By Kingsley Jassi:
The World Bank sees no turning point soon as the country’s ailing economy is laden with costly and unjustified tax exemptions, overvalued currency, implicit fuel subsidy and a host of ghost workers in public service.
The bank, in its latest bi-annual Malawi Economic Monitor (MEM), has urged the fiscal authorities to review tax policies, especially on VAT exemptions, allow market determined fuel prices and align official exchange rate to market rate.
It says the exchange rate disparity hit 150 percent difference between the official rate and parallel rate at the beginning of this year.
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These policy anomalies are eroding resources, the bank says, causing fiscal deficits expected to be above 10 percent this year.
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The primary cause for high fiscal deficit, according to the report, is the rise in expenditure-to-GDP ratio over the past years as it is observed at 30.7 percent in the current budget from as low as 17 percent in 2011.
However, Treasury spokesperson Williams Banda said the government is engaging the bank on the matters.
“Treasury and the World Bank will always engage on policy directions,” Banda said when asked about the concerns the bank raised.
The poor economic conditions, coupled with external and weather shocks have also affected productivity with food
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production at 2.9 million metric tons against the required 3.3 million metric tons.
This deficit, the bank says, will worsen inflation expected to surpass official projection of 22.7 percent to over 30 percent as imports will be difficult given forex shortages.
The cancellation of some donor funded projects is expected to worsen the situation as the country stands to lose $177 million in forex inflows this year, with projections to 2030 indicating as much as $1.3 billion lost inflows.
Local economists expected the government to reduce expenditure and address the fundamental factors to stabilise the economy.
However, with these conditions prevailing, the bank faults the central government for not responding accordingly to halt the crisis.
It further cites measures such as import and export bans, price controls, restrictions on access to foreign exchange on the parallel market, and a mandatory requirement to convert export proceeds at the official rate. In a recent interview, economic expert Lesley Mkandawire said it was difficult for the government to do the right things and stabilise the economy in an election year which is normally characterised by high expenditures.
