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Gov’t fiscal consolidation program to slow

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By Elorm Desewu

The government’s fiscal consolidation program is expected to slow at the back of revenue shortfall, according to a report by the World Bank.

The report said the overall outlook will likely remain intact over the medium term domestic revenue mobilization is therefore very important.

“An effective domestic resource mobilization strategy is an urgent priority as the reduction of expenditures, including public investment, in response to revenue under-performances may not be sustainable,” said Michael Geiger, Senior Economist and co-author of the report.

The government recorded a fiscal deficit of 1.8 percent of Gross Domestic Product, (GDP) for the first quarter of 2019 compared with 1.3 percent of GDP for the same period in 2018, which was financed mainly from domestic sources.

Total revenue and grants from donor partners to support the budget was 2.5 percent of GDP. The tax revenue was 2.4 percent of GDP.

Total expenditure for the first three months of 2019 was 4.2 percent of GDP. Capital expenditure during the same period was 0.4 percent of GDP.

For the first quarter of 2019, the primary deficit was 0.8 percent of GDP and the Net Domestic Financing recorded a deficit of 2.2 percent of GDP.

The report said increased weaknesses in the financial sector over the past years, resulted in the government closing nine domestically owned universal banks between 2017 and 2018. The Government provided substantial fiscal support to cover the gap between the liabilities and the assets.

“It is encouraging to note that the authorities are strengthening supervision, including through enforcement of prudential standards, implementation of a new capital requirements directive, introduction of risk management and corporate governance directives, among others,” said Carlos Vicente, Senior Financial Sector Specialist and co-author, “these will strengthen resilience and stability of the banking system in the medium term.”

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