The International Monetary Fund (IMF) says pressures from COVID-19 and political uncertainties ahead of the 2020 presidential elections are affecting government’s revenue.
The IMF said this in a statement on Tuesday after a team led by Pritha Mitra, Mission Chief for Malawi, held a mission during March 10-23, 2020, to conduct the 2020 Article IV Consultation and hold discussions on the fourth review of the three-year arrangement for Malawi under the Extended Credit Facility (ECF).
According to the IMF, the government regained control over the budget in the first half of 2019/20 financial but maintaining this performance for the second half of the fiscal year will be challenging.
“Pressures from COVID-19 and political uncertainties ahead of the new Presidential elections are weighing on revenues. At the same time, expenditures have appropriately been increased to cover the cost of the upcoming election and to finance urgent health care preparations consistent with the government’s COVID-19 contingency plan developed with support from the WHO and other development partners,” the institution said.
The IMF also noted that the recent strong agricultural harvests and reconstruction activity after Cyclone Idai have boosted growth, but warned that the growth path for the remainder of the year will depend on the extent of transmission to Malawi of COVID-19
However, the IMF said Malawi’s economic growth may rise further to 6-7 percent in the medium-term as there is infrastructure that is more resilient to shocks from climate change, improved access to finance, crop diversification, and an improved business climate.
“Inflation is anticipated to decline from 11.5 percent at end-2019 to 9.3 percent at end-2020, as elevated food inflation moderates, and gradually converge to 5 percent over the medium term.
“The key risk is the potential for deeper disruption to economic activity in Malawi from the spread of COVID-19,” the IMF said.
During the mission, the IMF team held meetings with Minister of Finance Joseph Mwanamvekha, Governor of the Reserve Bank of Malawi (RBM) Dalitso Kabambe, other senior government and RBM officials as well as a broad range of national stakeholders outside government and representatives of Malawi’s development partners.
The government officials told IMF during the discussions that government is deploying measures to enhance spending efficiencies and address revenue shortfalls in the current fiscal year and it expects to shift to a positive domestic primary balance in the coming years.
“They are committed to repaying arrears accumulated in recent years and addressing shortfalls in the system that led to them. The government will continue enhancing tax policy and revenue administration. Strengthening transparency in the budget process, the medium-term budgetary framework, cash management, and routinized bank reconciliation as well as gradual upgrading of the existing public financial management system will be critical,” the IMF said.