EIU deficit forecast contradicts GOVT’S
Forecasting and advisory services provider, Economist Intelligence Unit (EIU) has projected a 4.5 percent deficit of gross domestic product (GDP), countering government’s deficit of 3 percent of GDP projection in the 2016/17 financial year.
The influential global economic think tank’s forecast for Malawi is attributed to the overly optimistic revenue forecasts in the 2016/17 fiscal year. In its first quarter country report for Malawi, EIU notes that grants and external financing fell far short of budgeted levels in the first-half of 2016/17 which, given the limited scope for domestic borrowing, prompted lower expenditure than had been planned.
In the 2016/17 Mid—Year Budget Review, total revenue and grants were projected at K999.2 billion against the budgeted figure of K978 billion-representing an increase of 2.2 percent. On the other hand, total expenditure was revised downwards from K1.14 trillion to K1.129 trillion, representing a reduction of 1.7 percent.
Domestic revenue was revised upwards from K783.3 billion to K840 billion an increase of K57.2 million.
Minister of Finance, Economic Planning and Development Goodall Gondwe also revised non-tax revenue from K74.5 billion to K85.6 billion, an increase of 14.9 percent on the back of an anticipated dividend from the Reserve Bank of Malawi (RBM).
But Gondwe speaking on the sidelines of the first pre-budget consultation meeting in Blantyre on Monday, said government is at a point where it expects the deficit which is 4 percent of GDP to narrow to 3 percent.
He banked his assertions on government’s commitment to compromising expenditure and increasing domestic revenue.
Said Gondwe: “Although this year things will not be easy, we will ensure that we slowly achieve a 3 percent deficit to the GDP but without messing up the reality. We will equate the domestic revenue with expenditure.
“We have priorities and what we will do is see to it that those places where these priorities demand more money, we increase the money and those areas which are less productive, we decrease the money.”
Nonetheless, the EIU expects that beyond 2016/17, although the fiscal burden associated with maize imports will decline, spending pressures will remain high. “Transfers to State-owned enterprises, interest payments and suppliers payment arrears will continue to squeeze more productivity enhancing spending and political pressure to protect subsidies and public sector workers wages will delay efforts to redirect resources towards capital investments projects,” says the report.
Banking on the anticipated support of the International Monetary Fund (IMF), the EIU is forecasting a gradual return of external budgetary support in the 2017/2018 although it will remain below historical level and is upbeat that revenue growth will outsource spending growth.
“This, as well as higher tax income, will ease fiscal pressure, with the deficit forecast to contract gradually to 2.3 percent of the GDP in 2020/21.
“In line with the government’s efforts to limit resources to domestic financing, the successive deficits will be financed largely by external borrowing, mostly concessional,” says the report.
The 2016/17deficit projection nonetheless reflects a significant contraction from the average of 6 percent of GDP that was recorded in 2013/14-2012/16 financial years.
