Ministry of Finance says although most of the 2021/22 National Budget assumptions are not performing as projected, budget implementation has not been affected.
In an interview with Weekend Business on Wednesday, Treasury spokesperson Williams Banda said the ministry is banking on Covid-19 vaccine, export diversification and a broad tax base for the successful implementation.
He said: “It’s true that the 2021/22 National Budget was developed based on the stated macro-economic variables and the pandemic has affected the economy.
“However, with the increase in vaccine, export diversification and fiscal measures put in place to broaden the tax base government is implementing the budget.”
Banda said since budget is law, it will be up to Parliament to make adjustments during the mid-year budget review.
The 2021/22 National Budget was developed using Treasury’s projections of a real gross domestic product of 3.8 percent in 2021 and 5.4 percent in 2022; average inflation rate of 7.4 percent during the fiscal year; a stable exchange rate of about K780 per US dollar; a policy rate of 12.05 percent; and tax refunds at three percent of total tax revenue collection.
However, four months down the financial year, most of the projections are failing to hold.
At 3.8 percent, Treasury’s projection is more than the projections made by the International Monetary Fund (2.2 percent), World Bank stand at (2.8 percent) and Economist Intelligence Unit (2.7 percent).
Again, at 7.4 percent, the inflation projection is lower than Reserve Bank of Malawi’s 8.8 percent and IMF’s 9.5 annual average inflation projection for the year.
On the other hand, the local unit has been under pressure, depreciating against the dollar—from K770.84 in December 2020 to K815.5 in September 2021.
Both the IMF and World Bank point out the Covid-19 pandemic as one of the risks to growth and inflation, while on the part of the kwacha, the local unit has been losing grip to the dollar, depreciating from K770.84 in December 2020 to K815.5 in September 2021.
Reserve Bank of Malawi (RBM) has, however, maintained the policy rate—the rate that is used by central bank to implement or signal its monetary policy stance—at 12 percent at it’s their monetary policy committee meeting, 0.5 percentage points above what Treasury had projected.
In the 2021/22 Financial Year, total expenditure is estimated at K1.99 trillion while total revenue and grants for the nine months of the 2021/2022 fiscal year are estimated at K1.271 trillion with a projected overall deficit estimated at K723.8 billion.
Ironically, Treasury opened the 2021/22 fiscal year with a deficit of K46.8 billion in July, up from K28.4 billion recorded in June with RBM indicating that revenue collection declined by K45.5 billion to K112.5 billion during the month.
In his reaction, Chancellor College economics professor Ben Kaluwa observed that realistic revision would require more resources, “otherwise some activities and expenditures will have to be foregone.
“The budget was based on overly optimistic assumptions resulting in de facto under budgeting.”