Government is spending more than revenue it is generating with data showing that budgetary operations for the first-quarter (Q1) of the 2022/23 fiscal year resulted in a fiscal deficit of K291.54 billion, figures show.

At K291.54 billion, this deficit surpasses a K155.37 billion  deficit recorded in the Q3 of the 2021/22 fiscal year and K56.89 billion for  Q1 021/22. 

According to the Reserve Bank of Malawi (RBM) data, expenditures at K711.07 billion during the review period were higher than revenues which amounted to K419.53 billion during the review quarter.

Such a deficit will likely put government under pressure as government will have to borrow domestically to finance the deficit, a development that could crowd out private sector or cut dome budget lines.

Economists fear Malawi’s widening fiscal deficit has become an issue of concern as such deficits are driving domestic debt service upward and increasing the fiscal burden from payments on both interest and principal.

“Because financing deficits is mostly done through borrowing on the financial market within the country, debt may disturb the macro-economic environment but also end up becoming unsustainable,” said Malawi University of Business and Applied Sciences economics lecturer Betchani Tchereni.

World Bank in its fourteenth edition of the biannual Malawi Economic Monitor 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.

Meanwhile, in the 2022/23 budget, overall fiscal balance is estimated at a deficit of K884 billion, which is 7.7 percent of GDP to be financed through foreign borrowing amounting to K230.07 billion and domestic borrowing amounting to K653.98 billion.

Minister of Finance, Economic Affairs Sosten Gwengwe has, however, indicated that the government  will ensure implementation of fiscal consolidation measures to enhance revenue collection and manage expenditures.

“To enhance revenue collection, the ministry will continue rolling out the implementation of the just launched Domestic Revenue Mobilisation Strategy (DRMS), which was developed under the theme “Building a Tax Compliant Culture for national development.”

“This budget will embark on a painful but necessary journey to start flattening the net lending line and in the short to medium term put it on a sustainable downward trajectory,” he said in the 2022/23 budget statement. 

Meanwhile, total revenues and grants for the 2022/2023 fiscal year 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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