Former Minister of Finance Situmbeko Musokotwane has expressed concern at the size of the budget deficit that the PF government is running. In a statement released to the media, Dr Musokotwane started by conveying his congratulations to the Minister of Finance Alexander Chikwanda for the 2014 budget because it was never easy anywhere to present a national budget as resources are always finite.
The Former Finance Minister offered a detailed analysis as to why he thought the 8.5% deficit the Government was running was not a good sign and was considered by many as unsustainable. Dr Musokotwane further said that only 17 countries have deficits of 8.5 percent and bigger, and these included countries like Greece.
Below is the full statement
Dr Situmbeko Situmbeko’s reflection on the 2014 national budget
Introduction
I begin by conveying my congratulations to the Minister of Finance for the 2014 budget. It has never been easy anywhere to present a national budget because you cannot satisfy everyone since resources are finite.
In the African context, especially, there is unlimited desire for public spending on many programs, many of which reflect genuine development aspirations. A tour of most areas in rural areas will indeed convince any reasonable person that government spending to ease the lives of the people there is necessary.
While there is pressure for government to spend, there is always pressure from citizens to lower their taxes. This tension of expanding expenditure while reducing taxes, if unchecked, can lead to huge deficits in the government budget. This is what seems to be happening today in Zambia
Requests to Comment on the Budget
I have received many requests to comment on the 2014 budget proposals. After reflecting on the requests, I thought I should indeed comment. Rather than comment on every sundry, I feel I should just focus on a single theme that is of critical importance to the future of the country.
My remarks are therefore on the theme of finiteness of financial resources and the budget.
Resources are Limited
In our homes, it is easily accepted that resources are limited and therefore it is impossible to get everything we want at any one time. At the national level resources are limited too. But few, including politicians, accept this self-evident truth.
At national level, countries sometimes delude themselves that they can spend beyond their means. But this this comes at great cost by creating massive macroeconomic stability, which then requires painful correction. The most obvious forms of macroeconomic instability are frequent and substantial changes in the exchange rates, prices and interest rates.
Take the movements in exchange rates as an example of macroeconomic instability. In 1985 the exchange of the dollar was about K5 (un-rebased) to 1$. Then the Kwacha started losing value against the dollar to twelve, twenty, fifty, two hundred and so on until it reached K5,200 to the dollar before the Kwacha got to be rebased.
Further, take the example of inflation, the measure of price changes. It also rose sharply, at one point reaching around 300 percent per annum. Today, the inflation for the whole year can be around seven to eight percent. In the early and mid 1990s, this rate of inflation was attained just within a month! Life was truly uncomfortable then. Structural adjustment measures were needed to stop these difficulties.
Those who were adults during the periods of economic structural adjustments during the 1980s and 1990s remember just how painful the adjustments measures were – cash budget, high interest rates, and so on. The measures were a necessary evil to re-establish macroeconomic stability. Having achieved and maintained stability for more than a decade, we must spare our children from those harsh experiences of fighting to bring stability by preventing the re-emergency of instability.
Politicians are the Source of Over Expenditure
Politicians are the major source of pressure for over expenditure, or for allowing pressure for unsustainable expenditure to occur without adequate brakes. In succumbing to pressure for unsustainable expenditure, macroeconomic stability becomes an orphan. Not enough voices, especially from the government, are forth coming to warn of the dangers of run away budget deficits.
[pullquote]Not enough voices, especially from the government, are forth coming to warn of the dangers of run away budget deficits.[/pullquote]
The aspect of economic management in Zambia that is being watched closely today by local and foreign economists, international organizations like the World Bank and AfDB, is our government budget deficit. Even credit rating agencies and therefore investors are watching our deficit very closely.
In paragraph 77 of the budget speech, the Minister acknowledges and he refers to the problem of the 2013 budget deficit when he says and I quote
“Mr. Speaker, 2013 has been a challenging year for fiscal policy but important steps have been taken to address policies that have created structural imbalances. Challenges will remain in 2014, but Government is actively engaged in creatively resolving them to maintain prudent fiscal management”
Similarly, in a report entitles Zambia’s Job Challenge- Realities on the Ground published in October 2013, the World Bank states:
“The 2013 budget has come under stress due to several unplanned expenditures and a shortfall in revenue collection”.
The budget is said to be under stress because the expected expenditure is estimated to be way above of the expected revenue, which is itself below target, causing a budget deficit much bigger than expected.
