The 2022/23 Mid-Year Budget Review report signals more pain for the poor throughout next year and that government will need external bailouts to keep the country together.

Presenting the budget yesterday in Lilongwe, Minister of Finance and Economic Affairs Sosten Gwengwe indicated that inflation has risen to 26.7 percent in October 2022, up from 9.8 percent the same period in 2021.

Consequently, he said in 2022, average inflation is projected to rise to around 21.5 percent from 9.3 percent in 2021 while in 2023 headline inflation is projected to stabilise at an average of 21.8 percent before it starts to decline thereafter.

According to Gwengwe, the country has not been spared from the global trends of a broad based and sharper-than-expected slowdown as global growth is forecasted to slow down from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023, the weakest growth profile since 2001.

Gwengwe arrives in Parliament yesterday

The mid-term fiscal plan review also shows that consistent with the downturn in global economic growth, the county’s growth prospects have been equally affected with gross domestic product( GDP) projected at 1.7 percent in 2022, a downward revision from 4.1 percent envisaged at the start of the 2022/23 fiscal year.

It further shows that in 2023, growth is estimated at 2.6 percent, and this is attributed to, among others, effects of Cyclone Ana which damaged Kapichira Hydro Power Station, resulting in loss of 129.6 megawatts and affected economic activity, especially in the manufacturing sector.

According to the review, as at mid-year, total revenue and grants for 2022-23 fiscal year amounted to K937.9 billion against a mid-year projection of K1.003 trillion and, on the other hand, the mid-year outturn for domestic revenues is estimated at K805.8 billion.

Reads the budget statement: “Of the domestic revenue, tax revenue is estimated at K766.6 billion while other revenue (non-tax) is estimated at K39.2 billion. It is expected that at the close of the fiscal year, domestic revenue amounting to K1.628 trillion, representing 13.7 percent of GDP would have been collected.”

Inflation and devaluation pressures is also said to have hampered expenditure as for the first six months of the financial year total expenditure came to K1.463 trillion comprising recurrent expenditure at K1.150 trillion and development expenditure at K313.0 billion.

The total expenditure at mid-year registered an over-spending of K31.2 billion emanating from compensations of employees, public debt interest, use of goods and services and grants.

Development spending during the first-half of the 2022/23 fiscal year amounted to K313.0 billion with K63.9 billion from the domestically financed component and K249.1 billion from foreign financed component. These underperformed by 40.1 percent and 20.2 percent, respectively compared to their targets, reads the statement.

But Gwengwe has attributed the rising public debt to, among others, persistent budget deficits; suspension of budgetary support from development partners and clearing of arrears incurred in previous fiscal years.

He told the House that the country’s debt situation has also been driven by natural economic shocks such as the Covid-19 pandemic and cyclones, which negatively affected both revenue and expenditure.

Said Gwengwe: “More recently, in around 2017 to 2020, authorities accumulated external debt just to ensure a stable exchange rate. External borrowing was contracted merely to supplement foreign exchange availability to meet the country’s import requirements, hence supporting consumption.

“The country managed to keep the exchange rate stable, but it was very artificial and in one way or another, it was going to cost the nation because we could not continue borrowing as those borrowed funds would require repayment one day.”

The Finance Minister has, however, stressed that public debt management remains central in the implementation of the current budget.

He explained that government has engaged its creditors for debt treatment and restructuring as well as cooperating partners for more grant financing than loans.

Economist Milward Tobias has pointed out that continued rising inflation means people’s income is buying less and less, and that constrains people from meeting their needs.

Tobias, who is Centre for Research and Consultancy executive director, said in an interview that fast rising inflation is a serious economic concern, adding that the trend is likely to continue in the coming months unless government intervenes by making food, especially maize, available in selling points.

He said: “Beyond an individual or household level, the current inflation rate is way higher than what was projected in the national budget and means that one fundamental assumption of the budget has failed to hold.

“It means the allocations in the budget cannot buy what was planned in the same quantity. The way forward in the next half of the financial year is to consolidate the budget based on current reality.”

Another economic analyst Gilbert Kachamba has described the slow growth in GDP as a sign that the economy is shrinking.

The analyst, who is head of economics at the Catholic University of Malawi, said: “This affects the poor by worsening their plight and some people will fall into the poverty trap. Government may fail to do some other key development and it will trigger rising inflation and unemployment.”

Kachamba observed that the weak economic growth prospects, which are well below global and regional averages, is a sign that the economy is passing through difficult times.

He said the country needs to quickly find ways of managing the gap other than debts since the debt levels may continue rising if nobody comes to the country’s rescue with aid and therefore implementation of the budget and some government activities my suffer.

Commenting on the suggested proposals for debt sustainability, economist Betchani Tchereni said there is need for more clarity on the bailout by Friends of Malawi to avoid a situation where some people may in future feel entitled to make decisions on behalf of Malawians because they contributed something.

He also said prudent spending can be plausible if austerity measures were to be ratified by Parliament, arguing that in the absence of any serious enforcement, nothing tangible can be realised.

Said Tchereni: “As a country, we only hear of foreign debt relief, what about domestic debt. Why is it that local banks and other institutions that lend government money don’t consider to forgive debt the way foreign institutions do?”

Some of the fiscal policies and measures proposed in the budget review to turnaround the economy include tightening monetary policy by adjusting the policy rate to 18 percent up from 14 percent which prevailed since the start of the fiscal year.

This monetary policy stance, coupled with complementary fiscal policy tightening is aimed at curbing the rising inflation.

Government has also planned to produce more, and increase exports by working with Green Belt Authority, the Malawi Defence Force, the Prisons and private sector players, including Press Agriculture, to establish mega farms to increase agricultural production for both local and foreign markets.

Other measures are to maintain or increase the current levels of social benefits and ring fence social spending budget lines amid the rising budget pressures so that the poor are not impacted by budget cuts. n

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