2020 Budget analysis

By Alexander Nkosi

A) INTRODUCTION

I want to take this opportunity to congratulate Hon. Bwalya Ng’andu on his maiden budget presentation. I further want to commend him for putting in his best in a short space of time. We knew this wasn’t going to be easy given the current economic dynamics.

B) COMPARING 2020 TO 2019

▪WHAT HAS REDUCED?

1. Reduction in allocation to FISP from K1.4 b in 2019 to K1.1b in 2020.
2. Reduction in allocation to strategic food reserves from K672m in 2019 to K660m in 2020.
3. Reduction in education spending from 15.3% in 2019 to 12.4% in 2020.
4. Reduction in health spending from 9.3% in 2019 to 8.8% in 2020.
5. Reduction in social protection from 2.5% in 2019 to 2.4% in 2020.
6. Reduction in environmental protection from 1% in 2019 to 0.6% in 2020.

▪WHAT HAS INCREASED?

1. Increase in defence spend from 5.8% in 2019 to 6.2% in 2020.
2. Increase in spending on public order and safety from 3.3% in 2019 to 3.8% in 2020.
3. Increase in housing and community amenities spending from 2.6% in 2019 to 3.3% in 2020.
4. Increase in religion, culture and religion from 0.3% in 2019 to 0.4% in 2020.

C) DETAILED ANALYSIS

1. The budget has increased from K86.8b in 2019 to K106b in 2020. Domestic revenue has increased from K56b to K72b. Tax revenue has increased from K46.9b to K53.7b. Government intends to generate more revenue this year than last year. While measures put in place by ZRA will improve revenue collection, prevailing economic conditions will suppress economic activities and compromise revenue collection. A drop in mining production and earnings, excessive load shedding, hunger, expected increase in electricity tariffs, high fuel prices and generally high cost of production will negatively affect economic activities. If people cannot make money, then there won’t be much for government to collect. An attempt to collect more from people under the prevailing economic conditions will leave the economy and people worse off. The big question then is how does government plan to generate more revenue in such economic environment? Is this realistic? Is this ambitious target meant to difuse the effect of debt and wage bill? The issue is had government set a revenue target of around K60b, it would be consumed by the wage bill and debt service. With a high but most likely unrealistic domestic financing target, the real impact of debt service and wage bill distorted. All current economic factors point at a likely increase in the budget deficit in the course of 2020 and government will most likely to struggle to cut down on borrowing.
2. Around K15b will go towards transport, health and airports infrastructure. There is once more expansionary expenditure on infrastructure at the expense of agriculture and manufacturing. Right now there is talk of expanding irrigation, agricultural diversfication and stepping up investment in manufacturing. The budget has not reflected these priorities. The expenditure pattern has pretty much remained the same. Where will growth, income generation and job creation come from? Is government already acting under pressure to finish up all infrastructural projects that have stalled ahead of 2021? Won’t that further increase debt?
3. Never before has this country seen ZRA and Ministry of Finance defend a policy the way they defended Sales Tax. All those who opposed it and advised that we focus on improvement of VAT where called bitter and enemies of progress. They were accused of siding with foreign firms to steal from Zambians. Senior government officials and experts are on record of having emphasised the importance of shifting to sales tax, stressing the decision was final. We were informed that thorough consultations were done and the country was ready. The whole decision has now been reversed by the same experts who championed it. What exactly went wrong with sales tax? If they can defend sales tax the way they did and spent so much on sensitising Zambians and easily abandon it, how can we be sure policies they are promoting are good for the country?
4. In 2018, Zambia spent K14.2b on debt service. In 2019 it increased to K23.6b and in 2020 it is K33.7b. It has been increasing by around K10b per year. This is way higher that expenditure on education, agriculture, health, tourism, manufacturing and mining. In 2020, debt service is 46% of domestic revenue. If we add the wage bill to this, we are stuck in an unpleasant situation where around K60b out of the K72b domestic revenue is spent on the wage bill and debt service. This is a trap we should escape. In 2020, K27.5b will be financed through external borrowing while K3.5b will be financed through domestic borrowing. Hence a total of K31b will be financed through borrowing. Given the current economic challenges, we are likely to borrow more to finance critical activities. This means we are likely to borrow more than we are paying; effectively worsening our debt burdern.
5. Despite having a budget of K86.8 in 2019, most government institutions have been facing serious funding constraints, how will the 2020 budget be different?
6. Due to the liquidity crisis, government admitted that we are still getting certain critical goods and services on credit. This means arrears have been accruing steadily. Even if we allocate K2.3b towards dismantling of arrears, if funding challenges persist, we are likely to continue getting critical goods and services on credit which means arrears will keep going up.
7. While climate change was the major theme of the Presidential speech, the budget should have reflected increased investment in building resilience. We should have seen substantial investment in climate smart agriculture. We should have further seen a substantial allocation to agricultural diversfication.

