exchange earnings from agriculture produce and other ventures. Thus, the purported strategies to put in place agencies to undertake this and others, including the so-called anti-forex crimes unit are duplications whose resources can be best allocated in other areas in needs. If anything, strengthen the Financial Intelligence Authority and Fiscal Police to handle the forex issues.
Increased production for export is another area that needs to be prioritised. However, to achieve the desired objectives, there will be need to improve the business environment to ensure that businesses thrive and the economy benefits.
When all is said and done, not everything may come out as planned or envisaged. Funding of budget lines has been an issue over the years and given the projected deficit and the uncertainty in terms of funding from some development partners, it remains to be seen how the fiscal plan will pan out at the end of the day.
National budgets should not be seen as events, but processes that enable governments to implement their development plans to foster economic prosperity and reduce poverty.
Thus, budgets go beyond figures as they are a contract between a government and its citizens to deliver on the promises, as such, where the plan is needlessly overhauled midway, it is a breach of contract. To sustain the credibility of national budgets, living within our means and acknowledging the realities will be the best route to take.
