The International Monetary Fund (IMF) has said it is banking on the successor Extended Credit Facility (ECF) programme to help contain the country’s budget deficits and tame inflation reversal.
In a written response to a questionnaire on Wednesday, IMF resident representative Jack Ree said if a new programme materialises, it will provide a credible mechanism to contain budget deficits on a continuous basis as well as provide constellation of credible policy framework.
“A successor ECF programme, if it materialises, will provide a credible mechanism to contain budget deficits on a continuous basis. It will also provide a constellation of credible policy framework to head off inflation reversal and entrench price and financial stability.
“My impression, so far, is that the revised budget is in line with our programme. It is our understanding that the government will deploy strong remedial measures to address the widening of the budget deficit in the current fiscal year and shift to a slightly positive primary balance in the next fiscal year,” said Ree.
Malawi completed the ninth review of the three-year $143.5 million (K106 billion) ECF programme last June which according to authorities broadly achieved its macroeconomic stablisation objectives.
The fund’s executive board is however expected to meet in April this year on whether the country deserves a new programme, most likely in the mode of ECF.
Among likely conditions for a new programme—which comes with a concessionary loan package—is a commitment by government to rein in expenditure, which is easier said than done, as the country gallops towards general elections next year.
Already, Finance, Economic Planning and Development Minister Goodall Gondwe is grappling with a K38 billion domestic revenue shortfall owing to Malawi Revenue Authority (MRA)’s underperformance in revenue collection and pressure to fill the K45 billion holes created when Capital Hill bailed out the debt-ridden Agricultural Development and Marketing Corporation (Admarc).
According to Gondwe, the deficit is projected at K183 billion against the earlier forecast of K195 billion.
Outlining measures to reduce the budget deficit, Gondwe said government has revised the development budget pegged at K346 billion and only prioritise about 25 projects that will be completed by June this year, including those wholly-funded by donors.
However, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe, argue that the outturn on development expenditure is worrisome as less resources are being dedicated towards development, as only 20.6 percent of the total expenditure in the first half was spent on development projects.
“Even more worrying is that the bulk of the funds dedicated to development were foreign financing at 70.6 percent of the total development funds. This clearly shows that the majority of government expenditure is channelled towards consumption.
“While acknowledging the relevance of government consumption in supporting private sector growth, it is worth noting that long-term growth requires government to dedicate more of its public resources to investment in development projects,” he said.