D) RECOMMENDATIONS

1. We have Paul Mushindo and Palabana Universities that have been under construction for many years and works have stalled. We have UNZA, CBU, Mulungushi, Robert Makasa, Nkhruma, Evelyn Hone, NIPA, NRDC, Chainama and many other tertiary institutions that are under funded. Other than adding to this list, let’s divert the money meant for FTJ and other new university infrastructure to improving quality in the existing ones. Let’s invest heavily in research and development in the existing universities. Increased investment in research and development will improve university and industrial linkages and accelerate economic growth, job creation and development. We should also empower universities to start running business enterprises to help them generate funds and provide quality education with less disruptions.
2. With the increased spending on defense, channel a huge proportion of that budget to recapilising ZNS. Buy adavanced construction equipment and and let ZNS work with local contractors to do most of the infrastructural projects effective 2020. Since ZNS has labour, fuel, electricity, work space, land, insurance….alreday covered by government, it is capable of undertaking infrastructural projects at a very low cost. If we can do infrastructural projects at a low cost through ZNS, it will allow us to save and channel funds to other needy sectors like agriculture and manufacturing.

With this defense budget, let ZNS invest in agricultural inputs production. Since ZNS already has huge costs covered by government as explained, it can produce agricultural inputs at a very low cost thereby passing on low inputs prices to farmers. With its low cost of production ZNS can further process crops from farmers into high quality foods and other essential commodities at a very low cost allowing it to outcompete foreign multinational companies. This is the best vehicle we can use to kick start import substitution. Linkages can be created with local private manufacturing firms as we work towards claiming a large share of the local and regional markets. ZNS should also be used to expand irrigation infrastructure across the country at a very low cost, including winter cropping.

1. Funds released from infrastructure should be channelled to agriculture and manufacturing. Invest in agricultural diversfication, climate smart agriculture, high quality extension, market support and value chain development (creating linkages with industry).
2. The remaining infrastructure budget should be used on key roads such as those in the Northern Tourism Circuit. Roads and bridges in Nsumba National Park, Kasaba Bay and Ndole Bay should be prioritised.
3. Use a huge proportion of the budget meant for airports to develop Kasaba Bay Airport. This will allow easy access to the Northern Tourism Circuit which has the highest tourism potential in Zambia. Part of that budget should also be used to develop administrative and operational structures in Samfya and Kasaba Bay toutism resorts to help attract and facilitate private investments. With the new Kenneth Kaunda International Airport and re-opening of Zambia Airways, reduce tax on jet fuel and invest heavily in tourism marketing. The tourism sector has potential to contribute significantly to GDP, job creation and revenue.
4. The biggest security threat we face is not physical but economic. We need to build economic resilience. Reduce allocation to public order and channel it to importing power. The whole essence of keeping healthy reserves is to be able to move in and cushion the economy through subsidies during a crisis like the current power shortage. If the whole cost of importing power is passed on to consumers, the level of economic activities will shrink due to high cost of production. Firms will close and people will lose jobs. The cost of living will also be so high. Again if excessive load shedding continues, production will reduce posing a serious threat to the economy. Part of that budget should also go to beefing up allocation to electricity infrastructure with a focus on solar energy.
5. Reduce allocations to health infrastructure and channel funds to improving the quality of health services. This includes improving availability of drugs, procuring quality medical equipment for many health facilities that have been constructed but are under equipped, hiring more medical staff and providing quality primary health care services. Infrastructure alone cannot improve health.

E) CONCLUSION

In conclusion, there is need to translate the current talk on irrigation, agricultural development and economic diversification into significant changes in budget allocations. There is also need for us to be realistic with our revenue projections so that we can devise feasible measures of dealing with the budget deficit and debt challenges. While on paper we target to reduce the budget deficit and borrowing, if this is built on ‘inflated’ domestic revenue collection, we shall end up with a high budget deficit and increased borrowing.

There is need for government and all stakeholders to critically debate the budget, refine it and deliver the best to Zambians. I’m urging everyone to take keen interest in the budget. It is a ‘proposal’ of how government intends to mobilise revenue and spend it.

Government releases it so as to get feedback from the public, parliamentarians and all key stakeholders. The idea is not to paint it good or bad but to perfect it. Political supporters should understand that this stage of the national budget is not meant for ‘defending’ or ‘attacking’ but for perfection. If you want to see a better agricultural sector, this is the time to talk. If youths want to see more jobs, this is the right time to lobby. If you want to see more Zambian goods on the shelves, this is the best time to lobby. If you want to see improved food security, this is the best chance to lobby. If you want to see thriving manufacturing, energy, mining and tourism sectors, this is the best opportunity to make your submissions.

Thank you.

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