By Kingsley Jassi:
The Ministry of Finance implemented spending cuts in November, resulting in a reduced budget deficit of K171 billion.
This is down from October’s record high of K213.1 billion, according to the latest Reserve Bank of Malawi (RBM) figures contained in its monthly economic review.
The report reveals that the cumulative deficit has already exceeded K1 trillion in just eight months of the current fiscal year, raising concerns as it approaches the annual projected deficit of K1.4 trillion within the K6 trillion 2024-25 national budget.
November’s fiscal performance was marked by a substantial decline in revenue collection, with the Malawi Revenue Authority (MRA) reporting a K59.3 billion decrease in tax collections.
Non-tax revenue also experienced a marginal drop of K300 million.
However, these shortfalls were partially offset by a K40 billion increase in aid inflows, resulting in total revenue of K341.6 billion for the month, representing a K19.4 billion decrease from October.
“Government expenditures witnessed a significant reduction of K61.5 billion to K512.5 billion in November 2024, affecting both recurrent and development expenditures.
‘Recurrent expenditure decreased by K43.6 billion to K406.2 billion while development spending saw an K18 billion reduction to K106.3 billion,” the RBM report reads.
The fiscal situation remains challenging as the Treasury grapples with mounting debt servicing obligations, with interest payments consuming K898.4 billion over the eight-month period.
Total expenditure for this period reached K4 trillion against revenue of approximately K3 trillion, with tax revenue contributing K1.98 trillion.
As the Finance Minister prepares the upcoming budget, which promises increased allocations to productive sectors, economists are calling for more realistic projections following significant deviations from current budget assumptions.
Economics Association of Malawi (Ecama)’s mid-year budget assessment highlighted missed targets in both domestic revenue and grants, compromising budget implementation.
Economic projections also fell short, with inflation averaging 32.2 percent against the projected 28 percent while economic growth reached only 1.8 percent, far below the anticipated 3.2 percent.
Economist Lesley Mkandawire emphasised the crucial role of accurate inflation projections in budget implementation.
“Inflation significantly impacts budget execution. When actual inflation exceeds projections, it often necessitates unplanned borrowing to bridge the gap,” Mkandawire said.
Currently, the Treasury expects the economy to grow by 4 percent in 2025.
In a recent interview, economist Marvin Banda said what drives expectation is most likely an increase in domestic revenue collections.
He added that most notably the increase in the performance of donor-related receipts that have been crushingly disappointing.
“Specifically, grants from foreign governments were projected at K36, 346 million or 6.22 percent of total grants, yet [there was only] only K4, 289 million or 1.92 percent or actual receipts or 11.80 percent of what was envisaged in assistance from foreign governments.
“It comes as no surprise that there is an expectation that these receipts will pick up in 2025 for what reasons the administration deems appropriate,” Banda said.
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