The Economics Association of Malawi (Ecama) has urged Treasury to control budget deficit as figures show that the fiscal plan has recorded a K345.6 billion defict in the first four months.

Ecama argues that curbing budget deficits will ensure that the fiscal plan does not go off-track and strain the economy further.

Ecama’s position follows data from the Reserve Bank of Malawi (RBM) indicating that Treasury has recorded a deficit of K345.6 billion in its budgetary operations from April to July this year.

The figures contained in the RBM July 2022 Monthly Economic Report published on Tuesday show that although revenue collections have been increasing in the four-month period to July, expenditures continue to outweigh the revenues.

For instance, the figures show that while revenue collection amounted to K576.6 billion between April and July, expenditures were recorded at  K922.7 billion creating a deficit of K345.6 billion.

Speaking in an interview on Tuesday, Ecama executive director Frank Chikuta said the budget deficit could be along budgeted lines, but said Treasury should ensure that it maintains the deficit within the targeted limit.

He said: “It would be better to see that the budget is not increasing because if the outcome is higher than the programme then this is certainly something which needs to be given attention.

“The figure we have accrued in the first four months of this year is on the higher side. As it is, we are going into a period where collections are not as high as they are during the period which we just passed. We are going towards the lean period, which is where one would expect the deficit to be higher than compared to the first months.”

Malawi University of Business and Applied Sciences associate professor of economics Betcheni Tchereni said in an interview that while the rising fiscal deficit is a concern as fuels debt on the domestic market.

“Financing deficits is mostly done through borrowing on the financial market within the country, which may end up becoming very unsustainable and disturb the macro-economic environment,” he said.

In the 2022/23 fiscal plan which runs up March 31 next year, overall fiscal deficit is estimated at K884 billion, which is 7.7 percent of gross domestic product (GDP).

The deficit is expected to be financed through domestic borrowing amounting to K653.9 billion and foreign borrowing amounting to K230.07 billion.

But presently, available figures compiled by investment advisory firm Bridgepath Capital show that within five months of this fiscal year, Treasury has borrowed K612 billion or 94 percent of the planned K653.9 billion of the planned domestic borriwing.

In its recent Malawi Economic Monitor, the World Bank also observed that financing of government fiscal deficits using high-cost domestic borrowing continues to drive domestic debt on an upward trajectory.

The bank fears that continued borrowing will further reduce fiscal space for development spending and risks crowding out private sector investment.

Forecasting and advisory services provider, Economist Intelligence Unit also projected a 10.9 percent fiscal deficit of GDP, countering the government’s deficit of seven percent of GDP projected for this financial year.

EIU noted that fiscal deficit could be elevated largely due to economic pressures facing the country, specifically the impact of weather shocks on agriculture.

Minister of Finance and Economic Affairs Sosten Gwengwe is quoted as having said that government will ensure implementation of fiscal consolidation measures to enhance revenue collection and manage expenditures.. 

In this financial year, total revenues and grants  are estimated at K1.956 trillion, representing 17.2 percent of GDP while total expenditure is projected at K2.84 trillion, representing 24.9 percent of GDP.

Of the total expenditure, recurrent expenses are estimated at K2.019 trillion, and development expenditure is programmed at K820.67 billion.

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