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RBM cautions on budget spending

Reserve Bank of Malawi (RBM) has warned that pressure on the 2014/15 National Budget implementation may arise from extra-budgetary expenditures coupled with a wide fiscal deficit and heavy domestic debt.

Economic analysts say budget slippages may lead to rising public debt, prohibitive interest rates, increasing inflation rate, an underperforming private sector and a low gross domestic product (GDP) growth, which could lead to lower tax revenue.

Chuka: Chairs the MPC
Chuka: Chairs the MPC

RBM’s Monetary Policy Committee (MPC), which is chaired by Governor Charles Chuka, in a statement last week, noted that government, during the first half of 2014/15 fiscal year, recorded a deficit of K78.52 billion while borrowing from the central bank closed at K77.53 billion against the statutory limit of K105.06 billion.

MPC warned that extra-budget expenditures—spending outside the budget—would give pressure to the economy.

But on Friday, Minister of Finance, Economic Planning and Development Goodall Gondwe  said although the implementation of the zero-aid budget faced setbacks, including under-collection of domestic resources and under-performance of grants, government seeks an extra K32 billion, which will push the total  budget  to K780 billion from the initial K748 billion.

Against a background of frozen budget support due to Cashgate and under- performance of revenues by K36.6 billion, Gondwe said government hopes to raise K13 billion from pledged grants, K8 billion  from tax revenue and that K10 billion from domestic debt would finance the supplementary budget.

But analysts have cautioned government on rising domestic debt, arguing that it attracts high interest rate and crowds out the private sector.

Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa, in a presentation to the Budget and Finance Committee of Parliament in January, said given the stock of domestic debt, there is pressure on government in terms of interest payments.

“Government should develop and implement a domestic debt strategy, which is aimed at achieving sustainability and reducing cost and risk of domestic debt. It should also continue exercising fiscal restraint and strengthen the role of important stakeholders,” he said.

In the 2014/15 financial year, interest on domestic debt, excluding interest on foreign public debt, was projected at K80 billion, but total interest bill has already increased by K26 billion, forcing government to request for more funding.

Based on recent global and domestic economic developments, MPC expects inflation rate, which stood at 24.2 percent in December, according to National Statistical Office (NSO), to slow to 15 percent in June.

MPC maintained the policy and Lombard rates at 25 percent at 27 percent respectively. The Liquidity Reserve Requirement (LRR) was also maintained at 15.5 percent. n

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