The World Bank has cautioned Ministry of Finance, Economic Planning and Development that the 2019/20 National Budget revenue target is not realistic, especially in view of the prevailing economic situation.
The bank has also said that though some of the measures contained in the financial plan may enhance revenue, “a series of new tax expenditures and reliefs will reduce the net revenue impact”.
But Treasury has said government remains optimistic it will achieve the revenue target in the K1.7 trillion fiscal plan based on its assessment on the ground.
The World Bank’s scepticism on revenue growth is contained in the institution’s 10th edition of the Malawi Economic Monitor (MEM) titled Strengthening Human Capital Through Nutrition whose results were disseminated in Lilongwe yesterday.
MEM is a biannual publication by the World Bank Malawi office which provides an analysis of economic and structural development issues in Malawi.
In the K1.7 trillion budget Minister of Finance, Economic Planning and Development Joseph Mwanamvekha tabled in Parliament on September 9, total revenue and grants are projected at K1.6 trillion.
The total value of revenue and grants is projected to increase from 20.8 percent of gross domestic product (GDP) in the 2018/19 financial year to 25.7 percent of GDP this fiscal year.
The increase is largely due to the projected increase in tax revenue, which is projected to rise from 17.1 percent of GDP in the 2018/19 National Budget—whose approved amount was K1.3 trillion—to 21.6 percent of GDP in the 2019/20 National Budget.
The budget also projects a fiscal deficit to narrow from 6.5 percent of GDP to 2.5 percent of GDP.
But the World Bank notes that the revenue projection is based on “overly-optimistic projected nominal increase in revenue of more than 40 percent or 4.5 percent of GDP”.
Reads the World Bank report: “This unrealistic projection poses a risk to budget implementation and could lead to a higher deficit and increased domestic borrowing, particularly given the statutory nature of most of the expenditures.”
In its report, the World Bank also emphasised that revenue measures embedded in the budget may have limited impact on increasing revenues.
Weighing in on specific revenue measures, the bank has distinguished the measures that are bound to increase revenue collection and those it believes will reduce tax revenue.
In an interview on the bank’s observation on tax revenue collection, World Bank country manager Greg Toulmin said the revenue assumptions are optimistic.
He said: “The high risk that these may not be achieved calls for careful expenditure management in year in order to avoid a high fiscal deficit.”
Reacting to the World Bank analysis, Ministry of Finance, Economic Planning and Development spokesperson Davies Sado yesterday said government has embarked on several measures mainly on the enforcement side to achieve the revenue targets.
In a separate interview, Economics Association of Malawi (Ecama) acting executive director Kettie Nyasulu stressed that the association’s major concern hinges on perpetual government fiscal deficits and not the absolute size of the deficit.
Blantyre-based tax expert Emmanuel Kaluluma yesterday said it is possible for Malawi Revenue Authority (MRA) to achieve the revenue targets in the 2019/20 budget, “but with a margin of error”.
But he said it would be a tall order for government to achieve the targets if the political situation continues to be volatile and if corruption persists.
In the 2018/19, both revenue and grant target were also below the revised targets.