Mid-term budget revised to K2.850 trillion

Sosten Gwengwe, Minister of Finance and Economic Affairs

The total expenditure in the 2022-23 budget  has been revised upwards from K2.840 trillion to K2.850 trillion owing to increases in employee compensations, public debt interest and use of goods and services.

Presenting the revised budget, Finance and Economic affairs Minister Sosten Gwengwe explained that the 2022-23 Mid-Year Budget Document presents the 2022/23 Revised Budget framework, alongside the 2022/23 Approved Budget one.

In the blueprint, total revenues and grants have been revised upwards from K1.956 trillion to K2.008 trillion.

Domestic revenue is projected to go down from K1.636 trillion to K1.628 trillion. Of the total domestic revenue, taxes will account for K1.534 trillion while other revenues will amount to K94.4 billion.

Another highlight is the lifting of the ban on holding conferences outside duty stations for civil servants and Government institutions to support the tourism sector recover.

Government is also considering extending the Priority Industries Scheme to all local companies even those that were registered before 2013 to level the play field.

In 2023, growth is estimated at 2.6 percent.

The  aftermath of Cyclone Ana 

Besides the global economic downturn, growth in Malawi has been further hampered by Cyclone Ana which damaged Kapichira hydro power station thereby taking 129.6 Mega Watts off the national power grid which heavily affected economic activity especially in the manufacturing sector.

Going forward, growth prospects remain positive due to the planned restoration of the Kapichira hydro power station and the Agriculture commercialization drive.

Malawi’s Total Public Debt stood at K7.3 trillion, up from K6.38 trillion in March 2022, representing a 14 percent increase.

External and Domestic Debt accounted for 45 percent (K3.3 trillion) and 55 percent (K4 trillion) of the total debt, respectively.

As a percentage of Gross Domestic Product, the total debt in nominal terms stands at 64 percent.

The rising public debt is attributed to several related factors including persistent budget deficits; suspension of budgetary support from development partners and clearing of arrears incurred in previous fiscal years.

Additionally, Malawi’s debt situation has also been driven by natural economic shocks like the Covid-19 pandemic and Cyclones which negatively affect both revenue and expenditure.

covid 19
A health worker captured administering COVID-19 jab in this file photo

Some of the mechanisms lined up to achieve debt sustainability is the implementation of a Debt treatment which will involve asking creditors to restructure Malawi’s debts and they will be sacrificing and giving up millions of dollars in the Net Present Value haircuts.

Another is Grant Mobilisation through the Multi Donor Trust Fund under the banner Friends of Malawi which has been set up and donors are mobilizing resources to bail out the country.

The third component in dealing with the debt sustainability issue is to optimize budgets by spending prudently and where possible cut.

According to the Minister, the devaluation and inflation caused deviations in revenue and expenditure while the war in Ukraine fueled the increase in specific commodity prices affected the 2022-23 Mid-Year Budget Performance.

Gwengwe assured the House and the public that Government will continue to undertake policy actions aimed at ensuring that the market has adequate foreign exchange and at the same time boost holdings of gross official reserves.

Responsible for forex reserves: Reserve bank of Malawi  

The central Bank will continue to enforce the requirement to sale at least 30 percent of export proceeds to Authorized Dealer Banks which is mandatory and retain 70 percent of their proceeds in Foreign Currency Denominated Accounts

He was upbeat on the ongoing talks with the International Monetary Fund (IMF) for a new Extended Credit Facility (ECF) Program which will among other objectives, focus on building foreign exchange reserves for enhancing exchange rate stability and fostering public debt sustainability.

“Four days ago, the IMF Executive Board approved a Rapid Credit Facility for Malawi amounting to US$88.3 million which is equivalent to 50 percent of Malawi’s IMF quota under the new Food Shock Window. This emergency financing will help Malawi address urgent balance of payments needs related to the global food crisis as the country works towards the ECF”.

From Monday next week, legislators are expected to start deliberations on the proposed Revised Budget Estimates for the 2022-23 financial year.