Half-year peformance reassuring, says IMF

The International Monetary Fund (IMF) says while the half-year fiscal performance is reassuring and has a clear focus, consolidation will need continued focus on bringing down inflation with fiscal discipline as an anchor.

Presenting the 2016/17 Mid-Year Budget Review in Parliament on Friday, which has been revised downwards to K1.129 trillion from K1.149 trillion, Minister of Finance, Economic Planning and Development Goodall Gondwe hailed an effective mix of fiscal and monetary policies for putting the country’s economy on a firm path to recovery, although risks still remain.

He cited the decline in inflation to 18.2 percent as of January 2017, a three percentage points reduction in policy rate to 24 percent and a 5.7 percent over performance in the domestic revenue as some of the indicators portraying the economy on the rebound.

In an interview on Saturday, IMF country representative Jack Ree said the last six months has seen a continuation of fiscal consolidation which is key to turning Malawi’s economic fortunes around unlike in the past five years.

“[The year] 2016 has been very difficult. The authorities needed to tackle an immense economic shock coming from the second consecutive year of drought. “Confidence on kwacha was low. Inflation expectations were locking at mid-20 percent range, which appeared unbreakable. However, government demonstrated an indestructible will to deal with the problem,” he said.

Ree said policy focus remained persistently on discipline budget and keeping a lid on monetary excess, praising the authorities on structural reforms, particularly in public finance management.

“We are seeing results already,” he said.

While agreeing with Gondwe that donor engagement may see an important up-turn in the near term given the progress in key structural reforms, including public finance management and cautious optimism on the prospects of the economy, Ree said: “I would rather not speculate on the prospects of specific donor support programmes that is being discussed”.

Looking ahead, he said 2017 can be a make-or-break inflection point, stressing that

the year could “in fact, open a door to a new trend of robust growth and low inflation. And that’s going to bring real  changes to lives of every day Malawian”.

But Ree noted that would depend on whether authorities can continue, for the next few years, on policies focusing on fiscal discipline.

In a written response to a questionnaire on Saturday, Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa said everything seems to be pointing in the direction of a government that has a lot more to do.

“Government continues to struggle on bringing into fruition both the assumptions on the revenue side and the expenditure side of the budget. The 71 percent underperformance of the grants weighs heavily against the registered positive performance particularly in the tax revenues.

“The slowdown in expenditures also points to a worrisome development around government’s performance and obligation of providing quality public services to the masses, particularly the poor,” he said.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said fiscal performance of government in the first six months hides a lot of expenditure burden that is passed on to the private sector and suffocating its performance.

He said although improvements have been registered in financial management, there are still a lot of funds that are unaccounted for which is a big concern, especially to the private sector, the goose that lays the eggs.

“As a representative body of the largest section of taxpayers, we are concerned that such movement is lacking. The business community is always wondering why it is being squeezed to the corner to pay more taxes which is not accounted for in the end,” he said. n