As at end December 2020, domestic revenues at K564.2bln fell short of target by K35.9bln—Finance Minister

Felix Mlusu

* Mid-year Budget performance

* Performance of taxes on goods and services fell short of target by 5.4%

* This was on account of subdued effective demand and rampant non-compliance in domestic VAT

By Duncan Mlanjira

Parliament approved total expenditure and net lending of K2.190 trillion in the 2020/2021 financial year while inflows of revenues and grants were approved at K1.435 trillion, giving a total financing requirement of K755.1 billion.

Of this financing, reports Finance Minister Felix Mlusu on Friday as he presented the review of the second half of the 2020/2021 Budget in Parliament on Friday in Lilongwe, K530.4 billion was planned as net domestic borrowing, while K224.8 billion was projected as net foreign financing.


“Of the total annual approved revenue and grants, Government projected that by the end of the first half, a total of K626.3 billion would be realised. This comprised total domestic revenue at K600.1 billion while grants were projected at K26.3 billion.

“These projections were largely based on economic prospects and commitments by development partners on the part of grants.

“As at end December 2020, domestic revenues at K564.2 billion fell short of target by K35.9 billion and represented a performance rate of around 94.0%.

Tax Revenue performance

Out of a tax revenue target of K568.3 billion for the first half, Mlusu reports that K548.7 billion was realized, representing tax revenue collection performance of 96.5 percent.

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He said: “Impressive performance in tax collection was recorded in taxes on income and profit, and capital gains as Malawi Revenue Authority (MRA) focussed on enhancing compliance.

“On the other hand, Madam Speaker, performance of taxes on goods and services fell short of target by 5.4% on account of subdued effective demand and rampant non-compliance in domestic VAT.

“Subdued performance in international trade taxes was also recorded largely on account of low import volumes due to border closures and travel restrictions.

Non Tax Revenue performance

The mid-year target for non-tax revenue was K31.8 billion while the outturn at K15.5 billion represented a revenue collection performance of 49.8%.

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“This is, however, expected to rebound as transfers by Treasury Funds and parastatals commence to trickle in towards the end of the fiscal year.”

On the performance in Grants, Mlusu said during the first half of the 2020/2021 financial year, they were programed at K26.3 billion — however, actual performance was significantly higher at K83.4 billion.

“This was mainly on account of the increased disbursement of resources by major cooperating partners towards COVID-19 operations and management.

On performance of expenditure, he said major assumptions that underpinned projected first half expenditures included the consideration of seasonal patterns of some activities such as the Affordable Inputs Program, slow start of new projects during the first half of the year as well as the need to balance revenue inflows against expenditure outlays.

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“Out of the K2.190 trillion of planned expenditure and net lending for the current fiscal year, K974.6 billion was projected to be spent during the first half. This comprised K892.6 billion of recurrent expenditure and K82.0 billion in development expenditure.

“Madam Speaker, as at end December 2020, expenditure outturn was recorded at K998.5 billion consisting of K830.1 billion in recurrent expenditure and K168.4 billion in development expenditure.

“Total expenditure at mid-year surpassed its target by K23.9 billion, largely emanating from the development budget line as recurrent expenditure fell short of its target by K62.5 billion.

Performance of Recurrent Expenditure

During the first half recurrent expenditure amounted to K830.1 billion, falling short of its target at K892.6 billion, representing a 7.0% underspending.

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“Compensation of Employees and Use of Goods and Services recorded marginal overspending of around 0.5% and 2.6%, respectively, when compared to their mid-year targets.

“Development spending during the first half of the year over performed by K86.4 billion with K83.7 billion emanating from foreign financed component and K2.7 billion from the domestically financed component. Donor-funded development expenditure (Part I) amounted to K115.4 billion against a planned expenditure of K31.6 billion.

“This was on account of increased disbursement of grants and project loans as a result of picking up in project implementation as well as some projects becoming effective during the course of the period under consideration.”

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Mlusu went further to say the overall balance during the first half of the year was recorded at negative K351.0 billion, slightly above the planned first half deficit of K348.3 billion due to more than projected disbursement of project loans.

“This deficit was financed by a net domestic borrowing of K304.0 billion and a net foreign borrowing of K47.0 billion. Despite the increase in overall balance, the first half net domestic borrowing of K304.0 billion was lower than the projected domestic borrowing of K365.8 billion.

“This, Madam Speaker and Honourable Members is in contrast to what some commentators have made people to believe that implementation of the budget in the first half was off-track as a result of increased domestic borrowing,” he said.