Ministry of Finance and Economic Affairs has unveiled an ambitious plan to finance recurrent expenditure from domestic revenue rather than debt in the next three years.
The 2025 Economic and Fiscal Policy Statement, which is part of budget documents, says this approach “will ensure that debt is used for capital investments that spur growth and yield returns to the economy”.
In recent years, recurrent expenditures have been on the rise, along with fiscal deficits amid narrowing fiscal space.
For instance, while recurrent expenditure increased from K1.68 trillion in 2020/21 fiscal year to a projected K6.04 trillion in the 2025/26 fiscal year, fiscal deficit has soared from K825 billion to a projected K2.7 trillion.
This is happening at a time domestic revenues are consistent with targets in recent years, with data showing that Treasury collected K2.4 trillion out of a projected K2.2 trillion in 2023/24 financial year whereas in the 2024/25 financial year, Treasury collected K3.1 trillion out of the projected K3.4 trillion.
Major expenditure lines are on compensation of employees, wages and salaries, interest payment, generic goods and services, Affordable Inputs Programme, pensions and gratuities.
In the upcoming financial year that begins on April 1, Treasury is projected to collect K4.4 trillion in domestic revenues out of which K4.1 trillion will be tax revenue.
In an interview on Monday, public finance management consultant Dalitso Kubalasa observed that historical challenges and trends have been going in the opposite direction in all years, particularly in an election year such as this one.
He said the success of this policy action remains wholly dependent on business unusual undertakings through significant, consistent and decisive enhancements in the revenue generation, stringent enforceable expenditure management and vigilant debt oversight.
Said Kubalasa: “It sounds too good and too simplistic to be true. Nonetheless, it still remains not rocket science for such persistent fiscal deficits and escalating public debt levels as is being experienced, underscoring the necessity for comprehensive reforms.”
Economist and independent presidential aspirant Milward Tobias said in an interview on Tuesday that while it is possible to finance recurrent expenditure and capital investment from domestic revenue, the only critical condition needed to achieve this is having competent political leadership.
He said: “Policies developed by technocrats are usually based on technical assessment and are often realistic technically.
“The disconnect between technocrats’ view and politicians’ view of where this country should be and how to get there and what needs to be done and to be avoided, is what explains for policy failure. My government following this year’s election will deliver this policy.”
Meanwhile, Scotland-based Malawian economist Velli Nyirongo said in an interview that the practicality of this approach remains doubtful given Malawi’s narrow tax base.
He observed that despite the ambitious revenue targets, the projected fiscal deficit stands at K2.5 trillion, nearly 57 percent of total revenue, with K2.33 trillion deficit to be financed through domestic borrowing amounting to K2.33 trillion, of which, K145.78 billion will be through foreign borrowing.
Nyirongo said heavy reliance on domestic borrowing will likely crowd out private sector investment by driving up interest rates and exerting additional pressure on the banking system, creating an unfavourable business environment and reducing tax remittances to the Malawi Revenue Authority.
He said: “Controlling recurrent expenditure is crucial, as any increase in wages, subsidies, and operational costs could undermine the government’s commitment to avoiding debt for day-to-day expenses.
“Although the government asserts that borrowing will be directed solely towards capital investments, an escalating debt burden could severely limit fiscal space for future development initiatives.”
In the 2025/26 National Budget, total expenditure is programmed at K8.05 trillion, representing 31.1 percent of the gross domestic product (GDP). Of the total expenditure, recurrent expenses are estimated at K6.04 trillion, representing 23.3 percent of GDP and 75 percent of total expenditure.
World Bank data shows that statutory expenditures have consumed an average of 93 percent of domestic revenue over the past four fiscal years, depriving Malawians of development and public services.
Meanwhile, Malawi’s public investment in infrastructure has been negligible in the past two decades, averaging about 4.18 percent over a 20-year period between 1998 and 2017, according to the World Bank. At 4.18 percent, this is lower than Mozambique at 10.7 percent, Zambia’s 4.82 percent and Tanzania at 4.21 percent.
