International Monetary Fund (IMF) has singled out the K50 billion Farm Input Subsidy Programme (Fisp) as one of the costly subsidies in the budget that need to be reduced amid calls to trim the K930 billion national budget.
The IMF Mission Chief to Malawi, Oral Williams, said this in an interview after a press briefing on Wednesday in Lilongwe when asked to analyse the government’s social spending, especially the subsidies at a time resource constraints are prevailing.
“Fisp takes a big chunk of the budget but we have a separate team that looks at what would happen if we reform Fisp. It is the biggest and the most expensive,” said Williams who announced that the Extended Credit Facility (ECF) with Malawi is off track.
He commended some of the reforms that have already been implemented in the programme this year when government reduced the investment and raised the beneficiaries’ contribution.
However, he said it would not be ideal to remove some other social expenditures, saying doing so would drastically affect social spending that cushions the poor from adverse effects of poverty.
When asked about what areas would be affected by the budget revision, Finance Minister Goodall Gondwe said he would not be able to list the allocations that would be down scaled or suspended to make up for critical areas, saying a team of experts is still working on the allocations.
He, however, said through discussions with the IMF team they agreed to spare the social expenditures that target the low income earners in line with the IMF budgetary guidelines that favour investing for the poor.
However, he mentioned that government would reconsider some travel expenses across all ministries and departments to remain with only critical ones in a way that does not affect government’s key functions.
“I wouldn’t be surprised if my colleagues came up with cuts in areas like travel, in all votes- we may have to look at that. The idea (of reducing the budget) is to limit the amount that is being borrowed from the Reserve Bank- in fact I would have loved if we eliminate the borrowing completely,” said Gondwe.
He said the revised budget framework with reduced allocations will have to be ready soon as it would be also presented to Parliament during the midterm budget review.
The IMF said it observed fiscal slippages equivalent to about 2 percent of the GDP emerged during the second half of the 2014/15 fiscal year, in part because of overspreading on the wage bill, and these were exacerbated by revenue and external financing shortfalls, adding that corrective measures undertaken to offset the slippages were insufficient.
Williams said programmed improvements in public financial management (PFM) were delayed but the mission reached understandings on measures to bring the ECF-supported programme back on track.
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