Public Finance

The Public Finance Unit\'s overall goal is to improve public policy for growth through policy analysis and research. It focusses on the analysis of public expenditure management, domestic and public external debt, and tax policy.


The Public Finance Unit will undertake the following studies:

a) Analyzing Emerging and Existing Vulnerabilities around Zambia’s Eurobond Repayments and How to Mitigate Them

Since 2012, the Zambian Government has issued three ten-year international sovereign bonds commonly referred to as Eurobonds, collectively worth US$3.0 billion, mainly to finance infrastructure projects. Since the issuance of the three Eurobonds, the economic situation in the country has deteriorated due, primarily, to a decline in international copper prices, the mainstay of the Zambian economy, and an unprecedented electricity crisis. This has led to low economic growth, balance of payment imbalances, persistently high fiscal deficits and soaring public debt. In its 2014 report titled “A Cautionary Tale of Zambia’s International Sovereign Bonds Issuances”, ZIPAR warned about these vulnerabilities and recommended that Government should address fiscal challenges through: fiscal consolidation; institution of measures to address the existing institutional and legal bottlenecks in debt management; and consideration of various available financing options such as the sinking fund, debt refinancing and widening creditor sources. Nearly five years since the first Eurobond was issued, fiscal authorities (MOF) have done little to mitigate repayment vulnerabilities, save for announcing that they had set up a sinking fund, which is yet to be resourced.

Considering that Zambia’s Eurobonds have bullet repayment structures that require Government to pay the entire face value at once on the maturity date, Government has to mitigate the foreign exchange risk that is inherent at the time of maturity in 2022, 2024 and 2025-27. As the repayments begin to fall due in the next 5 years, this study will therefore be used to re-heat the issues raised in the previous study and will primarily be a policy advocacy tool to develop practical strategies of how to manage the existing international sovereign bond portfolios. Practical considerations of, for example, how to set up a sinking fund as a bond buy-back scheme as opposed to a reserve fund; roll-over/debt refinancing options; and widening creditor sources, will be explored in this study. By reviewing the previous analytical work done (through desk reviews), we will review the pros and cons of each option available for managing the international bond issuances and recommend the most manageable and with the minimum fiscal stress. Policy briefs and practical guidelines will be developed primarily with the Investment and Debt Management Department and the Economic Management Department of the Ministry of Finance.

This work will be carried out in Q2 and Q3 of 2017.

b) Microsimulation Analysis of Tax and Benefit System in Zambia

ZIPAR undertook a study in 2016 to develop a microsimulation model for the tax and benefit system in Zambia with financial and technical assistance from the Finland-based World Institute for Development Economics Research of the United Nations University (UNU-WIDER), the Southern African Social Policy Research Insights (SASPRI) of South Africa and the University of Essex, UK.

The tax-and benefit system is of major importance both to the individual and the government. New regulations are proposed continuously. When new regulations are introduced, their effect on both the government’s finances and the income distribution has to be evaluated. The “MicroZAMOD”, as it has been named, has been developed mainly for analysing tax and benefit changes. At a time that Zambia is considering an IMF-supported Economic Recovery Programme, in which fiscal and economic reforms will be undertaken to bring the economy back on a strong growth trajectory, one of the main concerns is how the austerity programme will affect Zambian households. In many countries, microsimulation models have become standard tools for policy design and evaluation, and have proved extremely useful in the clarification and analysis of consequences of fiscal reforms.

The underpinning dataset for the 2015 MicroZAMOD is drawn from the 2010 Living Conditions Monitoring Survey, which covered 19,398 households and 102,883 individuals. The taxes and benefits simulated include income tax levied on wage income; pension contributions; turnover tax levied on income from self-employment and small businesses with an annual turnover of less than ZMW800,000; and social cash transfers to incapacitated and destitute households in Zambia.

As a follow up to the work done in 2016, the MicroZAMOD strand of the SOUTHMOD work programme will be consolidated in 2017. With the 2015 LCMS now available, firstly, the follow up model development will be done by preparing and incorporating the new underpinning dataset. Secondly, the follow-up effort will add some additional policies scenarios into the model such as FISP, Home Grown School Feeding Programme, Food security packs and public works. The work plan for 2017 will include continued validation of the interpretation of the policy rules in the 2015 MicroZAMOD, with key stakeholders as well as any consequent refinement of the implementation of those rules within MicroZAMOD. Finally, the follow-up work will update the model to include a 2016 tax-benefit system, including the necessary internal and external validation work and updating of the country report to reflect the 2016 policies.

ZIPAR will lead on the preparation of the new LCMS and the addition of a 2016 system to the model, with technical support from SASPRI. ZIPAR plans to work closely with the Ministry of Finance, Ministry of Community Development and Social Welfare, the Zambia Revenue Authority (these are also the primary targets) and other key stakeholders to regularly brief them about MicroZAMOD and its updates.

The development of the updated model will be done during Q1-Q3 of 2017.

c) Analysis of the 2018 National Budget

During the fourth quarter of 2017, the Public Finance Unit will team up with other units to conduct a budget analysis of the 2018 Budget Speech. The full economic effects of the Minister’s proposals and their implications for the budget will be analyzed. Unlike the quarterly macroeconomic performance assessments which are retrospective in nature and limited to specific quarters of 2017, the analysis of the 2018 Budget will review the performance of the Budget for the whole year (2017) and present an outlook and possible implications of the budget policy measures for 2018. Specific sub-activities under this activity will include a writing retreat which will culminate into a summary report of selected issues from the budget. These will be presented to stakeholders within a week after the Budget Speech.


Public Finance Research Team
  • Shebo Nalishebo
  • Florence Banda-Muleya
  • Malindi Msoni