This year's government budget deficit for Malawi - the shortfall on income compared to spending - is expected to be 7.6% of the GDP. While 42% of the budget is allocated to interest payments alone, another 38% are budgeted for wages, leaving only about 20% for "priority projects". The country's debt to GDP ratio is over 90% - "These are all features of a fiscal crisis", according to the World Bank, "which requires an urgent move away from business as usual".
A number of these loans are denominated in foreign currency, meaning that Malawi cannot simply print it's way out of this situation. The deficit can only be made up through:
- new borrowing in the short term, which will further increase the interest burden and worsen the situation
- fiscal austerity - reducing government spending - which is generally unpopular
- higher taxes, which is not popular either
- more tax revenue from growing business volumes, which will require a better business climate & outlook
#inflation #malawi #forex #worldbank #finance #crisis
