Imf tells Malawi to improve public sector investment
The International Monetary Fund (IMF) has underscored the need for Malawi to prioritise and improve public sector investment if it is to lay a strong foundation for growth.
In its country report for Malawi released on Monday, IMF says given Malawi’s no fiscal space, the flexibility of a government in its spending choices, improving the efficiency of public sector investment is critically important.
The IMF notes that Malawi has lacked sustained economic growth which, in part, is due to frequent weather-related shocks and fast population increase as such investments need to be channelled to public investment.
Reads the report, in part: “Malawi has significant spending needs on physical and human capital investment and social safety net.
“This, therefore, calls for the need to prioritise investment in education and building resilience to climate change and weather-related shocks, most notably floods and droughts through strengthening resilience in the agriculture sector, including measures to halt deforestation, safeguarding food security, and developing sustainable energy sources while restoring debt sustainability.”
The IMF observes that domestically-financed development expenditure has suffered from cash rationing in the past as the country’s growth strategy has been focusing on electricity generation, transportation infrastructure, crop and export diversification, increased access to finance and investment in human capital.
According to the global lender, domestically-financed development expenditure tends to be under-executed where on average between 2014/15 financial year and 2019/20 financial year, domestically financed development expenditure was cut by a third of its budgeted level.
IMF figures show that cash rationing and reduction in donor support, on the other hand, have seen domestic development expenditure fall from an average of 1.6 percent of gross domestic product (GDP) prior to 2013/14 financial year to 0.9 percent of GDP.
Minister of Finance Felix Mlusu is on record as admitting the importance of creating fiscal space and making further investment in public infrastructure including education.
Said Mlusu: “Human capital development is identified in Malawi 2063 as an enabler for faster economic development, particularly given Malawi’s youthful population.
“At the same time, building resilience to climate change and boosting inclusive growth, entails increasing public investment. Malawi 2063 prioritises development expenditure over non-critical recurrent expenditure.”
On his part University of Malawi economics professor Ben Kalua noted that Malawi has good policies to spur investment, but implementation of such policies is a problem.
“To some extent, we have proper guidelines to support public sector investment but from experience, the problem is that we do not put those policies to practice. Other than this, it is also noted that Malawi invests in sectors that are less important, largely because of political reasons, living out key areas,” he said.
In the 2021/22 financial year, development expenditure is programmed at K570.8 billion, representing 5.6 percent of the GDP.
This, however, excludes the development expenditure that will be financed through the issuance of the long term development bond where some of the projects will be financed off budget.
