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Malawi Economic Justice Network - Comments on the proposed Malawi Budget 2001-2002

3. Macro-Economic Issues
 
The Budget Deficit
 
Government Expenditure
 
  Approved 2000-2001 Revised 2000-2001 Estimate 2001-2002 Deflated 2001-2002 2001/2002 Percentage of GDP
Recurrent 21917.47 29133.68 36582.84 27862.03 27.43
Development 12249.74 11185.65 13675.83 10415.71 10.25
Total 34167.21 40319.33 50258.67 38277.74 37.68
 
Revenue 18858.14 20442.65 25505.43 18663.69 18.37
Grants 11319.74 13172.30 15582.00 11867.48 11.68
Total 30177.88 33614.95 40087.43 30531.17 29.95
 
Deficit (excluding grants) 15309.07 19876.68 24753.24 18852.43  
Deficit 3989.33 6704.38 10171.24 7746.57 7.73
 
Overall Government expenditure is therefore set to rise by 15% in nominal terms, but in real terms expenditure is set to fall (although expenditure was 6 billion over-budget last year). The discrepancy between these figures (taken from Budget document number one, the Economic report) and those in the Ministers speech must be noted. In the speech the Minister used the recurrent expenditure figure minus debt repayments instead of the total recurrent expenditure figure. As debt repayments are an integral part of recurrent Government expenditure they have been included here.
 
When included, they actually show that the deficit including grants this year will be 7.73% of GDP, taken at current market prices (133,385.98 million is the figure in the Economic Report). In money terms this is an increase of 15.5% in real terms.
 
In the budget speech, the figures given are again different to the above. According to the speech, GDP is predicted to grow by 2.3% this year and 4% next year. Given this, the deficit is set to increase from 1.4% of GDP to 1.9%. (Para 79 budget speech)
 
However, whatever figures are used, we can legitimately ask why the Budget Deficit is increasing at all. The reason given by the Minister in his budget speech and in the Economic Report is the increased expenditures proposed for this year on salaries. Salary increases are indeed welcome, especially for front-line workers such as teachers and nurses. However, a closer look at the figures shows that the revised figure for spending on wages and salaries last year (7.769 billion MK) is actually only 1 million MK less than what is proposed for this year (7.77 billion MK) . When you add the fact that Malawi expects to see grants from Donors increase this year and is also expecting 4.7 billion MK in HIPC debt relief, it is hard to see why the deficit should still be set to increase.
 
On a more positive note, the percentage ratio of general administration to social sectors is predicted to improve from a 41:27 ratio to 25:38 which is excellent news, if this turns out to be the case. However, if general administration is over budget as it was last year, this will not be the case.
 
Debt Servicing
 
Servicing debt remains the largest single Government expenditure this year. Due to the HIPC funds, public debt charges will be 40% less in real terms this year. However, at 11.7% of the total Government expenditure for 2001-2002, debt servicing remains higher that the spending on either Education or Health. MEJN questions whether this can really be described as a sustainable debt burden, and is calling for the cancellation of the remainder of Malawi's foreign debt.
 
MEJN is also concerned that foreign borrowing is set to increase from 8 billion to 12 billion MK this year (as reported in Budget Document 1). Why does Malawi have to borrow more despite grant increases and debt relief?

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