The Economics Association of Malawi (Ecama) has advised Treasury to contain the pressure that could arise from a bloated wage bill, which is equivalent to 28 percent of the 2018/19 National Budget.
In an interview yesterday, Ecama president Chikumbutso Kalilombe said the adjustments in wages and salaries can only be feasible if Treasury reprioritises its expenditure and accommodate them within the proposed budget.
In the 2018/19 fiscal plan, which rolled out on July 1, wages and salaries are projected at K392 billion, which is 7.4 percent of gross domestic product (GDP), representing a 24.3 percent increase over the previous fiscal year.
The expansion of the wage bill is on account of a 20 percent salary adjustment for junior grades and 10 percent for senior grades in the public service.
This fiscal year, Treasury plans to recruit 10 500 primary school teachers, 500 secondary school teachers and 1 000 medical personnel.
In the budget, Treasury has also provided money for increments in chief’s honoraria across all ranks.
But Kalilombe said with the estimated budget deficit, which will be financed by domestic borrowing, increasing salaries and wages would not be ideal this time.
“We are aware that a well incentivised civil service would be a key driver for economic growth and transformation. However, our fear is that an increase in wages and salaries beyond a certain threshold would be inflationary and disturb the current macroeconomic stability,” he said.
University of Malawi’s Chancellor College economics professor Ben Kaluwa said the additional wage pressure is likely to have adverse effects on government’s investment pattern, thereby impacting negatively on development projects.
“What we are saying is that is it not wrong to increase salaries, but the economy has not focused much on generating revenue to anchor such increases,” he said.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said in an interview the private sector is concerned that the 2018/19 budget is more of a social budget than a developmental budget that is supposed to balance economic growth with social development.
“We see that the budget is more social as it has heavily concentrated on social spending and less on development expenditure. This is better explained by the chiefs honoraria, youth internship which has increased even more,” he said.
In the current fiscal year, Treasury has revised downwards the fiscal deficit including grants from 4.5 percent of GDP to 3.8 percent of GDP.
The revision of the fiscal deficit follows a reduction of K50 billion from a total expenditure and net lending of K1.5 trillion to K1.45 trillion.
The reduction in the fiscal deficit, according to Treasury, has also seen the reduction in the primary fiscal balance—the overall fiscal balance excluding interest payment—from 1.1 percent of GDP to 0.4 percent of GDP.
Earlier, Treasury had planned to end the 2018/19 financial year with a fiscal deficit of K242.9 billion and with the revision, the deficit has dropped to K192 billion.