The International Monetary Fund (IMF) has advised fiscal and monetary authorities to contain budget deficits, inflation rise and safeguarding and building on gains in public finance management reforms.
The global lender’s advice comes in the wake of the approved three-year $112 million (about K82 billion) Extended Credit Facility (ECF), warning that if left unchecked, the pressure points could result in loss of confidence from the donors and the private sector.
In a written response to a questionnaire yesterday, IMF resident representative Jack Ree said the success of the new ECF programme will hinge on whether authorities stay the course on macroeconomic stabilisation.
He said: “While not unexpected, the re-rise of inflation to 9.9 percent in March was a wake-up call as the risk of inflation reversal is real. It proved again that Malawi’s macroeconomic policy should continue to focus on entrenching the gains in macroeconomic stability. Among other things, this will require reigning in on budget deficits which increased significantly in the first half of 2017/18 fiscal year due to revenue shortfalls and spending overruns.
“It will also require continued caution in the conduct of monetary policy, including in Reserve Bank of Malawi’s [RBM] interest rate decisions. Another pressure point is whether we can safeguard and build on crucial gains in public finance management reforms.”
Ree said successfully implementing structural reforms built in the new ECF programme will be yet another pressure point.
He said: “The criticality of these arrears is self-evident. We are going to find ourselves back in the tunnel if we lose our grip on inflation at this fluid juncture. Inflation fight is much about managing inflation expectations, and they can only be anchored at desirable low levels when the market has a trust on a credible policy framework.”
RBM projects an inflation average of 10.5 percent in 2018, and expects to close the year at 9.5 percent despite the upside risks emanating from delayed fiscal adjustment leading up to elections in 2019, and an upward adjustment in utility tariffs.
In an interview on Monday, Minister of Finance, Economic Planning and Development Goodall Gondwe while admitting the challenges government is facing to meet its expenditure due to poor revenue collection, said authorities will work on containing fiscal discipline to avoid fiscal overruns..
Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe said there is need to make budgeting on the revenue side more realistic to contain fiscal deficits.
Tax consultant Emmanuel Kaluluma observed that government faces recurring fiscal deficits due to poor revenue collection continued over expenditure.
ECF is a lending arrangement that provides sustained programme engagement over the medium to long term in case of protracted balance of payments problems. n