IMF: More expenditure restraint needed to meet fiscal deficit targets
There is a need for continued expenditure restraint in order for the government to meet the fiscal deficit targets set out in its 2018/2019 budget, the International Monetary Fund’s (IMF) most recent Article IV Concluding Staff Statement notes, adding that grace periods for the implementation of revenue measures and legal disputes are to blame for the setback in reaching targets.
The IMF notes in its statement that the fiscal deficit is expected to narrow to 2.1 percent of the country’s gross domestic product, but miss the 1.8 percent target.
“This consolidation is broadly in line with the transition path towards the FRL (fiscal responsibility law) targets established in the budget,” the IMF document states.
“To demonstrate steadfast commitment to the new policy framework and safeguard public investment, the government should further rein in current expenditures. Over the medium term, decisive measures are needed to reduce debt, including in the areas of public pensions and health, while carefully balancing priorities for inclusive growth and disaster preparedness.”
The IMF also states the effective implementation of the FRL will help to keep the government aligned with its goal to bring the country’s debt down to 50 percent of GDP.
“While the budget deficit has narrowed, recognition of sizeable arrears highlights the need for stronger public financial management (PFM) systems to address weaknesses in expenditure control and budget preparation,” the IMF notes.
“Enacting the public financial management, public debt management and procurement acts and operationalizing the Fiscal Council should be prioritized to ensure permanent advances in budgeting, transparency, and accountability.”
The IMF did, however, credit government for strong economic performance in 2018, related to its “sound macroeconomic policies and progress on fiscal reforms”. And while it said the 2019 Financial Sector Assessment Program (FSAP) showed the country’s financial system to be threat resilient, the IMF points out that continued action is needed to guard against threats.
“Growth in 2018 was backed by buoyant tourism and construction activity,” according to the statement.
“Real GDP is estimated to have grown by 2.3 percent in 2018, and growth is projected to steady at 2.1 percent in 2019, underpinned by continued growth in the tourism sector. Despite positive jobs growth, however, the unemployment rate remains high and is projected to decline only gradually. Inflation increased to an average of 2.2 percent in 2018, but is projected to fall to 1.6 percent in 2019 as the temporary effect of the VAT rate increase fades.”
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