Fiscal imbalance under microscope | The Times Group

Post was last updated: June 16, 2018

Treasury has been warned against spending beyond the government’s means amid concerns of rising budget deficits and public debt.

This was the general observation during the launch of the World Bank’s Malawi Economic Monitor in Blantyre on Wednesday.

According to the report, fiscal performance significantly deteriorated in the first half of the 2017/18 fiscal year on account of over expenditure by the government, among other challenges.

Malawi’s fiscal deficit was projected to widen from an estimated 3.7 percent of Gross Domestic Product (GDP) in 2016/17 fiscal year to 4.4 percent of GDP in 2017/18 due to increased expenditure and revenue under-performance.

In the 2017/18 budget, Finance Minister, Goodall Gongwe, however, envisioned that the budget deficit would be reduced to an even lower level of 4 percent of GDP.

Despite the promise, at mid-year, the deficit significantly deteriorated due to a fall in revenue due to weaker economic activity, a one-off scrutnisation of payment of arrears and an increase in expenditure, according to the World Bank report.

It states that, although some expenditure measures in the second half of the year are expected to constrain spending, the deficit is expected to reach 7.1 percent of GDP for the full fiscal year.

Stakeholders have, therefore, underscored the need for government to revise its budget framework to mirror the situation on the ground.

One of the panelists during the launch of the Economic Monitor, former Reserve Bank of Malawi (RBM) governor Charles Chuka, said, going ahead, the country should expect another big deficit, unless the Treasury crafts a realistic budget.

“We need to change the legal framework for the budget. The current legal budget framework assumes that the estimates are close to reality. Otherwise, the risks are also increasing; the more the debt increases, the mores the risks are,” Chuka warned.

On public debt management, Chuka said the country would continue to be haunted by rising debt as long as fiscal imbalances persist.

He said there is need to have a legal binding constraint to caution the Treasury against over-borrowing from the market.

World Bank Country Manager, Greg Toulmin, said, undoubtedly, Malawi risks having more pressure points for expenditure in the coming years if it does not tame the situation.

“You can’t spend what you don’t have. It is important that the budget is designed and based on the revenue the government can reasonably expect to have and they [should] keep the budget deficits down to a manageable level.

“That requires very difficult decisions by the government because there are a lot of very compelling priorities that they are required to fund and, therefore, they would have to make difficult choices. But that is why they were elected; because people expect them to choices,” Toulmin said.

Commissioner of the National Planning Commission, Phillip Madinga, said the situation is pilling pressure on the private sector and impinging on productivity.

Let us know what you think of this update and remember to add us on our facebook and follow us on our twitter. Make sure to come back daily for more Malawi business news updates.

Quick Links: Malawi Banking News | Malawi Technology News | Download Business eBooks | Ten Signs You Are An Entrepreneur | What is a Managing Director?

Today’s top business story: Top Commercial Banks In Malawi

Source link