Fiscal adjustments costly—analyst
Treasury’s failure to meet targets for domestic revenues and grants has the potential to affect provision of social services, Ecama and IMF have said.
This follows Treasury’s missing of revenue targets in the third quarter (January-March) of this fiscal year by K13.8 billion. Malawi Revenue Authority (MRA) collected K207.6 billion against a target of K221.4 billion.
Economics Association of Malawi (Ecama) executive director Maleka Thula said, in an interview yesterday, reduced social spending and development expenditure could more likely affect sustainable economic development and programmes aimed at improving the welfare of Malawians.
He said: “Development budget is already low and remain insignificant to promote sustained economic growth and lower than planned social expenditure implies that the most vulnerable people would be at risk of suffering from welfare loss and would not be resilient to shocks such as food shortages.
“Persistent failure to meet our targeted revenue would imply that government will be accumulating deficits, meaning that government borrowing will be increasing to meet the fiscal deficits.”
He observed that this outturn increases the pressure on inflation which in turn trigger interest rates to rise and crowding out the private sector.
Weighing in, International Monetary Fund (IMF) resident representative Jack Ree said it is not uncommon that social spending and development expenditure tend to bear the burden of fiscal adjustments when there are revenue shortfalls and spending overrun.
“This is simply because government will look for areas where they can adjust at discretion and these two areas contain programmes or projects that can be re-profiled or slow sliced without causing arrears.
“The Extended Credit Facility [ECF] takes these considerations seriously and intends to protect growth, enhancing and poverty reducing investment as much as possible,” he said.
During the same period under review, grants underperformed by K4.4 billion largely due to lower than anticipated inflows from project grants.
At the same time, recurrent budget expenditure set at K248.6 billion was above the target by K30.9 billion while other recurrent transactions expenditure—projected at K170.2 billion—exceeded its target by K27.9 billion.
This means quarterly outturn on total revenue and grants as well as total expenditure resulted into an overall fiscal deficit of K76.6 billion against a target of K72.2 billion. n
