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Home Business Business News

ECAMA punches holes In 2020/21 fiscal plan

by Steve Chilundu
15/06/2020
in Business News
3 min read
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The Economics Association of Malawi (Ecama) says the K2 trillion 2020/21 National Budget framework has failed to outline clearly how a stable macroeconomic environment will be sustained amid the Covid-19-induced economic challenges.

In a brief budget analysis, Ecama president Lauryn Nyasulu said high borrowing has potential to reverse economic gains achieved thus far and that a 35 percent drop in tax revenue in the 2019/20 fiscal year has led to Treasury’s reduction in expenditure in the new budget presented on Friday.

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She said: “In the face of an ailing economy, debt vulnerabilities, persistently growing budget deficits, poor balance sheets, among others, it becomes impractical to assume that the exchange rate will be anchored at K750 per dollar, inflation to remain in single digits at 9.9 percent and the policy rate at 13.5 percent in the fiscal year.”

mwanamveka | The Nation Online
We are broadening tax base: Mwanamvekha

Nyasulu emphasised that sound macroeconomic frameworks include not only price stability which, so far, has been the major and consistent achievement, but also a well-functioning real economy, sustainable debt and healthy public and private sector balance sheets.

She said Ecama has noted challenges and inconsistencies in investments and expected results in energy sector are not coming out clearly to build investor confidence.

Nyasulu called for  a balance between long-term investments and making energy affordable in the short-term.

While Minister of Finance, Economic Planning and Development Joseph Mwanamvekha banks on broadening tax base to improve revenue performance, Ecama believes it is a tall order amid a myriad of economic challenges with the projected slow economic growth of 1.9 percent or in a worst case scenario -3.8 percent.

Ecama has since advised Treasury to re-prioritise targeted projects and programmes to minimise expenditure and reduce the deficit.

In the 2020/20 National Budget, presented in Parliament on Friday, Mwanamvekha said recurrent expenses are estimated at K1.5 trillion, representing 74.4 percent of the total expenditure.

Development expenditure has been put at K517.7 billion, representing 7.2 percent of gross domestic product (GDP) and 25.6 percent of total expenditure, which is an increase from a 2019/20 mid-year revised figure of K470.7 billion.

The budget has seen an increase in total expenditure and widening of the deficit from K161.2 billion in 2019/20 fiscal year to K651.5 billion in 2020/21 fiscal year, almost four times the previous year’s deficit which will be financed through foreign borrowing at K161.5 billion and domestic borrowing at K490 billion.

The minister also admitted that monthly tax revenue collections have dropped from K90.8 billion per month during pre-Covid-19 period to a monthly average of K59.1 billion during the Covid-19 period, representing a 35 percent drop.

Centre for Research and Consultancy executive director Milward Tobias said in an interview on Friday that the development budget is highly vulnerable such that when grants and revenue are lower than projected, cuts are effected on development budget more than any other budget lines which waters down intended development.

The budget projects domestic revenues at K1.215 trillion out of which tax revenues are estimated at K1.152 trillion, representing 16.1 percent of GDP while other revenues have been estimated at K63.2 billion.

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