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IMF says budget positive

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The 2018/19 national budget is positive and in line with the aspirations of the Extended

Credit Facility (ECF), the International Monetary Fund (IMF) said Wednesday.

“It is a ‘controlled’ budget, as the Minister [of Finance, Economic Planning and Development] put it, particularly given the immense pressure for politically driven spending in this critical election year,” said Jack Ree, IMF Resident Representative, in an emailed response.

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Early this month, IMF approved a new three-year $112.3 million loan arrangement to assist Malawi’s economic and financial reforms.

He said budget assumptions on growth and revenue are modest.

Finance Minister Goodall Gondwe told Parliament last Friday that the economy will this year expand by 4.1 percent, a decline compared to last year when the economy grew by 5.1 percent. But he forecast 6.0 percent growth for 2019.

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Ree said the primary budget deficit also looks modest, representing a strong consolidation from the current position, which is significantly expanded.

However, the Bretton Woods institution said it was worried with the amount of money the government has earmarked to pay as interest on public debt in the 2018/19 national budget, saying there is a lot to be done if the government is to address public debt woes.

Gondwe announced, when he presented the budget on Friday, that, in the 2018/19 financial year, interest payment bill has been projected at K182.9 billion, representing 3.4 percent of Gross Domestic Product (GDP) or 12.19 percent of the national budget.

Of the K182.9 billion, K14.3 billion is interest on foreign debt while K168.6 billion is interest for domestic debt.

“And, as you noted, the domestic debt accounts for the bulk of this bill. This reflects the fact that interest rates in kwacha are far higher than those in dollars or euro,” Ree said.

The proposed K182.9 billion is enough to finance the education budget at K166 billion, which could leave the Treasury with K16.9 billion change, more than enough to finance all the youth development programmes in the budget.

IMF has since cautioned Capital Hill to be radical in managing rising public debt, which has been highly affecting budget implementation.

Figures from the Reserve Bank of Malawi show that Malawi’s public debt rose to K2.470 trillion in the fourth quarter of 2017, from K2.352 trillion recorded in the third quarter.

Ree, however, said, with the kwacha interest rates making a steep decent since the registered disinflation cycle, the interest bill would be lower for the same amount of borrowing.

He said the fiscal framework underpinning the ECF programme envisages reducing the domestic debt-to-GDP ratio from 22.5 percent in 2017 to 16.6 percent in 2022

Meanwhile, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has rated the projected K176 billion domestic borrowing target for the coming fiscal year as a “very worrying trend” for the private sector.

In a statement, MCCCI says the money that would be borrowed by the government, if not used for productive purposes, will further push up inflation rates.

The government developed a medium-term strategy on public debt management aimed at reducing risks brought in largely due to a lack of coherent direction on debt.

The good news is that Malawi is not among the six countries – Chad, Eritrea, Mozambique, Congo Republic, South Sudan and Zimbabwe – judged to be in debt distress as at the end of last year.

And the IMF’s ratings for Zambia and Ethiopia were changed from moderate to “high risk of debt distress”.

The IMF conceded that Africa’s enormous needs will continue to demand heavy investments to build infrastructure and social development.

But to do so while avoiding the risk of a debt trap, the continent, which has the lowest revenue-to-GDP ratio in the world, will need to become more self-reliant.

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