Economic analysts say Treasury faces an uphill task of meeting its domestic revenue targets in the K1.7 trillion 2019/20 National Budget and force Minister of Finance, Economic Planning and Development Joseph Mwanamvekha to trim some budget lines.
The experts expressed their sentiments in interviews with The Nation yesterday following an announcement that Parliament will meet from February 10 to 28 for the Mid-Year Budget Review Meeting in Lilongwe.
Exactly four weeks before the scheduled meeting of Parliament, Economics Association of Malawi and the Budget and Finance Committee of Parliament are anxious that the K1.7 trillion financial plan Mwanamvekha presented on September 9 last year may have little to show on the ground in terms of actual revenue collected against the earlier projected revenue.
At Capital Hill, the minister and his team are keeping their fingers crossed to amass a projected K1.6 trillion in form of total revenue and grants, a figure that represents 25.1 percent of gross domestic product (GDP). It is also an increase of 26.1 percent from the 2018/19 approved amount of K1.3 trillion.
Such optimism is derived from a projected increase in tax revenue which is expected to increase from 17.1 percent of GDP in the 2018/19 budget to 21.6 percent of GDP in the 2019/20 budget.
But Ecama acting executive director Kettie Nyasulu yesterday expressed scepticism about the optimism by Capital Hill over key targets characterising the budget, concluding that budget cuts will be inevitable come the mid-term review.
She said: “A considerable downward revision of the total budget is expected due to underperformance of revenues. Political uncertainty may have choked business. Government borrowing has been on the rise in the first half of the 2019/20 budget.”
Nyasulu also stressed that a number of tax proposals and initiatives are expected to be reviewed during the review meeting as Treasury intensifies its efforts to generate more resources for the budget.
She said Ecama foresees expenditure overruns and unplanned expenditures by some parastatals as well as ministries, departments, and agencies (MDAs) such as the Department of Disaster Management Affairs (Dodma) which now faces a huge task of securing and financing for humanitarian food assistance in the wake of the floods in some parts of the country.
From the macroeconomic point of view, Nyasulu feared that investors may also continue to withhold their funds or frontload payments amid uncertainty surrounding the election case.
“This may affect macroeconomic stability of the country,” she said.
Sharing her anxiety, Budget and Finance Committee of Parliament chairperson Sosten Gwengwe yesterday said their biggest concern so far is also on government’s ‘overambitious’ revenue target in the budget.
“For us, the biggest litmus test is the revenue collected in the first half of the year, apart from the implementation of the budget which we will look later on when we meet as a committee,” he said.
Gwengwe said he suspects that the recent increases in departmental fees at the Immigration Department and Directorate of Road Traffic and Safety Services coupled with some structural changes are revenue generation measures by government to punch holes in the revenue buffer.
Gwengwe and Nyasulu’s line of thinking is in tandem with the World Bank recent observation on the same matter.
World Bank country manager Greg Toulmin said last month in Lilongwe that unrealistic revenue assumption in the budget pose a risk to the implementation of the fiscal plan, particularly given the statutory nature of most of the expenditures in the budget.
He said: “The high risk that these may not be achieved calls for careful expenditure management in the year in order to avoid a high fiscal deficit.”
But in an interview yesterday, Treasury spokesperson Davis Sado maintained that although revenue targets and projections may look ambitious as deemed by economic commentators, Treasury’s general assessment and underlying assumptions show that there is still potential to achieve such targets as projected in the budget.
He said that is why government recently rolled out several measures mainly on the enforcement side to achieve such revenue targets.
Sado cited revised user fees and charges, shareholder letters of expectations that Treasury signed with MDAs obliging them to pay dividends to government, among others.
The 2019/20 budget also envisages an estimated real economic growth rate of five percent in 2019 and seven percent in 2020. These projections are way above the projected sub-Saharan real GDP growth rate of 3.4 percent in 2019 and 3.6 percent in 2020.
In the budget, Mwanamvekha also wants to bring down average inflation rate to eight percent, maintain a stable exchange rate of about K750 to the United States (US) dollar, while also putting policy rate-the rate at which commercial banks borrow money from the Reserve Bank of Malawi (RBM)-steady at 13.5 percent.