The World Bank has warned government to avoid expenditures that are not budgeted for in the run-up to the May 21 2019 Tripartite Elections.
The warning is contained in the eighth Malawi Economic Monitor (MEM) which the World Bank launched in Lilongwe yesterday focusing on investing in girls’ education and reducing child marriages and early childbearing.
The bank feared that being an election year, tightening of the fiscal deficit in the 2018/19 financial year would be optimistic.
In his statement, World Bank country manager Greg Toulmin identified maintaining fiscal prudence as one way of coping with shocks associated with weather challenges and external factors beyond Malawi’s control like fuel prices.
He said: “In Malawi, the key risks to the macroeconomic outlook relate to the government’s commitment to reversing recent fiscal slippages, and controlling expenditure pressures in this election year. But in order to achieve a lower deficit, the key will be to contain expenditure within approved ceilings.”
The MEM report states that empirical studies have demonstrated a tendency towards a preference for expenditure on items that are highly visible to voters in pre-election periods, a phenomenon known as Political Budget Cycles (PBC).
“These cycles result in inefficient spending, which has a detrimental effect on fiscal sustainability and macroeconomic stability. In avoiding such pressures, however, it is also important that government protects key social services for the vulnerable,” the report reads.
The World Bank has also advised Treasury to reduce domestic borrowing to reduce future interest payments and increase fiscal space for growth-enhancing development expenditures.
The MEM report fears that the 2018/19 Budget could be undermined by election-related spending pressure, particularly on the Farm Input Subsidy Programme (Fisp).
In the election year, Minister of Finance, Economic Planning and Development Goodall Gondwe increased the number of beneficiaries from 900 000 to one million at a budget of K41.5 billion.
“Maintaining fiscal prudence during an election year would send a strong signal of the government’s commitment to further development progress,” the report reads.
Implementation of the 2017/18 Budget suffered from a K45 billion bailout to the Agriculture Development and Marketing Corporation (Admarc) as well as unplanned recruitments in the Malawi Defence Force and Malawi Police Service totalling K6 billion.
The World Bank has observed that these, in addition to unproductive expenditure and payroll irregularities, have tended to build up and repeatedly disrupted fiscal plans.
The 2018/19 Budget is estimated at K1.3 trillion of which K253.8 billion is expected to be financed through domestic borrowing and development expenditure is pegged at K269 billion of which K196 billion is foreign financed.
Gondwe was not reachable to comment while Secretary to the Treasury Ben Botolo said he was outside the country.