25 August 2023

National Budget Brief 2023/24

The 2023/24 National Budget was drafted under a challenging global and domestic economic context, with the IMF projecting a weakening of global and Sub-Saharan Africa (SSA) real economic growth for 2023 and 2024. Malawi's growth prospects remain subdued, with the World Bank projecting Malawi's economy to grow by only 1.4% in 2023 from 0.9% in 2022. Elevated inflationary pressures due to the second-round effects of Tropical Cyclone Freddy and continued fiscal and exchange rate risks are compounding Malawi's macro-fiscal situation. For reference, the Reserve Bank of Malawi (RBM) projects inflation to average 24.5% in 2023, whereas the exchange rate spread[1] remains wide, at 44% at the end of March 2023, above the pre-devaluation level of 25%. Government spending has consistently outpaced revenue growth, with total government expenditure (TGE) averaging 23.6% of GDP over the past five financial years, against an average revenue GDP ratio of 15.4%. This has resulted in persistent fiscal deficits, averaging 8% of GDP over the same period. Considering these trends, the government's capacity to generate sufficient revenues to fund social sectors adequately will likely remain constrained in the short-to-medium term. It will require strategic prioritization and efficiently utilizing the limited available public resources.  Over the past five financial years, 2019/20 to 2023/24, the combined allocation to social sectors (education, health, and social protection) has gradually declined from 35% of TGE to 29.3%. Amongst the social sectors, education continues to receive the largest TGE share, averaging 16%, although showing a declining trend, followed by health (8.5%), social protection (3%), and water, sanitation, and hygiene (WASH) (2.5%). These trends are unevenly distributed, with social protection and WASH budgets showing irregular trends, which are strongly linked to donor funding patterns. Allocations to other social sector areas, such as child protection and disability, remain very low, averaging 0.03% and 0.2% of TGE, respectively. In nominal terms, allocations to direct child protection programmes are worth MK1.2 billion in 2023/24 or roughly MK130 per child, the highest per child allocation over the past five years. Increasing debt servicing allocations, worth 24% of TGE or 36% of total estimated revenue in 2023/24, are contributing to further shrinking an already constrained fiscal space for social sectors. Against this challenging macro-fiscal background, UNICEF calls for the Government to protect social sector spending in the short-to-medium term to safeguard gains in social sector outcomes.   [1] The difference between the official Malawi Kwacha/US Dollar TT exchange rate and less strictly controlled rates on cash purchases at foreign exchange bureaus.