2024-2025 NATIONAL BUDGET STATEMENT ANALYSIS

The Minister of Finance, Honorable Simplex Chithyola Banda, on Friday 23rd February 2023, presented the 2024/25 national budget statement for approval and adoption by the August House. The budget was based on a positive outlook of the economy with real GDP growth at 3.6%, average inflation rate at 23.4% and tax refunds at 3% of total tax collections. The improved economic environment is mainly on account of government interventions in various economic sectors such as agriculture, tourism, mining, construction, and ICT, including effective fiscal discipline and public debt management. The budget was aligned with the Malawi 2063 First 10-Year Implementation Plan (MIP-1) and was themed from economic recovery to resilience through accelerating production and enhancing the legal and regulatory environment to protect the economy. Growth trajectory looks optimistic, to reach 4.8% in 2025.

With more focus on broadening the tax base, enhancing tax compliance, fostering investments, improving administrative functions of revenue collecting bodies and rectifying discrepancies in tax laws, revenues are expected to grow by 52% to K4.6tn, accounting for 24.3% of GDP from last year’s 19.7% share. The bulk of this growth is coming from domestic revenues which are up by K976.4bn to K3.4tn, accounting for 74% of total revenues. Similarly, grants are estimated to double to K1.2tn due to the International Monetary Fund (IMF) Extended Credit Facility (ECF) approval last year which has opened more donor inflow opportunities.

Total spending at K6.0tn has been proportionately reduced by 14%, owing to the rationalization of expenditures with a focus on highly productive sectors. The long-standing challenges in the FX space have been addressed by advancement of export strategies via Mega farms, labour export, mining, tourism, enhancement of diaspora remittances and increased donor inflows. Recurrent expenses at K4.2tn, though accounting for 92% of total revenues and 70% of total expenditure, have proportionately dropped by 18% and 6% respectively. Main growth areas with increased opportunities for the private sector include generic goods and services, agriculture, education, and health. However, though only grown by a 3% share of total expenditure, the public debt interest line may have to be closely watched to ensure that it remains within budget.

On another positive note, as a proportion of total revenues and total expenditure, development expenditure has gone up by 4% and 6%, respectively to settle at K1.8tn. Private sector growth opportunities are in information, transport and infrastructure which has grown by K245bn (64%), Health by K131bn (200%), agriculture and rural development by K128bn (45%), trade, industry, and development by K93bn (103%), human capital development by K85bn (65%), institutions and governance by K43bn (100%) and, tourism, energy, and natural resources by K1.5bn (4%).

Although public debt levels remain a concern, overall public debt growth at K1.4tn, as a share of total revenues and total expenditure, has reduced by 14% and 7%, respectively, year on year. With the positive outlook on the macros, public debt growth is expected to be contained as this will be a significant step towards achieving debt sustainability.

In summary, based on the enhancement of revenue collection processes, more donor inflow opportunities, rationalization of expenditures and more focus on economic development, the budget gives hope to a better Malawi on the road to achieving the 2063 vision. However, success of implementation of this budget, and Malawi’s economic recovery, will hinge on the boldness, courage and commitment by all stakeholders - thus private sector supporting initiatives that drive production and export generation, and on the Government side, adherence to its austerity measures, reducing public debt levels and effective fiscal management and discipline.