Treasury plans to end the 2018/19 fiscal year with a deficit of K242.9 billion could be a necessary evil if the money to cover the shortfall is invested in productive sectors, a corporate governance expert has said.
The Malawi Polytechnic finance and corporate governance professor James Kamwachale Khomba, in an in interview on Wednesday, said every government, including those of developed nations, have deficits.
He said: “Perhaps the question should be whether we are channelling these [resources] for investments or consumption. If used for the right purpose, it can act as a catalyst for development.
“My observation, however, has been that these deficits are used mostly for consumption as we have been borrowing traditionally for consumption. This then becomes a problem because we put the future generation in jeopardy.”
The planned deficit of K242.9 billion for the next fiscal is equivalent to 16 percent of the proposed K1.5 trillion budget and 4.5 percent of the gross domestic product (GDP), which is the monetary value of all goods and services produced within a country in a year.
This fiscal year’s (2017/18) deficit is pegged at K224.5 billion, a rise from the mid-year projection of K183.6 billion
Catholic University of Malawi dean of social sciences Gilbert Kachamba said in an interview on Wednesday that spending within means cannot be attained, but there is need to manage the debt so that it generates more income.
He said: “Government receives income from taxes. Their expenses are supposed to benefit the people who pay taxes.”
In a statement commenting on the proposed 2018/19 National Budget, Institute of Chartered Accountants in Malawi (Icam) advised Treasury to move away from planning a deficit and focus on what the country has or can generate and spend within its means.
“We wonder how the deficit will be financed. Should we really be budgeting for the deficit up to now? As a country, should we not move away from planning for a deficit than focusing on what we have or can generate and spend within our means?
“This projected deficit poses significant risks on desired levels for interest rates and other economic fundamentals,” said Icam president Henry Chowawa in the statement.
Centre for Social Concern (CfSC) economic governance programme officer Lucky Mfungwe argued that prudence is key if government is to spend what it has.
Economics Association of Malawi (Ecama) executive director Maleka Thula said reprioritisation of expenditures is key if government is to cut expenditure and avoid accruing deficits every fiscal year. n