Economists point out budget gaps

Economists point out budget gaps

Post was last updated: March 23, 2023

Economics Association of Malawi (Ecama) says the 2023/24 National Budget framework has failed to prioritise development as focus seems tilted towards consumption.

In a brief analysis, Ecama said the next fiscal plan is essentially a consumption budget and observed that the country is  not sacrificing current consumption for future consumption.

In the proposed  2023/24 National Budget, total expenditure is estimated at K3.87 trillion,   an equivalent of 25.5 percent of gross domestic product (GDP).

Reads the Ecam analysis: “Out of the total expenditure, only about K900 billion 5.9 percent of GDP is earmarked for development expenditure, while the rest is for recurrent expenditure.

“Of the development expenditure, only a third is under the direct control of the government while two thirds will depend on the whims of development partners.

“The large debt stock is taking up about a third of the total expenditures. These are resources that could be channeled to productive activities.”

At K3.87 trillion, the budget is almost K1 trillion higher than the K2.85 trillion of the current financial year.

According to the proposed  budget, recurrent expenses are estimated at K2.98 trillion, representing 19.6 percent of GDP and 76.9 percent of the total expenditure, respectively.

On the other hand, development expenditure is pegged at K896.21 billion, an equivalent of 5.9 percent of GDP and 23.1 percent of total expenditure, representing an increase of K207.75 billion from a projected 2022/23 likely outturn of K688.45 billion.

This means that development expenditure will be composed of K600.28 billion foreign resources and K295.93 billion domestic resources.

Minister of Finance and Economic Affairs Sosten Gwengwe hopes to enhance resource mobilisation accompanied by prudent expenditure management to put debt on a downward trajectory, but  Ecama believes it is a tall order amid a myriad of economic challenges.

Ecama also fears the budget deficit which has been set at K1.32 trillion or 8.7 percent of GDP,  may not be achieved.

“It is fair to assume that it will exceed  the projection given the expenditure slippages on some lines, below projected revenue collections due to energy challenges facing industry, the never ending fight against Covid-19 and now also cholera and cyclones but also the  rate uncertainties,” said the Ecama.

In an interview, University of Malawi economics lecturer Lucius Cassim also expressed discomfort with the widening deficit, describing it is an unfortunate occurrence.

He also advised Treasury to forgo things that are unnecessary expenditure and ensure that it prioritises expenditures that grow the economy rather than bleed it.

“If we reduce borrowing, it means that we will also reduce the deficit,” Cassim said.

However, Gwengwe said government continues to ensure that the fiscal deficit is minimised to the extent possible.

The proposed fiscal plan has pegged total revenue and grants at K2.55 trillion, representing 16.8 percent of GDP with domestic revenue projected at K2.24 trillion or 14.7 percent of GDP.

Out of the domestic revenue, tax revenue is estimated at K2.13 trillion while other revenues are estimated at K114.34 billion.

Gwengwe projected grants at K311.5 billion, which represents two percent of GDP comprising K299.07 billion from international organisations and K12.43 billion from foreign governments in form of dedicated and project grants.

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