Minister of Finance and Economic Affairs Sosten Gwengwe says Treasury still faces huge imbalances between tax revenue and expenses, a situation that dashes hopes of reducing the fiscal deficit in the short-term.

Speaking in an interview on the sidelines of the 2023/24 Pre-Budget Consultations in Mzuzu on Friday, the minister said as such, the country will continue to borrow resources to at least six percent of the gross domestic product (GDP) to finance the budget as they work on coming up with a lean budget.

At six percent of GDP, Treasury falls short of the recommended three percent.

Said Gwengwe: “We are running a budget that carries with it some deficits. The previous year it was hovering around eight percent, in this year we dropped down to seven percent and our plan is to be able to reduce as a percentage point of our deficit to GDP by one percent every year.

“Ideally, we would like to have a budget that is more than three percent borrowed. We are still hovering high up, but we would want to continue doing it. For us to do that, it starts with a budget that is lean.”

Gwengwe takes notes during the 2023/24
Pre-Budget Consultations in Mzuzu

He admitted that the tax base remains narrow and the government is taxing the same people that are overburdened by tax, especially employees and businesspeople.

“The President is talking about a lean Cabinet and lean government. It’s all because we need measures that would reduce spending by the government.

“The less we spend, the less we borrow and it will feed into us having a budget that may be not balanced but moving in the direction towards having a balanced budget,” Gwengwe said.

The minister revealed that Treasury is trying to increase revenue collection by encouraging collaboration between the local government and Malawi Revenue Authority (MRA).

“If the two can work together, then we can start bringing the informal sector into more tax collection,” he said.

Treasury data shows that in the 2022/23 financial year, Parliament approved a budget of K2.839 trillion which was expected to be financed by domestic resources amounting to K1.6 trillion billion, grants amounting to K320.3 billion and net lending of K884.0 billion.

In the first-half of the financial year, domestic revenues were projected at K821.6 billion of which, K750.5 billion was expected to be tax revenues while other revenues were projected at K71.1 billion.

 However, during the period under review, total domestic revenue outturn was K805.8 billion out of which K766.6 billion were taxes and other revenues was K39.2 billion.

On the other hand, during the review period, Treasury expected to receive K153.84 billion as grants from international organisations (multilateral donors) and K27.87 billion from foreign governments.

However, overall , grants underperformed by K49.56 billion largely due to lower than anticipated disbursement from both foreign governments and internal organiations resulting from reduced activities.

In the period under review, total expenditure was projected at K1.432.04 trillion broken down as K1 013.36 trillion recurrent expenditure and K418.68 billion development expenditure.

Again, total expenditures in the quarter were above the projected amount of K1 432.04 billion by K31.15 billion.

Resultantly, as at mid-year, fiscal balance was, therefore, K525.27 billion, higher than the anticipated fiscal balance of K428.69 billion.

On his part, Malawi Local Government Association Finance Managers Network vice-chairperson Richard Chakhala urged Treasury to settle arrears owed to them in excess of K16 billion, which he said was affecting their operations, including collection of revenue.

He said: “The arrears have been accumulating over time. These are issues that government should address.”

The meeting in Mzuzu was the third in a series of consultations for the 2023/24 National Budget. The first two were held in Blantyre and Lilongwe, respectively.

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