Friday, March 29, 2024

Politics of Wage Freeze and the Truth about 2015 Budget

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Finance Minister Alexander Chikwanda delivering the 2015 budget
Finance Minister Alexander Chikwanda delivering the 2015 budget

Attacks on Hon Chikwanda

Since the presentation of the 2015 budget by Minister of Finance Hon. Alexander Chikwanda, various stakeholders have raised concerns with regards the budget. Whereas the concerns are genuine in many instances these concerns have lacked economic analysis and alternatives. Unfortunately, the debate has lacked objectivity manly due to the fact that the agenda has been framed by a section of the media whose interests are divided. It is a well know fact that the Post Newspaper has guided the budget debate. Even before the budget was presented to Parliament certain parts of the budget were already on the street of Zambia as leaked documents.

The campaign against Hon Chikwanda has diluted the objective analysis of the budget and sadly to note in this country, civil society and the church alike cannot take a critical reflection on issues that affect the governance of the country and instead they join in the mass without accurate analysis of the political situation. The wage freeze has become a political tool to discredit Hon. Chikwanda. Surely of the whole budget, is the wage freeze the only issue that matters? How about the US$4.7 billion debts, and the detailed macroeconomic objective proposed in the budget that have a bearing on the future of this country? Why is it that it is only the wage freeze that has taken centre stage? Yes to mobilize workers against Hon. Chikwanda. This signals politics of wage freeze.

Public Service wage bill unsustainable

While the concerns are justified from the labor movement point of view, their arguments, however, are not economically sound and here is why. The government of Zambia’s public service wage bill currently stands at 52% of the national budget. This means that over half of the country’s resources are being spent on paying emoluments for workers in the public sector. Let us not forget that in the 2013 budget government awarded 200% wage increase with admirable PAYE threshold and minimum wage.
In fact in 2011 the World Bank observed that “Zambia’s public sector wage burden was on the rise “both in absolute terms and as a proportion of domestic revenues—and remained a concern over the medium term. On average nominal wages for public employees have been increasing at a faster rate than inflation. In principle public sector wage bill should be between 5% to 20 % of the national budget or slightly up-to 8% of the GDP. This is to ensure that the economy remains stable and competitive. Clearly, the wage freeze is the only temporary measure to free fiscal space for investment in infrastructure, education and health.

Therefore, lifting or suspending the wage freeze will have economic implication for the growth and development of this country. It will limit allocation of resource to critical development programmes such as increase in access to clean and safe drinking water for our people, modernization of hospital infrastructure and upgrade of health facilities including investment in the road sector, electricity, social protection, constitution making process, CDF, local and foreign debt service. This will also contribute to rising income inequality, current Zambia has high and rising income inequality. We can’t build a stable and prosperous nation without addressing rising inequalities. There wage freeze plays that role in minimizing income inequality. The big question lacking in this debate is, what does lifting of wage freeze mean for the inflationary pressure on the economy and its subsequent implications for private sector growth? It is the private sector that will create jobs and spur the much needed growth and development.

True to the fact that in the short term we will keep our workers happy but in the long term Zambia’s economy will remain sluggish. Therefore, it is important that people see the bigger picture. Clearly, spending 52% on public workers wages is not sustainable in the long term. Government workers deserve a decent wage, but we must cut down on public waste. The alternative are not easy to implement in the medium term i.e. civil service reforms including cutting on jobs in the public sector, decentralization to local levels, fighting corruption and rent seeking and providing information to the general public. These are the areas the government needs to start paying attention to in order to reduce public wage bill.
In view of this Hon. Chikwanda has tried to balance the needs of our scarce resources. Of course not everything in that budget is perfect. There are many be grey areas from a macroeconomics and development perspective that is not right in the budget. However, that will not be my preoccupation in this analysis. The budget has articulated broad macroeconomic framework for economic growth and development.

A Focus on wealth creation

The budget focuses on wealth and job creation. This is key for social progress and development. Hon Chikwanda articulates the following in the agriculture sector by investing in critical areas such as increasing extension worker (housing, mobility and technical knowhow), expanding irrigation, crop diversification (provide seeds for a variety of crops according to ecological comparative advantage) and livestock development (including measures for animal disease control). Most importantly, recognizing the challenge posed by climate change in the budget and allocating resources to address it. These initiatives are critical for productivity and food security. However, there is need to invest heavily in post harvest management and maize pricing which are not adequately addressed in the budget.

Hon. Chikwanda mainly focused on areas that have long term impact on economic growth including government prioritizing entrepreneurship training and market- relevant skills development, facilitate infrastructure development to support the growth of the manufacturing sector through the promotion of multi-facility economic zones and industrial parks. Support initiatives such as the Alternative Investment Market launched by LuSE frameworks which will allow SMEs to raise funds from the stock market at an affordable cost and tap into technical and managerial skills through new equity partners. Continue allocating funds to the Citizens Economic Empowerment Commission to support value chain development. Government local development through showing commitment in the budget by allocating resources towards industrial clusters that are going to be established in each district as a way of realizing economic independence for our citizens. Most importantly recognizing that for all these to be achieved road, air, rail transport, energy and electricity needs to be improved with marching resources. The commitment towards infrastructure development with budget allocation is critical for sustainable development and this is equally demonstrated in the budget.

