By Kingsley Jassi:
The 2025/26 national budget is off-track at mid-year as Finance Minister Joseph Mwanamvekha rues serious expenditure overruns, leading to a deficit overrun of K512.6 billion at half year.
With most votes having already exhausted their full year allocations, the next half of the fiscal year will see the government spending K4.1 trillion, and total expenditure is projected to be near K8.6 trillion, up from K8.07 trillion.
The K4.1 trillion is lower than the K4.4 trillion that was spent in the first half while revenue is expected to be more at K3 trillion than the K2.38 trillion collected in the first half of the year.
“The higher projection in the second half is as a result of expected implementation of revenue measures, and improved disbursements from development partners,” Mwanamvekha said when presenting the mid-year budget statement.
The increased budget has bloated the deficit to K3.1 trillion that will be partly financed through external borrowing, adding that this is due to outstanding arrears that were shelved and some emerging needs.
“It must be noted that some of the expenditures that have increased the deficit are one-off payments such as clearing the backlog of pensions and gratuities, elections and maize purchase,” Mwanamvekha said.
Premised on the projected growth rate of 2.7 percent, total revenue is expected to be at K5.3 trillion.
According to the minister this target will be achieved on the basis of tax measures that include increasing Value Added Tax (VAT) from 16.5 percent to 17.5 percent, reducing supernormal tax threshold from K10 billion to K5 billion that will attract 35 percent income tax and increasing the minimum 25 percent Pay As You Earn (PAYE) tax to 30 percent while increasing the tax free threshold from K150,000 to K170,000.
A 20 percent surcharge has also been put on imported cement while bank transfers and K100 000 above mobile money transfers will attract 0.05 percent levy.
The Minister also announced the introduction of a motor vehicle accident fund that will take 2 percent of motor vehicle insurance cover to finance public hospitals.
Reciprocal visa fees have also been introduced in countries that charge Malawians entry into their countries, ending the visa free regime for such countries.
Parliamentary Budget and Finance Committee Chairperson, Sosten Gwengwe acknowledged the existing financial indiscipline, saying his committee will ensure credible execution of the budget to attain the needed recovery.
“Our role is in the context of the law that provides the mandate of the budget and finance committee to ensure the budget is implemented in a way that it fixes the economy,” he said in his reaction.
World Bank Country Manager, Firaz Raad, expressed optimism in the way the minister pronounced fiscal reforms and growth measures but said more will be said after fully analyzing the budget.
“We are encouraged by the Minister’s mentions of fiscal reforms as they are vital in restoring macroeconomic stability but we will make a full statement once we make a full assessment,” said Raad.
Among the major issues in the budget is the K67 billion state residences budget that was exhausted by half year while Office of the President and Cabinet, Malawi Electoral Commission and others had on average spent above 70 percent of their vote.