The World Bank has outlined a multi-pronged strategy that includes harnessing the country’s mining sector to boost foreign exchange reserves and develop innovative policy interventions to stabilise the tanking economy.
World Bank senior economist Jakob Engel unveiled the ambitious plan in a presentaton at Economics Association of Malawi (Ecama) conference and urged authorities to expedite the reforms enshrined in the Public Finance Management Act of 2022.
He said the reforms could help to address the fiscal slippages that have resulted in deficits and worsened the country’s public debt currently at K15 trillion or 81 percent of the country’s gross domestic product (GDP).
Said Engel: “There is an urgent need to find suitable and transparent revenue management arrangements to ensure high savings and investment and manage pressures for consumption spending.
“We can also use micro-data to implement innovative policies. Use of microdata and impact evaluation methods allows for much more granular and targeted analysis to support fiscal reforms.”
The Bretton Woods institution is currently collaborating with the Malawi Revenue Authority (MRA) to help achieve the targets set out in the Malawi Domestic Revenue Mobilisation Strategy, which seeks to increase revenue collection to 19 percent of GDP by 2026.
Engel, however, stressed that sound political decision-making would be critical for Malawi to achieve the medium-term fiscal targets.
His remarks follow concerns from local economic and multilateral financial institutions that Malawi is currently locked in a feedback loop where macro-economic crises such as foreign exchange scarcity, currency depreciations and trade imbalances are reinforcing each other.
An analysis by the World Bank contained in the latest issue of the Africa Pulse noted that Malawi is set to record the highest deficit on the continent in this financial year for the second time in a row.
Data from the World Bank further shows that historically, deficits are about 78 percent higher during election periods than during the four years that precede the elections.
Ecama acting president Bertha Bangara-Chikadza, in an interview, welcomed the proposal, saying the use of microdata, which is information at the level of individual respondents, can impact revenue generation as it allows for more accurate and detailed analysis of taxpayer behaviour.
“By understanding patterns and trends at a granular level, the MRA can identify non-compliance and target enforcement efforts more effectively, leading to improved tax compliance,” she said.
Scotland-based Malawian economist Velli Nyirongo said government will have to establish robust mechanisms for gathering high-quality disaggregated data that reflects the diverse realities of the population, particularly vulnerable groups.
“Moreover, integrating data from various sectors such as health, education and social welfare can provide policymakers with a holistic view of socio-economic dynamics,” he said.
Ministry of Finance and Economic Affairs spokesperson Williams Banda, in an earlier interview, confirmed that government is collaborating with the World Bank on the Public Finance Review.
