Fiscal space to Limit development

Minister of Finance Felix Mlusu could face a delicate balancing act in the allocation of resources at a time the fiscal space is shrinking and revenue on the decline, analysts have said.

The analysts cited the limited fiscal space, which they say threatens the successful implementation of development plans, affecting the country’s attainment of the required 30 percent of gross domestic product (GDP) development threshold.

For instance, in the proposed K2.2 trillion 2020/21 National Budget, Mlusu contextualised the current fiscal situation by citing three scenarios.

First, he said the country’s fiscal situation is characterised by a high proportion of statutory expenditures—wages, pension and gratuities and public debt payment—which cannot be reduced or cut in the event of revenue shortfall.

In total, these expenditures represent 92 percent of domestic revenue pegged at K1.179 trillion, 68.8 percent of recurrent expenditure at K1.29 trillion and 52.8 percent of total budget estimated at K2.2 trillion.

Next, Mlusu said the fiscus is saddled with a huge public debt stock estimated at K4.1 trillion. Finally, he cited the public sector payment of arrears estimated at about K165 billion, which are “slowly becoming a fiscal risk to the smooth implementation of the national budget”.

In reaction to the fiscal situation, National Planning Commission director general Thomas Chataghalala Munthali said in a written response on Tuesday that when 91 percent of total revenues goes towards statutory obligations, there is nothing to pay for the rest of the essential recurrent expenditures, let alone development budget expenditures.

He said: “The main focus, therefore, should be to grow the economy so that we can mobilise more resources.

“Along with this is to cut on waste. Basically, it is the quality of investments that matters more than the quantities given our limited resource envelope.”

Munthali said there is need to guide development partners to support areas that can help create wealth in the shortest time possible by focusing on energy, information and communication technology, economically-viable transport network and other strategic infrastructure

In the 2020/21 fiscal plan, development expenditure has been projected at K511.2 billion, with K410.3 billion to be financed using foreign resources and K100.9 billion to be financed domestically.

Treasury figures indicate that over a five-year period between 2015/16 and 2019/20 financial years, development expenditure underperformed except for the 2016/17 financial year when development expenditure amounted to K273.8 billion against the projected K260.5 billion, thereby registering an over -performance due to more disbursement on foreign financed projects by K28 billion.

In the 2015/16 financial year, development expenditure was pegged at K166.7 billion against a revised projection of K217.5 billion on account of underperformance in both domestically and foreign financed projects by K23.8 billion and K27 billion, respectively.

In the 2017/18 financial year, development expenditure amounted to K227.3 billion against an end-year revised target of K372.5 billion, reflecting an under expenditure of K145.2 billion.

Foreign financed component amounted to K149.1 billion against the end-year revised target of K277.5 billion while domestically financed acquisition of non-financial assets amounted to K78.2 billion against the end-year revised allocation of K95.0 billion.

In the 2018/19 financial year, development expenditure amounted to K281.3 billion against a mid-year revised target of K307.7 billion, reflecting an under expenditure of K26.4 billion.

Foreign financed component amounted to K177.4 billion against mid-year revised target of K195.8 billion, mainly on account of low absorption capacity by some government ministries, departments and agencies.

In the 2019/20 financial year, for instance, development expenditure was projected to close at K506.8 billion or 8.1 percent of GDP and 26.5 percent of the K1.9 trillion total budget, which was to be financed using K173.2 billion from domestic resources and K332.5 billion from foreign resources.

At the end of the fiscal year, K367.4 billion was the actual outturn for development expenditure.

World Bank figures indicate that since 2015/16 fiscal year, Malawi’s development expenditure has averaged 5.2 percent of GDP, which is way below 30 percent of GDP recommended for countries to meet United Nations Sustainable Development Goals (SDGs).

Weighing in, Betchani Tchereni, economics lecturer at The Polytechnic, a constituent college of the University of Malawi, said in an interview on Tuesday that with most of the projects dependent on external financing, attaining self-sufficiency will be harder.

He said economic growth is a function of a number of aspects, which have been ignored.

“Malawians want a vision of self-sufficiency and inclusive wealth creation, which could be a little harder to achieve if most of the projects we are doing are dependent on foreign financing whose political economy is difficult,” he said.

On her part, Economics Association of Malawi president Lauryn Nyasulu said the fiscal plan has measures to stimulate the economy most of which are recurrent in nature.

She said: “The current development budget allocations are way below the recommended thresholds required and may not sustainably stimulate economic growth.”

In the budget statement, Mlusu said that fiscal plan will focus on achieving sustainable and inclusive growth, macroeconomic stability and sound financial management.