Fiscal deficit set to worsen

 

Minister of Finance, Economic Planning and Development Goodall Gondwe says the 2018/19 financial year deficit could worsen if the World Bank fails to commit its financial pledge.

Speaking on the sidelines of the Reserve Bank of Malawi (RBM) Monetary Policy Conference in Mangochi on Tuesday, the minister said the Bretton Wood institution had earlier pledged K60 billion budget support, but its decision not to disburse the money could mean a larger than expected deficit for the budget.

Gondwe: To us, this represents lost resources

Said Gondwe: “We have had a problem in as far as fiscal situation is concerned. We were hoping the World Bank would give us support, but they are changing their minds and we are hoping they change back. This means that we have lost about K60 billion.

“To us, this represent lost resources. That is why this year, we might have a larger deficit than anticipated.”

Treasury had earlier revised downwards the overall fiscal deficit for the 2018/19 financial year to 3.8 percent from 4.5 percent of gross domestic product (GDP), a move analysts argued was insignificant to trigger intended results.

The revision of the fiscal deficit—the difference between total revenue and expenditure—followed a K50 billion cut from K1.5 trillion total expenditure and net lending in the proposed 2018/19 budget to K1.454 trillion.

The reduction in the fiscal deficit also saw the reduction in the primary fiscal balance (overall fiscal balance excluding interest payment) from -1.1 percent of GDP to -0.4 percent of GDP.

Earlier, government planned to end the 2018/19 financial year with a fiscal deficit of K242.9 billion.

As compared to the current financial year, there was a seven percent increase, with government projecting the 2017/18 financial year to end with an estimated deficit of K224.5 billion against mid-year projection of K183.6 billion.

While a reduced fiscal deficit means a cut in future spending, a potential reduction in public debt and reduced cost of debt interest payments and less crowding out on private sector and fiscal tightening, it could cause lower economic growth.

In an interview on Tuesday, Parliament’s Budget and Finance Committee chairperson Rhino Chiphiko faulted Treasury for its ambitious assumptions, which he said has in many cases not materialised.

He said: “This is the issue that we have always had with the minister, saying that when he is crafting his budget, he presupposes many things will happen.

“When the World Bank says we are not giving you this because you did not meet this, you will find that the deficit is not funded as planned; hence, you have a situation where government will not be able to deliver the services.”

Chiphiko said when the deficit is huge, Treasury resorts to borrowing from the market, which crowds out the private sector.

“As a result of this, it is actually the people that suffer from the huge payments of debt,” he said.

Finance and corporate governance strategy, who is also a professor at the University of Malawi’s the Polytechnic James Kamwachale Khomba  earlier observed that every country, including developed ones have deficits.

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