The Zambia Institute for Policy Analysis and Research (ZIPAR) has welcomed the Government’s 2020 budget which it says holds promise to stimulate the domestic economy and position Zambia for growth.
However, ZIPAR cautions that planting and nurturing seeds for growth in 2020 and beyond will not be easy in view of the anticipated difficult macroeconomic conditions, challenging fiscal and debt expansions, adverse climate change effects and urgent social sector demands.
Overall the budget presents commendable efforts to encourage growth in the private sector which will be key to achieving the additional 1% growth that is targeted in 2020. We commend the Government for abandoning sales tax, which has shrouded the private sector in uncertainty and delayed investments over the last year, in favour of reforms to VAT in line with various Stakeholder’s recommendations. These reforms should be carried out in an orderly and transparent manner to reduce any further uncertainty on businesses.
Additionally, the Government’s commitment to increase the allocation to dismantling arrears in the domestic economy to K2.3bn is essential to increase market liquidity and unlock private sector growth. It should be recognised that this contribution is just over 10% of the K20bn total stock of arrears – which is at risk of rising given the ambitious budget and increased borrowing. But this is a positive start to a long journey towards dismantling arrears.
The sectors targeted to drive growth are agriculture, tourism, mining, energy and manufacturing. ZIPAR has identified key enablers to make this ambition a reality:
- Harnessing information and communication technology;
- Operationalisation and commercialisation of the two National Airports to ensure benefits from investment are realised; and
- Enhanced financial and insurance services.
However, the Government will also have to mind the risks of key growth decelerators hampering productivity and growth, particularly high input costs due to; the electricity shortage, rising costs of fuel, and labour cost escalation from the new Employment Code Act No. 3 of 2019. ZIPAR also notes that addressing the rising climate change related variabilities and resultant socio-economic and environmental effects will require more attention to climate smart interventions in the energy and agriculture sectors than what is currently provided for in the 2020 Budget.
Other aspects of the budget analysed by ZIPAR include:
Debt expansion: despite the impact of debt on the economy this year, the Government pegs total planned spending at K106 billion, increasing the size of the budget by 22% in 2020, resulting in borrowing a further K31 billion. Government has cast its lot in with an expansionary regime intended to boost the economy and put Zambia on the road to recovery. As such, Government needs to tread carefully to ensure that expansionary fiscal policy and debt accumulation yield growth rather than stifling it.
The Government should therefore be creative in managing the debt burden. With the lax fiscal consolidation displayed in the 2020 budget, it casts doubts on the likelihood of an IMF programme in the immediate future. More innovative options to constrain servicing costs need to be explored, such as: bond buy-backs; strengthening Ministry officials’ capacities in debt management; innovative term financing of infrastructure; the use of Public-Private Partnerships; issuance of Infrastructure Bonds targeting retail investors; and the financing of infrastructure using proceeds from road tolls.
Executing the 2020 Budget: given the size of the budget, current fiscal constraints and the possibility of lower than expected growth, Budget execution in 2020 faces significant risks. This year, we have seen overspending on debt payments by 22% (as well as roads), which has squeezed other recurrent expenditure such as wages, education, health and social protection, led to a 25% increase in arrears to the private sector and crowded out the sinking fund which received no disbursements. With debt repayment projected to take up nearly one in three kwacha of expenditure, there is a risk that the Government’s ambitions will similarly be frustrated.
Therefore, ZIPAR cautions the authorities to mind the critical gaps and potential slippages inherent in the design of public policy. A key requirement will be the ability of the authorities to stick to the script, ensuring to effectively and efficiently implement the policies and interventions as pronounced in the Budget.
- This is based on the ZIPAR 2020 National Budget Analysis report titled: “Nurturing the seeds of growth”.
- ZIPAR is a socio-economic think-tank whose mandate is to conduct research and policy analysis. ZIPAR was established by the Government Republic of Zambia (GRZ) with the support of the African Capacity Building Foundation (ACBF).