Fiscal deficit set to widen

Post was last updated: June 28, 2019

William Kumwembe:

OUTLINED BUDGET PRESSURE POINTS—Toulmin

The 2018/19 financial year deficit is expected to stand at 5.8 percent of Gross Domestic Product (GDP), 2 percentage points higher than the budgeted 3.8 percent.

However, the projection is lower than the previous year’s 7.8 percent of GDP.

This is according to figures contained in the latest World Bank biannual publication, the Malawi Economic Monitor, which reviews the country’s economic developments.

In the report issued on Tuesday, the Bretton Woods institution says, despite missing its target, the expected deficit demonstrates progress over the 2017/18 financial year, particularly for an election year.

The World Bank says the higher than anticipated projected deficit is due to lower than expected revenues and grants (about 0.7 percent of GDP) and higher than expected recurrent expenditure (about 1.3 percent of GDP).

“The excess in recurrent expenditure is the result of increased spending on election preparations, higher spending on goods and services, and statutory obligations, with the latter particularly involving claims for resolved court cases,” reads part of the report.

During the third quarter of the financial year, Treasury recorded a widening budget deficit of K120 billion or 2 percent of GDP, from K96.4 billion or 1.8 percent of GDP in the second quarter.

In the first quarter, budgetary operations recorded a deficit of K86.1 billion or 1.5 percent of GDP.

The World Bank partly attributes the underperformance to a short fall in grants and recurrent expenditure overruns.

The overruns were largely due to front loading of expenditures and increased election-related spending.

“Lower than expected grants also led to underperformance in foreign financed development projects,” reads the report.

As at mid-year, dedicated grants fell by about 50 percent of the target and project grants fell by about 37 percent of the target, largely due to slow project execution.

Overall, during the first half, total revenue and grants underperformed by about 11 percent of the mid-year target.

Speaking when presenting the report to stakeholders, World Bank country Manager, Greg Toulmin, also cited weak governance and corruption among pressure points on the national budget.

Toulmin said consequentially, most of the fiscal deficit would be financed by domestic debt, which is already unsustainably high.

The increasing level of domestic debt at high interest rates has resulted in a high overall risk of debt distress.

To address this, according to the World Bank, the government should diligently pursue policies to reduce fiscal deficits by strengthening expenditure control, undertaking growth enhancing expenditures and improving domestic revenue mobilisation.

Meanwhile, Finance Minister, Joseph Mwanamvekha, is expected to present a provisional budget in Parliament today, to give room to the government to prepare a full 2019/20 budget.

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