The International Monetary Fund (IMF) has said Malawi should not make U-turns on fiscal prudence, which it regards as key to meeting micro and macro-economic goals.
The IMF has issued the warning in its documents for the First Review Under the Staff- Monitored Programme with Executive Board involvement.
The Bretton Woods institution cites the 2023- 24 national budget as the yardstick for prudence, adding that State and non-State actors have to join hands and prepare for fiscal financing challenges.
According to the IMF, domestic debt service is now eroding the much-needed fiscal space, compromising already-limited delivery of public goods and services and jeopardising the attainment of Malawi 2063 vision goals.
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It further says domestic debt service is exerting pressure on money growth, the exchange rate and inflation.
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In the document, it notes that additional domestic borrowing would lead to further pressure on money growth, the exchange rate and inflation, and further erode the purchasing power of the population already grappling with resource constraints and food insecurity.
The fund warns that if there is a slippage in the execution of the budget, there are two ways to fill the additional financing gap, but was quick to warn that none of the options would be easy.
IMF further observes that a further cut in primary expenditure or other expenditure are alternative options, including faster rationalisation of the wage bill and more aggressive winding down of the Affordable Inputs Programme (AIP) in exchange for more targeted support to the most vulnerable.
“The former will compromise the already-limited delivery of public goods and services and ultimately the attainment of the Malawi 2063 [vision]. The latter may risk financial sector instability, if not managed well.
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“None of them are easy options and hence contingency planning is important especially in the current environment where discussions to secure additional external sources (grants, concessional loans, external debt relief) are already exhaustively accounted for to execute the budget as passed,” the fund says.
In Malawi’s Memorandum of Economic and Financial Policies, Finance Minister Sosten Gwengwe and Reserve Bank of Malawi Governor Wilson Banda commit to expenditure prioritisation, pointing out that it is more critical than ever given the need to support vulnerable people and invest in infrastructure.
Gwengwe and Banda say Malawi would endeavour to embrace efficiency in public spending and reduce non-critical spending.
They have also made a commitment on continuing to rationalise the AIP.
“We have implemented the first phase of reform to the fertiliser and seed subsidy programme [AIP] by having a National Integrated Social Safety Net Programme using the Unified Beneficiary Register to reduce duplication of access, hence bringing in efficiency in beneficiary targeting.
“We have taken necessary measures to prevent cost overrun in the AIP from escalating fertiliser prices and Kwacha depreciation including through increment to farmer contribution while capping the government subsidy and fast-tracking beneficiary reform,” the Memorandum of Economic and Financial Policies reads.
The authorities further argue that, in subsequent phases of AIP reform, they have adopted a plan to phase out the AIP.
The local fiscal and monetary authorities have also committed to rationalise the wage bill.
“The personnel audit was carried out in 2021, which provided a number of recommendations, and the Government of Malawi is committed to manage [sic] its wage bill by flushing our ghost workers, freezing on new hiring to the public service, except in critical areas such as health and education sector, strengthening approval processes to payroll and pension changes within the existing Human Resource Management Information System.
“To safeguard social protection and to protect the vulnerable, we have established a floor on social spending as an indicative target (IT) under the programme. This will comprise of government contribution to health and basic and secondary education spending, as well as a number of [initiatives that require] social safety net spendings [sic], including the social cash transfer programme and AIP,” the Memorandum of Economic and Financial Policies adds.
