Ministry of Finance says it does not have the capacity to provide fiscal stimulus package to the private sector because it does not have the financial muscle to do so.
The ministry’s spokesperson Williams Banda was reacting to calls from the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) to consider providing targeted monetary and fiscal incentives to sustain the core economic activities in the private sector to ensure household food, nutritional, and income security.
The call for the stimulus package is contained in the MCCCI’s 2020 Assessment of Business Environment published last week which, among others, outlined that due to escalating cases of Covid-19, the business environment has been subdued following measures instituted to ensure that the pandemic is contained.
The chamber said the restrictive measures, at the global and local levels, have disrupted global and local demand and supply with spillover effects across all sectors of economies due to global inter-connectedness.
In an e-mail response on Saturday, Banda admitted that such stimulus packages have played a significant role in keeping economies and businesses afloat in times of pandemics and economic recessions, but indicated that for a government to use fiscal stimulus packages in this way it requires availability of money.
He said: “Government must have operated a surplus budget. This is not the case for us and government revenues have substantially declined due to the pandemic.
“It is not easy to offer a stimulus package due to the huge budgeted deficit, but the government is working with donors to come up with private sector support services.”
To strike a balance, Banda said government plans to speed up the repayment of arrears it owes the private sector to pump into the economy some needed resources.
He said government is currently conducting an audit on the arrears after which the private sector will be paid.
The MCCCI said as at November 2020, government owed the private sector K10 billion in tax refunds, which if timely payments were made, businesses’ liquidity position would improve considering the hostile business environment.
Commenting on the development, University of Malawi’s Chancellor College economics professor Ben Kaluwa, backed the government, saying stimulus packages cannot work in Malawi because of money constraints.
“Stimulus packages are a western countries’ model where financial systems are well oiled and the government provides them to companies and households,” he said.
The 2020/21 fiscal plan has a projected a deficit of K754.8 billion, to be financed by foreign borrowing amounting to K224.8 billion and K530.1 billion from domestic borrowing.