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AfDB, experts call for fiscal reforms

The African Development Bank (AfDB) says in the wake of perpetual fiscal deficits, Treasury should embrace fiscal reforms and spending prioritisation to survive economic shocks from the Covid-19 pandemic.

In its Southern Africa Economic Outlook, AfDB notes that overall, fiscal consolidation could be at risk if revenues continue to underperform due to the fragile economic recovery, likely to be worsened by the prolonged Covid-19 pandemic.

The call for prioritised spending and fiscal reforms, come as the Minister of Finance is expected to present the full 2020-21 National Budget in Parliament this month amid fiscal pressure due to revenue under-performance owing to the impact of the global pandemic.

Minister of Finance Felix Mlusu projected a budget deficit of K209.5 billion in his four- month provisional budget estimated at K722 billion, which will form part of the 2020-21 fiscal plan.

During the 2019/20 financial year, published figures from Reserve Bank of Malawi showed that Treasury closed the year with a budget deficit of K428.7 billion, which is K113.8 billion more than the projected K314.9 billion.

In its report, AfDB said the huge public wage bill will contribute to high fiscal deficits and divert resources from developmental projects, including food insecurity issues which are likely to create fiscal pressures.

Reads the report in part: “Southern African governments need to undertake serious fiscal reforms ranging from budgetary discipline, efficient domestic resource mobilisation mechanisms, tax administration reforms and re-prioritisation as well as enhancing the efficiency of expenditure.”

AfDB said the challenge of the fiscal deficits lies in being financed largely through external and domestic borrowing, which results in exerting pressure on the financial sector and raising sustainability concerns.

This view is backed by an economic think tank, the Centre for Research and Consultancy, which said for a fiscal plan premised on a shaky foundation, borrowing is inevitable.

The centre’s director Milward Tobias insisted that a recovery from Covid-19 is impossible without substantial external borrowing for investments.

He said: “The national budget has traditionally lacked fiscal space with revenue and grants always outpaced by expenditure.

“The 2020/21 National Budget will even be worse because while revenue sources have been battered, expenditure has skyrocketed.”

Ministry of Finance spokesperson Williams Banda said in an interview on Tuesday the 2020/21 National Budget will give a comprehensive overview of the measures and reforms to be undertaken, which will respond to the AfDB’s observations, including submissions from other stakeholders.

The country’s public debt stock is estimated to have climbed up to K3.7 trillion, an increase from K3.1 trillion recorded in 2018.

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