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World Bank sees widened fiscal deficit

World Bank has projected the country’s fiscal deficit at 9.4 percent of the gross domestic product (GDP), a 2.3 percent jump from the previous year’s 7.1 percent deficit.

However, at 9.4 percent of GDP, the deficit is 1.7 percent above government’s seven percent projection for the year under review and 1.5 percent below Economist Intelligence Unit (EIU) 10.9 percent projection for the year.

Gwengwe: Closing the gap requires two things

A fiscal deficit is a shortfall in a government’s income compared with its spending.

In its April 2022 Malawi Poverty Outlook, the multilateral development bank observed that the implementation of expansionary policies and weak fiscal management have contributed to high fiscal deficits, resulting in increased high-cost domestic debt.

This, it said, has crowded out private investment.

Reads the outlook in part: “The recent uptake of non-concessional external debt has pushed Malawi into high risk of public debt distress.

“Associated higher debt servicing costs further reduce fiscal space for government investment.”

In the 2022/23 budget, overall fiscal balance is estimated at a deficit of K884 billion, which is 7.7 percent of GDP to be financed through foreign borrowing amounting to K230.07 billion and domestic borrowing amounting to K653.98 billion.

The deficit is one percentage point lower than that of the 2021/22 financial year.

Minister of Finance and Economic Affairs Sosten Gwengwe is on record as having said Treasury is implementing a strategy aimed at reducing the fiscal deficits by reducing the financing gap by a percentage point every fiscal year until the gap closes in the medium-term.

He said: “Closing the gap requires two things; firstly is to try and live within our means. This means cuts, expenditure controls and efficiency in public service delivery.

“Second is to enhance revenue mobilisation. We intend to aggressively pursue the recently launched Domestic Revenue Mobilisation Strategy.”

Budget deficits, reflected as a percentage of GDP, may decrease in times of economic prosperity, as increased tax revenue, lower unemployment rates, and increased economic growth reduce the need for government-funded programmes.

Malawi University of Business and Applied Sciences Associate Economics Professor Betchani Tchereni described the intention as good as debt levels are becoming unsustainable.

Meanwhile, total public debt stock stood at K5.8 trillion, or 56.8 percent of the rebased GDP at end December 2021 compared to a stock of K5.45 trillion, or 58.8 percent of GDP, in June 2021.

This equates to an increase of 7.1 percent in absolute terms, but a decrease of two percentage points as a ratio of GDP.

Of the total debt stock, K2.8 trillion (27.3 percent of GDP) was external debt while K3.04 trillion (29.5 percent of GDP) was domestic debt.

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