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Ecama speaks on widening deficit

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The Economics Association of Malawi (Ecama) has reiterated that the macroeconomic assumptions within the 2022-23 National Budget are likely not going to hold in view of the overlapping crises facing the nation.

The economic think-tank has since advised the government to enhance its revenue mobilisation drive and prioritise essential expenditures only to narrow the budget deficit.

This is contained in the Ecama Policy Brief number 1 of 2022, titled ‘Implication of the Russo-Ukrainian War on Malawi’s Economy and Suggested Policy Options’, published over the weekend.

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The brief indicates that the authorities should take a number of initiatives to manage the price increases, based on the category of commodities.

“One category is that of administered prices, including fuel pump prices, which are set based on the Automatic Pricing Mechanism (APM). There is a need for better management of the Price Stabilisation Fund (PSF) which was put in place to manage price shocks by ensuring that fuel adjustments are smoothened. Recent developments show that the PSF has not been managed well.

“In 2021, the Malawi Energy Regulatory Authority (MERA) reported that the balance in the fund averaged K1.5 billion against the set minimum of K5 billion and in January 2022 the balance had depleted further to K900 million.

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“This is one of the indications that the fund is not being managed effectively. The government should consider reviewing both the minimum reserves and operating guidelines for the fund,” the policy brief reads.

It further holds that, in terms of fertiliser prices, the authorities need to urgently consider prioritising the importation of fertiliser under the Affordable Input Programme as well as supporting private importers with foreign exchange in order to hedge against further price increases.

Ecama Executive Director Frank Chikuta said, to manage the fiscal deficit, the government should implement both revenue and expenditure measures.

In a recent interview, Minister of Finance Sosten Gwengwe said Treasury has already been working on reducing the fiscal deficit.

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