The World Bank (WB) says expenditure on wages and salaries and on interest on domestic debt remains the main pressure points on the 2016/17 National Budget.
In the fifth edition of the Malawi Economic Monitor (MEM) titled Harnessing the Urban Economy released on Friday, the Bank says rising expenditure on the wages and salaries and the rapid growth of the wage bill raises questions about the sustainability of the overall public sector wage bill.
“Expenditures on wages and salaries are the largest budget item, standing at a value of 6.4 percent of gross domestic product (GDP) in 2016/17 financial year, up from 5.7 percent of GDP in 2012/13 financial year.
“The rapid growth in the wage bill is primarily due to a sustained increase in the number of civil servants, with the total number of people increasing from around 111 000 in 2008 to 186 000 in 2016. This increase raises questions about the sustainability of the overall public sector wage bill,” said Richard Record, WB Malawi senior country economist.
According to Record, weaknesses in establishment and personnel controls have prevented the authorities from taking a more strategic view of public sector hiring and have made the payroll vulnerable to fraud.
“In addition, the absence of an interface between the payroll and the Ifmis exposes the system to vulnerabilities. Policy reforms should aim at improving the payroll management system and at establishing stronger establishment controls,” he said.
Record adds that debt servicing costs are also further compressing the government’s available fiscal space, crowding out private sector investment and contributing to inflationary pressures.
Said Record: “In this context, it is imperative that the authorities remain committed to increasing efforts to consolidate fiscal spending and to improve budget execution and oversight by monitoring the monthly budget outturns for all MDAs.
The extent of fiscal consolidation is likely to be limited by pressure on domestic borrowing. This relates to expenditures on the securitisation of zero-coupon bonds and the settlement of outstanding arrears.”
The bank said after 2017/18 however, as the pressure of food insecurity recedes, a faster pace of consolidation may become possible as a result of the intensification of revenue collection; the settlement of all outstanding arrears; the implementation of tight expenditure controls; the reform of key expenditure programmes, such as the Farm Input Subsidy Programme (Fisp); and the containment of other spending (including the public sector wage bill.
In his 2017/18 National Budget statement made last month in Parliament, Finance, Economic Planning and Development Minister Goodall Gondwe said total expenditure is projected at K1.2972 trillion (26.1 percent) and register a 13.5 percent increase at current prices but decline somewhat in real terms while the wage bill was increased by 10 percent.
Gondwe said recurrent expenditure will decline in real terms from 20.5 percent to 19.1 percent of GDP, whereas development expenditure will increase by 32.6 percent in current prices and register a slight decline in real terms by 0.6 percent of GDP.
Recently, the Civil Service Trade Union (CSTU) protested the 10 percent salary hike offer while the teachers are on national strike over unpaid leave grants.