IMF head, economist differ on spending
A university of Malawi Chancellor College economist has differed with the head of International Monetary Fund (IMF) who has advised policymakers worldwide to embrace more spending to help revive their shuttered economies in the face of Covid-19.
Speaking at Russia’s Annual Gaidar Economic Forum on Friday, IMF managing director Kristalina Georgieva made it clear that her desire is for governments to up their spending, saying a synchronised approach internationally was the best for growth.
Malawi is among 190 member countries of the IMF and specifically, the country officially joined as a member of the global lender on July 19 1965.
She said: “In terms of policies for right now, very unusual for the IMF, starting in March I would go out and I would say: ‘please spend’. Spend as much as you can and then spend a little bit more.”
“I continue to advocate for monetary policy accommodation and fiscal policies that protect the economy from collapse at a time when we are on purpose restricting both production and consumption.”
But reacting to Georgieva’s remarks, Gowokani Chijere-Chirwa yesterday expressed fear that such a call could lead Malawi into a “trap” to get more loans from the fund and other multilateral lenders.
He said the country can only come up with a substantial fiscal stimulus by borrowing; hence, a vicious cycle of contracting loans.
Said Chijere-Chirwa: “I am not disputing the need for more fiscal stimulus. That is what developed countries are already doing. So, they want us to use fiscal stimulus, also? A thing they have told us not to do since 1987 when Saps [Structural Adjustment Policies] came in. Isn’t this a trap?
“Where are we going to get the money? Definitely, they will give us loans or their sister, World Bank, will do so. We will eventually spend more up to what extent ? They want us to spend up to infinity?”
IMF is traditionally known for pushing for tight or contractionary fiscal policies which involve expenditure cuts or raising taxes.
“Definitely this is a trap in a crisis because we will use fiscal stimulus by borrowing from them.Hence, a vicious cycle of loans forever,” said Chijere-Chirwa.
In his reaction yesterday, Ministry of Finance spokesperson Williams Banda agreed with the IMF narrative, saying tstimulus packages have played a significant role in keeping economies and businesses afloat in times of pandemics and economic recessions.
But he said for a government to use fiscal stimulus packages in the IMF way, it would require availability of fiscal space or government capacity to do so financially, adding that government must have operated a surplus budget.
“This is not the case for us and government revenues have substantially declined due to the pandemic,” he said.
The IMF call comes at a time Malawi’s public debt as a percentage of gross domestic product has reached 65 percent and is projected to hit 78 percent this year, with 42 percent of external loans alone, about $1 billion, contracted from the IMF’s sister institution, the World Bank through International Development Association (IDA).
The call also comes at a time the 2020/21 National Budget is yawning, with fiscal balance estimated at K755 billion, showing expenditure needs for the country keep rising.
