The Economics Association of Malawi (Ecama) says the current low development expenditure has high potential to undermine eradication of extreme poverty as aspired by the UN’s Sustainable Development Goals (SDGs).
In a written response to a questionnaire on Wednesday, Ecama president Lauryn Nyasulu said since the productive capacity of an economy depends on investments from public and private sources—domestic and foreign—low development budget expenditure implies that fewer resources are being channeled to development and productive sectors.
She said: “This means our budget is largely consumption based and this defeats the sustainability principle. The SDGs seek to balance sustainable consumption and production patterns. This is clearly one of the challenges our country is grappling with.”
“Moving forward, we need to create more fiscal space and prioritise our expenditures to support productive sectors with high multiplier effects such as energy, agriculture and infrastructure for industrialisation. The Government also needs to provide adequate funding to flagship projects as outlined in the Malawi Growth and Development Strategy [MGDS] III.”
World Bank figures indicate that Malawi’s development expenditures has averaged 5.2 percent of GDP, against recommended levels for low income countries with development expenditure rising from four percent of GDP in 2015/16 financial year to a projected 7.2 percent in the 2019/20 financial year.
At this rate, Malawi’s development expenditure is still shy of the recommended 30 percent of GDP for a country to meet its Sustainable development goals.
Speaking separately, economist Edward Chilima observed that spending patterns confirm that government’s over-expenditure goes to consumption.
“This confirms that most of the government over-expenditures as is on record is in fact not meant for development. Simply put, there is not enough funds allocated to development issues,” he said.
Treasury figures show that development expenditure is budgeted to increase to 7.2 percent of GDP in the current financial year, up from five percent of GDP the previous year. This increase is expected to be driven by foreign-financed development expenditure, which is expected to expand from 3.1 percent of GDP the previous year to five percent in the 2019/20 financial year.
Greater allocations are projected to go to agriculture, transport, energy, tourism education and health sectors to spur growth and improve the delivery of social services.
Over the medium term, Treasury says it wants to focus on the implementation of fiscal strategies that have multiplier effects.
“In this regard, government will ensure that it endeavors to increase resources allocated for development expenditure to internationally acceptable levels of around 30 percent. In this vein, Government will strengthen the link between the national budget and the Public Sector Investment Plan, specifically projects that have multiplier effects,” reads the 2019/20 Treasury’s Fiscal and Economic Policy Statement.