‘Fiscal indiscipline threatens growth’ – The Times Group Malawi

Post was last updated: February 6, 2020
NYASULU—It becomes difficult to address future emergencies

Economic commentators have warned that continued spending beyond budget ceilings by the Treasury and appetite for borrowing would frustrate economic growth strides for the country.

This comes as figures from the Reserve Bank of Malawi (RBM) show that the Treasury overspent by K41.7 billion in the second quarter of the 2019/20 financial year.

A Monetary Policy Report issued yesterday by RBM indicates that during the quarter, total revenues amounted to K315.2 billion (5.3 percent of GDP), comprising K279.6 billion domestic revenues and K27.7 billion grants.

Total expenditures in the quarter amounted K390.6 billion (6.6 percent of GDP) against a quarterly budget of K348.9 billion (5.9 percent of GDP).

Economic expert, Henry Kachaje, said Wednesday that borrowing in itself might not be wrong, provided the funds are directed towards investments that have a high social and economic return in the long run.

“But overspending on consumption, salaries, and interest payments on loans, non productive social spending is what keeps undermining our potential for economic growth.

“Unfortunately what is the case in this quarter is that we are even spending over and above what we even provided for in the budget. This is worrying because it simply reflects fiscal indiscipline and can have negative consequences on the debt burden to the nation,” Kachaje said.

Economics professor at Chancellor College, Ben Kalua, said Malawi lacks political leaders that have the interest of the people at heart that would ensure long term measures to heal the economy.

“These all stem from poor economic governance and political governance over the economy. There are politically hired people on government salaries but doing nothing, so we need to do away with that. It actually ruined Zimbabwe,” Kalua said.

Economics Association of Malawi, Executive Director, Kettie Nyasulu, said spending more than we earn risks growing our debt.

She said this has serious implications on the economy at large and budget implementation.

“With a growing national debt, it becomes relatively difficult to address future emergencies,” Nyasulu said.

Director of Research at Research and Development Associates, Collen Kalua said if it goes unchecked, the trend would frustrate efforts by the central bank to enhance private sector credit growth by reducing interest rates.

“Borrowing will make it exciting for banks to lend to the government and not the private sector which halts process of growing the economy so the authorities should listen and implement some of these things that they are told,” Collen said.

The RBM report shows that the average annual growth rate of broad money (M2) was recorded at 10.9 percent in 2019, compared to 18.4 percent in 2018.

It also indicates that private sector credit continued to recover, supported by low interest rates as it expanded by 21.3 percent in 2019, a significant increase from 11.5 percent recorded in 2018.

In the previous quarter the Central bank recorded total revenue at K296.20 billion with total expenditure recorded at K386.81 billion.

This represents a K90.61 billion deficit accrued in the first quarter.

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