Keeping Sight of Recurring Issues in the National Budget

By Shebo Nalishebo

As the country gears up to hear the 2020 Budget Speech on Friday 27th September 2019, analysts, lobbyists, the business community and the general population have been expressing their views on what they expect to be in the offing for next year.

We thought of taking a reflective step back and reproduce verbatim some of what we said about the 2019 Budget nearly a year ago. This is in order to keep sight of the recurring issues in successive budgets, which may require more concerted efforts to resolve. The comments we made last year are still relevant going forward.

Here is what we said this time last year:

On growth: “The Budget Speech projects the GDP to grow at around 4% in 2019 … As we have set out, the 4% target is not without risk - the debt burden, exchange rate volatility, subdued growth rates in agriculture caused by climate change which could all persist in 2019 … the economy is slowing down and the debt burden is likely to slow it down even further. Zambia will continue to record positive economic growth but… at a decreasing rate and growth will definitely not be at the levels set out in the Vision 2030, posing a challenge… for poverty reduction and improved livelihoods”.

On inflation: “… if the el-nino forecasts materialise, lower harvest will inevitably put upward pressure on food prices. With inflation breaching 8% in August 2018 (though falling to 7.9% in September), inflation is already pushing the upper bound of the target. These factors suggest a credible risk to breaching the inflation target in 2018 and possibly in 2019.”

On spending: “[The] continued expansionary spending stance adopted in the 2019 Budget is unsustainable during these times of austerity. The Government should adopt pro-growth strategies by identifying priority sectors that are likely to bring quick returns in the medium-term to pay off the debt and help jump-start the much-needed economic growth. For example, the K443 million earmarked for the construction of the FTJ University in Luapula Province can be invested in aquaculture, an activity the province has comparative advantage in”.

On non-deductibility of mineral royalties from corporate income tax: “Besides the changes in the structure and rates of the mineral royalty, for both cobalt and copper, the mineral royalty will now be a non-deductible levy for income tax purposes. …[This] translates into loss of income for the mining companies. Depending on the significance of these losses, the mining companies could defer their capital investments decision; which would impact production in the long term. Low growth of the industry would in turn imply reduction in revenue collected from the sector.”

On debt, debt servicing and arrears: “Debt payments will be a dominant area of spending in 2019. External and domestic debt payments will together increase by K9.3 billion in 2019, representing an increase of 66%. As a percentage of GDP, debt payments are projected to increase by as much as 3 percentage points from 4.7% in 2018 to 7.9%. Interest payments alone will take up 4.7% of GDP, almost one percentage point higher than in 2018. The depreciation of the Kwacha against the US Dollar will further increase the cost of debt servicing … More importantly, … The debt servicing costs are likely to displace other critical spending such as education, health care and social benefits. [And] Spending cuts and delays in the processing of payments due to late release of funds is likely to lead to further accumulation of arrears”.

On legislative reforms for fiscal consolidation: “…Of importance to note is that the Budget is silent on the Loans and Guarantees (Authorisation) Act CAP 366 of the Laws of Zambia which has been pending from the 2017 Budget… The delayed revision to the Loans and Guarantees Act has limited Parliament’s role on debt to simply approving the debt ceiling and not providing oversight on the entire debt contraction process. This has limited the control on debt accumulation and led to significant increase in the debt stock”.

From the foregoing, the 2020 Budget should keep sight of strategies to bring back high economic growth and mitigate inflationary effects. It should also keep an eye on ways to curtail the rising debt servicing costs and payment arrears and institute legislative reforms to tighten fiscal restraint and ensure the success of fiscal consolidation.

As we await the 2020 Budget presentation, our expectations still revolve around the key issues highlighted above from the 2019 Budget. The 2020 Budget needs to bring back growth and rein in expenditure and further borrowing, including through passing long overdue legislation.

The author is a researcher at the Zambia Institute for Policy Analysis and Research (ZIPAR). For details contact: The Executive Director, ZIPAR, corner of John Mbita and Nationalist roads, CSO Annex building, P.O. Box 50782, Lusaka. Telephone: +260 211 252559. Email: This email address is being protected from spambots. You need JavaScript enabled to view it..

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