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First quarter revenue deficit worries economists

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Economic experts have expressed worry over failure by the government to finance its projects and operations in the first quarter of the 2020/21 financial year stressing it will widen the fiscal deficit.

A statement issued by the Ministry of Finance recently shows that revenue collections for the period between July and September 2020 amounted to K277.2 billion against a set target of K304.1 billion.

This means the revenue collected was 9 percent shy of the target. However it represents a 2.3 percent increase when compared to the same period in 2019/20

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The statement indicates that non-tax collections were K18.3 billion against a target of K22.8 billion.

However, the government spent a total of K430.9 billion, out of which K52.7 billion was spent on externally financed projects.

This means the government borrowed K101 billion in the quarter.

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“This lower than budgeted performance is attributed to the underperformance of international trade taxes which were affected by Covid-19 pandemic as trade volumes declined. The below expectation performance is attributed to the airline travel restriction that affected departmental receipts for the department of civil aviation and immigration,” the statement reads.

In an interview President of the Economics Association of Malawi (Ecam) Lauryn Nyasulu said the underperformance of the tax revenue collection is worrisome as it implies a widening of the fiscal deficit.

“The tax revenue underperformance has largely been attributed to lower international trade taxes due to Covid-19. With the second wave hitting the country, the revenue situation is not likely to improve in view of restrictions being imposed in our major trading partner economies.

“Reprioritisation is therefore necessary. In addition, protection and safeguarding lives cannot be more emphasised. The mid-year review therefore needs to ensure adequate financing of the health sector and cuts on non-essential expenditures,” Nyasulu said.

Chancellor College-based economist Laston Manja said, although performance on the revenue side is generally impressive, especially considering shocks from the pandemic, the expenditure side shows that absorption remains a big challenge both for locally-financed and externally-financed projects.

“Only 44 percent and 58 percent were absorbed in locally-financed and externally-financed projects respectively. This threatens the country’s development agenda and calls for improved efficiency through reforms especially for local finance, which government has complete control over,” He said.

The United Kingdom-based Malawian economist Sane Zuka concurred with Manja saying the figures that the government has released suggests good revenue budget performance.

“Considering the effect of Covid-19 on the economy over the last eight months, a revenue performance of over 80 percent is a good outcome. However, it is clear that Covid-19 has affected implementation of development projects.

“At the moment, the government is forced to finance statutory commitments. Again, it is important to note that second quarter revenue collection will be affected by carry-over effects of the pandemic and revenue performance may be lower than this, especially with increasing cases of the pandemic. It is, therefore, important that the government should consider rationing cash rationing to essential services,” Zuka said.

Treasury Spokesperson Williams Banda said government deserves a part on the back as all ministries were within budgeted targets in that there was no spending outside what was planned

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