The Ministry of Finance announced the Draft Budget for 2022, characterizing it as development. For the first time, the Draft Budget for 2022 is placed in a medium-term perspective, in the context of three key plans: Fiscal Sustainability and Economic Growth Support Plan, Public Investment Plan and Accelerated Economic Growth Plan. Hence, this type of planning is a significant step towards achieving the set goals for higher growth in the medium term and fiscal consolidation. However, the Draft Budget does not demonstrate the coherence of these three plans, in terms of their funding in 2022 and in the medium term and by quantifying their contribution to achieving the goals. The absence of such coherence, leaves the impression that these are just plans in the literal sense, with a high risk of significant deviations and delays in their implementation, estimates Finance Think.
According to Finance Think, the Budget for 2022 is designed before two key events that took place last week: the proclamation and deepening of the energy crisis in the country and the upward correction of the National Bank in terms of inflation movements in the current and next year.
– The total uncertainties from the prolonged effect of the pandemic, the energy crisis that will affect the investment potential of companies and consumption among citizens, along with price pressures, make the optimistic projection for real GDP growth of 4,6 percent in 2022 optimistic. embedded in the creation of the Budget. Failure to achieve the projected real growth rate will undermine the planned volume of tax revenues, which is identified as a risk in the budget document. However, even in such circumstances, the efforts for fiscal consolidation and reduction of the budget deficit within a reasonable framework are correct, states Finance Think.
Finance Think also analyzes that after the turbulent 2020 and 2021, the budget structure is normalized at the pre-pandemic level with a significant inflation of capital expenditures (real growth of 20,8 percent).
– The most cumbersome category in the budget, social transfers, registered a real decline due to the price effect, although it is growing in nominal amount. However, the expenditure side does not reflect, or does not do so in a convincing and visible way, the commitments in the budget document to reduce unproductive spending, especially in two items that are propulsive to unproductive spending: “goods and services” and “subsidies and transfers”. . In real terms, these items are similar to the pre-pandemic level, and their structure remains a “black box” despite years of indications by the expert public for greater transparency in this segment. points out Finance Think.
In the structure of capital expenditures, as stated in the analysis, all items increased, except for expenditures on furniture and investments and non-financial assets. Unlike previous years, the purchase of equipment and machinery and capital subsidies for enterprises and non-governmental organizations have significant real growth, which is the first indication of the development character of the budget.
-But let us recall that in our Policy Study 34: Measuring the Economic Effects of State Aid Granted to Private Enterprises in Northern Macedonia: The Case of the Government Economic Growth Plan, state aid to private enterprises granted through the Law on Financial Investment Support was assessed as ineffective, indicating that the effect of capital investments on the economy depends not only on how they will be planned, but also on how they will be spent, points out Finance Think.
The analysis also refers to the capital expenditures in the structure of which the investments in construction objects have a dominant share.
– With each rebalance in the past, that item was “the first to hit” and was significantly reduced. Items with smaller amounts, purchase of vehicles and strategic goods and other reserves, doubled and tripled. Hence, the defined structure of capital investments indicates the development of the budget, but given the uncertainty of the pandemic and energy crisis, we expect a significant downward correction of “development” items with the first rebalance. Thereby, the capacity for realization of capital investments remains limited. Capital investment in GDP has reached a maximum and is declining in recent years, which confirms the limited capacity to absorb capital investment. In addition, the share of capital investments in GDP ranges from 2,5 percent to 3,7 percent when the realization reaches a maximum of almost 85 percent. Hence, even with optimistic planning, the percentage of realization of capital investments will be lower as the share of capital investments in GDP reaches its maximum, points out Finance Think.
Source: MIA
