The Zambia Institute for Policy Analysis and Research (ZIPAR) has welcomed the Government’s 2017 budget, which it says is realistic in the face of current challenging economic conditions. Overall, the budget presents some conservative and more realistic targets such as expected economic growth, job creation and inflation ZIPAR also welcome the Government’s intention to “develop, publish and implement a robust medium term debt management strategy in 2017”.
However, ZIPAR cautions that the Government’s home-grown economic recovery plan is likely to face challenges given that the 2017 National budget does not spell out aggressive measures towards cutting overall spending. Spending on debt interest payments, Farmer Input Support Programme, road infrastructure projects, and so on is set to increase from the previous year’s level.
In a comprehensive analysis of the 2017 budget, ZIPAR argue that the long ‘shopping list’ of road infrastructure and the subsequent increase in the road infrastructure is too large a scale given the current resource availability and economic circumstances.
ZIPAR further raises questions about why FISP is proposed to be scaled up in this period when the Government recently announced that the programme will be reviewed because they face challenges with targeting. While the e-voucher system may resolve most of the implementation challenges under FISP, it is not likely to resolve the targeting challenges.
The Government announced some changes aimed at increasing revenue, such as increased road tolling and a raise in the top rate of Pay as You Earn (PAYE), these measures will only increase domestic revenue collections by 2% compared to the previous year. This is in consideration of the economic challenges the country is undergoing which does not leave so much room for government to increase revenues. Therefore, the Government needs to focus on structural reforms that grow the economy and yield more private sector contributions to tax revenues.
With increased spending and flat revenues the government deficit will increase to 7% of GDP in 2017. The overall stock of government debt will increase by close to US$2 billion next year. The cost of paying off this debt is likely to increase, unless such debts are used to finance projects that can generate revenue within a reasonable period to pay off the debts. The implication of this is that soon Zambia will need to use nearly one-third of its domestic revenues to pay interest on public debt and one-fifth on road infrastructure. When the public sector wage bill is added, there will be little domestic revenue left for other activities.
Other aspects of the budget analysed by ZIPAR include:
In order to address the economic challenges raised in the 2017 budget analysis, ZIPAR recommends a number of policies and measures as follows: