The International Monetary Fund (IMF) says attaining a robust growth and low inflation given the latest macroeconomic gains would depend on whether authorities can bite the bullet and continue to do tough things.
IMF resident representative Jack Ree said this in reaction to the 2017/18 National Budget, which Finance, Economic Planning and Development Minister Goodall Gondwe presented last Friday in Parliament.
In a written response to a questionnaire on Wednesday, Ree said that while the budget strikes a right balance and shows optimism reflecting lights out of the tunnel, caution should be exercised against a pre-mature urge to open the champagne already.
“I truly think that 2017/18 financial year can be a make-or-break year. It can open a door to a new trend of robust growth and low inflation—more likely now than before given the latest macroeconomic gains.
“But that would depend on whether we can bite the bullet and continue to do tough things. Then everyday Malawians will start to see real changes in their lives within two-three years.
“However, the budget is also cautious—a caution against a pre-mature urges to open the champagne already. The budget continues to focus on breaking the inflation through continued fiscal adjustment—which is key to turning Malawi’s economic fortune around,” he said.
Gondwe told Parliament that the strong fiscal and monetary policies, reinforced by the IMF-supported programme, have sustained the recovery of the economy which is continuing into 2017 and is strongly expected to continue to gather strength in 2018, when it is projected that single digit inflation that has been unsuccessfully pursued for the past seven years could prevail.
“Mr. Speaker, Sir, and honourable members, it is encouraging that this view of an improving economy and a measure of success in the public finance management reforms is shared by the international community.
“The recent resumption of the World Bank budgetary support, the expected confirmation by the IMF that Malawi is on track in its pursuance of fiscal management reforms as well as the pending European Union’s resumption of budgetary support, are all welcome signs of international confidence in what is being achieved,” said Gondwe.
Commenting on the projected seven percent growth rate, Ree said an ambitious growth target can help create a political momentum to direct resources to investment and bring about reforms that will also require equally ambitious policies to unlock private sector’s investment potential.
He, however, hailed government for increasing the wage bill by 10 percent and bringing new measures to the tax system.
“The effect of the minimum wage increase has also been already incorporated in the proposed increase in the wage bill. The proposed change aims to strengthen redistributive function of the the tax system. It will relieve tax burden for the lowest income earners and compensate for the foregone revenues by increasing taxes on high income earners,” he said.
In an earlier interview on Monday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said the direct impact of the Budget Statement on business is, however, in the changes in the tax measures which he said will affect businesses. n