Fiscal authorities have said the proposed 2018/19 National Budget faces stressful fiscal dynamics due to expenditure pressures in statutory payments and the 2019 Tripartite Elections.
In a published 2018 Economic and Fiscal Policy Statement, the Minister of Finance, Economic Planning and Development said despite successfully containing expenditures within annual fiscal targets in the past three years, growth in statutory expenditures, especially the wage bill, interest payments and domestic debt, has undermined budget credibility.
Reads the statement in part: “Growth in interest payment has averaged 55 percent over the past five years, growing from K28.7 billion [or 11 percent of domestic revenues] in 2012/13 fiscal year, to K177.3 billion [or 18 percent of domestic revenues] in 2017/18 fiscal year.
“Similarly, growth in the wage bill has averaged 24 percent in the past five years at an average of 34 percent of locally generated revenues since 2012/13 fiscal year. The direct costs and implications of this unbalanced growth in statutory spending include under-provisioning for essential social services, locally financed development expenditure and accumulation of arrears.”
The statement said the 2018/19 Budget Framework will be based on the underlining assumption that government will start reducing domestic debt largely by keeping expenditures within targeted levels and financing all key services by locally generated resources as one way of avoiding in-year reallocations due to either delayed or non-disbursement of donor resources.
In their 2013 International Monetary Fund (IMF) policy paper titled Fiscal Policy Over the Election Cycle in Low-Income Countries, including Malawi, Christian Ebeke and Dilan Ölçer, found that during election years, governments’ consumption increases and leads to higher fiscal deficits.
In Malawi, pressure mounts on the wage bill, travel budget, social spending as well as election campaigns which in most cases is not budgeted for.
For instance, during the 2013/14 fiscal year, government remained committed to increasing spending to social sectors such as education, health, agriculture and social protection programmes, including the Farm Input Subsidy Programme (Fisp), social cash transfers to the vulnerable, public works programmes and school feeding programmes to cushion the poor.
During the year under review, total recurrent expenditure was projected at K461.5 billion, but government had spent K549 billion by the close of the year, an increase from K397.2 billion in 2012/13 fiscal year, raising the recurrent expenditures from 23.7 percent of the gross domestic product (GDP) in 2012/13 fiscal year to 25.2 percent in 2013/14 fiscal year.
During the period under review, total expenditures increased from 27.6 per cent of GDP in 2007/08 to 38.5 percent in 2008/09 financial year mainly to increased cost of Fisp and one-off expenditures on May 2009 general elections and 2008 population census.
Earlier, World Bank country manager for Malawi Greg Toulmin urged Malawi to contain recurrent expenditure ahead of the 2019 Tripartite Elections, observing that past experience suggests that Malawi struggles internally with repeated episodes of volatility in growth and fiscal performance over the political business cycle, a development which if not contained, would negatively affect progress made on the economic front.
In their 2018/18 Pre-budget Consultations presentation, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe said the association aspires to have development oriented, resilient and inclusive budget that will ensure sustainable macroeconomic stability as well as cushion the economy from traditional and emerging shocks and ensure that its formulation in terms of planned expenditure against revenue is realistic.
The 2018/19 National Budget is pegged at between K960 billion and K1 trillion, with focus on youths, employment and training while at the same time responding to all sectors of the economy.
The 2018/19 fiscal year will be a third year of implementing Programme Based Budgeting (PBB) in central government agencies, local councils and subvented organisations and the first year for Treasury Funds.