The International Monetary Fund (IMF) says the K1.7 trillion 2019/20 National Budget, which largely attempts to thrive on revenue, could be constrained with fiscal risks arising from revenue shortfalls, unforeseen domestic and global shocks.
The IMF’s remarks come a few days after the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and Economics Association of Malawi (Ecama) also expressed the same fear, adding that they expect the 2019/20 National Budget to be revised downwards in view of revenue underperformance.
In a written response on Monday ahead of Parliament’s Mid-Year Budget Review from February 10 to 28, IMF resident representative Farayi Gwenhamo said on the revenue side, realism is important and on the expenditure side prioritisation is crucial.
She, however, said the global lender is yet to assess the latest fiscal position.
But for the first quarter of 2019/20 financial year, Gwenhamo said the preliminary indication is that the bottom-line fiscal performance is in line with the target for the quarter under the fund-supported three-year Extended Credit Facility programme.
She said: “This masks underperformance in tax revenues, which was offset by better-than-expected performance in non-tax revenue and lower-than- envisaged spending in wages, transfers and domestic development spending.
“However, we are yet to see if the first quarter trends continued in the second quarter of the 2019/20 financial year. What we can see now is that fiscal risks to the budget could dampen local economic activities and contingent liabilities from State-owned enterprises facing financial difficulties.”
The 2019/20 National Budget targets substantial fiscal consolidation based on an ambitious revenue target where Treasury projected K1.6 trillion in form of total revenue and grants, representing 25.1 percent of gross domestic product (GDP), an increase from the 2018/19 approved amount of K1.3 trillion.
This is derived from a projected increase in tax revenue, which is expected to jump from 17.1 percent of GDP in the 2018/19 Budget to 21.6 percent of GDP in the 2019/20 Budget.
Gwenhamo said the implementation of the budget revenue measures will require spending to be adjusted accordingly, while prioritising essential expenditures, including post-cyclone Idai reconstruction, should there be revenue shortfalls.
Ministry of Finance, Economic Planning and Development spokesperson Davis Sado in an interview on Friday said Treasury is currently analysing the figures in terms of mid-year performance both on revenues and expenditure.
He said: “After the analysis we will come up with a direction for the second half of the financial year.”