Finally there is also equal attempt to demonstrate restrain in external borrowing to 2% of the GDP and expanding the capacity for domestic revenue especially from the mining sector through the newly proposed tax regime for mining operations and also the articulated private sector growth measures and investments in critical areas of the economy (infrastructure i.e. road, rail, air, energy, electricity, health and education.The Minister of Finance has also proposed to maintain stable and favorable macroeconomic environment such
as :

  1. achieve a real GDP growth rate of above 7.0 per cent
  2. achieve an end year inflation rate of no more than 7.0 per cent
  3. increase international reserves to at least 4.0 months of import cover
  4. raise domestic revenue collections to at least 18.5 per cent of GDP
  5. contain domestic borrowing to no more than 2.0 per cent of GDP
  6. accelerate the diversification of the economy, and continue the drive to create decent jobs, especially for the youth
  7. accelerate implementation of interventions in the health, education and water and sanitation sectors all of which will benefit all of us.

Thus, there is need for this country to be objective in debating national issues that have long term effect on social progress and development. Citizens need to be better informed.

By Barnabas Mwansa

The author is a development expert and practitioner

10 COMMENTS

  1. Wage freeze is not the solution to Zambia’s national budget challenges; at global level Zambian workers are poorly paid, therefore the solution lies in doubling the current income by 100% and increase expenditure on other sectors such as agriculture and social services,or alternatively, increase all cost centres by 100% (except wage bill) and automatically reduce 52% wage bill to 26% of national budget.

  2. Barnabas…..you r putting words into Chikwanda’s mouth !.
    Chikwanda is an empty head Old man and his fellow Ministers. They ve really failed us and to hell with them.
    Chikwanda maybe your Grandpa Barnabas, BUT the Old man has failed us.

  3. It’s so amazing that when government was giving civil servants hefty salary increments, the unions were the happiest, but when it’s time to swallow the pill, they are not looking at the real picture out there. We need to be honest with ourselves b4 we r honest with anybody else. Can the chief government spokesperson be seen to be leading in this discussion than just seating on his back side and doing nothing.

  4. Govt should not hesitate to fire all those that will go on strike. Public workers were the first to get an increment. Let us not be selfish

    Opposition MPs are aware that this is not for Zambia’s economy……but because they’re dull, being opposition means…………everything must be opposite. SHAME

  5. salaries are very important. chikwanda should think twice. otherwise we look at that head as big as it is to be very empty

  6. Agony is when a dull person tries to make sense of a wise mans assessment. Politics in Zambia now have hit a new low, it has become like football where you support your team nomatter what even when the opposition are doing the right thing you will always try to find the bad things they are doing, we are human beings and we can’t appease everyone. I am unemployed youth but what the government is doing is very comendable by focusing on long term development rather than appeasing you haters. The issue of debts is bad but how is the payment plan like. How long are they going to take to pay for the Debt. Don’t tell me in your own house hold you don’t borrow money when you want to do a major project

  7. The budget proposal for 2015 is commendable. For the first time in Zambia’s history after privatisation our country is going to get a fair share of it’s mineral wealth in form of taxes. Zambia in 2015 will get an additional $280million from the mines in form of taxes. This figure is quite substantial as it is about 1% of our Gdp. This means that Zambia’s domestic revenue mobilisation will improve from 17% of Gdp in 2014 to 18% of Gdp in 2015 . Further it means that Zambia will have less appetite to borrow which explains the reduction in our fiscal deficit from 5.5 % in 2014 to 4.4 % in 2015. The most impressive thing about the new mining tax regime is that it will be revenue based and not income related meaning we will get more money from the mines whenever copper production or price…

  8. Great Article bakalamba. I personally take nothing away from your intellect. The problem I have seen is the growing negativity towards the PF no matter what they do. They may not be a perfect Government in power like is with any other political party in the world; but they are not the worst either.

    Noted around most of our fellow Zedians is that they enjoy talking from without. They enjoy condemning other people’s actions … they are passionate about the blame game and above all they do not like reading (researching). They offer little or no solutions on the ground. They like saying what the masses say & take pride in blowing sentiments out of proportion whilst forgetting too quickly. Look at cases of ZAMBEEF; Fuel Subsidies; Sata’s perceived death/ ill Heath; Kabimba; GBM mmm…

  9. ”On average nominal wages for public employees have been increasing at a faster rate than inflation”, I quote from this article.
    But the cause still goes back to the the PF govt. who have rampantly increased the number of districts with dysfunctional public employees such as DCs, DEBs, DMOs, ans many more.
    “…service reforms including cutting on jobs in the public sector”, I quote from this article.
    Let them check on those idle public employees, rather than troubling innocent and operational public servants.

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