EIU forecasts lower deficit by 2022
Malawi’s budget deficit is expected to reduce to 2.6 percent by the 2021/22 financial year, United Kingdom-based Economist Intelligence Unit (EIU) has forecasted in the second quarter report for Malawi.
This, according to EIU, will depend on whether some new taxes are introduced and greater control is exercised over current spending.
“Despite the pressures for increased spending before the elections, the fiscal deficit will narrow slightly in 2018/19, to 4.7 percent of GDP, as the cost of the Admarc [Agricultural Development and Marketing Corporation] bailout falls out of the picture.
“Assuming that some new taxes are introduced and greater control is exercised over current spending, the deficit will then continue to decline over the remainder of the forecast period, reaching 2.6 percent of GDP in 2021/22,” reads the report in part.
EIU observes that on the expenditure side, the government has been attempting in recent years to consolidate and simultaneously rebalance spending in favour of capital investment.
Nonetheless, EIU notes that political pressure to protect subsidies and public-sector workers’ wages will keep recurrent (and overall) spending high.
“This is reflected in the latest budget; the wage bill in 2018/19 is set to increase by over 24 percent, driven by a 20 percent salary adjustment for junior civil servants, a 10 percent pay hike for senior staff and the cost of recruiting additional teachers. Once the mid-2019 elections are out of the way, efforts to control current spending are likely to enjoy greater success, in turn enabling more space to be carved out for additional capital spending.”
However, the development comes in the woke of government’s plans, announced by Finance Minister Goodall Gondwe, to end the 2018/19 financial year with a fiscal deficit of K242.9 billion, which is a seven percent increase from the previous year.
The Institute of Chartered Accountants in Malawi (Icam) is of the view that government should move away from planning a deficit and focus on what the country has or can generate, and spend within its means.
According to Icam, a planned deficit of K242 billion or 4.5 percent of GDP in the 2018/19 National Budget poses significant risks on desired levels for interest rates and other economic fundamentals, which it says needs to be safeguarded if they are to translate into improving the lives of the ordinary people and continued stability.
Finance and corporate strategy professor at the Malawi Polytechnic James Kamwachale Khomba observed earlier that if used correctly, budget deficits can be a catalyst for development.