Budget Deficits
Budget deficits are normal. In fact, most countries on earth run budget deficits. For example, out of 210 countries and fiscal authorities surveyed by the American Central Intelligence Agency (CIA) for 2012 fiscal outcomes, only 45 ran either balanced budgets or had budget surpluses. The remaining 167 or nearly 80 percent ran deficits. It is therefore not a strange thing that Zambia should run a budget deficit.
But we should not comfort ourselves in observing that it is normal for a country to run a budget deficit. A more important issue to analyze is the size of the deficit and its consequences on the economy. In this kind of business, size does matter.
Before we delve into the issue of whether our budget deficits in 2013 and 2014 are excessive or not, let us clarify something about measuring deficits. We can measure the size of the budget in monetary terms. Very often however, such a measure is not useful in evaluating whether a deficit is excessive or not. The difficulty arises because a given sum of deficit in monetary terms may be considered either too big or too small depending on the size of the economy.
The same consideration comes into play if we have to evaluate whether K100 million borrowed by individuals is too excessive or not. For a rich man it may be nothing. For a poor man, it may be too much.
To avoid this pitfall, we evaluate national budget deficits by relating them to the size of the economy of the borrowing country. For 2013, the Minister has told us that the expected deficit will be 8.5 percent of the size of our economy (the Gross Domestic Product or GDP).
Few economists, if ever, can be happy with this size of deficit of 8.5% of GDP. I also consider this deficit excessive for the following reasons:
Firstly, it is way above the average deficits Zambia has run in the past decade or so at about 3.5 percent of GDP. The last time a budget deficit of the size of 8.5% of GDP was run was probably in the unstable 1980s or 1990s.
Contrary to the unstable experiences of the 1980s and 1990s, Zambia has enjoyed a relative high degree of macroeconomic stability since the late 1990s – a period associated with significantly lower deficits/GDP ratios than what we have today.
[pullquote]The last time a budget deficit of the size of 8.5% of GDP was run was probably in the unstable 1980s or 1990s.[/pullquote]
Secondly, the 8.5 percent of GDP deficit is excessive when seen against the practice in other countries. If deficits of this size were good, or if they were prudent, we would expect most other countries in the world to run deficits of similar sizes.
The evidence is in the opposite. We look again at the survey done by the CIA. Of the 210 countries and fiscal authorities covered, the simple average size of the deficits was 2.5 percent of GDP. On the other hand, the average size of deficits corrected for the size of the economy was 3.8 percent of GDP, still way below ours at 8.5 percent.
Of the 210 countries and fiscal authorities surveyed, only 17 had deficits of 8.5 percent and bigger, and these included countries like Greece that have recently suffered from lack of confidence in their ability to manage their debts. The rest, constituting about 80 percent of the authorities had deficits below 8.5 percent of GDP. Clearly then, Mr. Speaker, the Zambian projected deficit is an outlier. It lies beyond the range that is considered by others to be sustainable.
Thirdly and finally, the 2013 deficit is excessive because that size was never what the Minister had intended in the first instance. The intended size as per the 2013 budget speech was 4.3 percent. We got to where we are because of unplanned circumstances. It has been caused by political pressure.
Projected Deficit
Against what has happened in 2013, the projected deficit in 2014 is 6.6 percent of GDP. I consider this as reasonable effort to reign in public expenditure although I would have been happier if the target for the deficit was lower. But vigilance is required. The 2013 deficit was never intended to be as big as it became eventually. Therefore, there is no automatic assurance that the 2014 deficits will be what it is intended now.
Already, some of the measures that the Minister had relied upon to reign in expenditure such as the two years wage and hire freeze have been thrown out right from start. The expenditures related to these areas mean that from the start the 2014 budget deficit will probably not be lower than the 2013 deficit unless new measures, still to be thought of and announced, are instituted.
[pullquote]Already, some of the measures that the Minister had relied upon to reign in expenditure such as the two years wage and hire freeze have been thrown out right from start.[/pullquote]
I see the effort to reign in public expenditure in 2014 requiring even more courage. The trouble is that big budget deficits behave like viruses in the sense that they unleash pressure for new over expenditure.
The construction of several public universities in a very short time period means we must quickly find money to fund hitherto non-existing expenditures for books, laboratory expenses, remuneration for lecturers and staff and so on. The same thing for the new bomas created. Then we must also start looking for money for repairs and maintenance for the new infrastructure being built. It is not that these investments are undesirable. It is more about developing them in a sustainable manner.
Pressure on the Budget will only get Bigger
So, the pressure on the budget will only get bigger. In other words, the odds for further budget overruns have increased. The Ministry of Finance requires our support to prevent this.
I said budget and budget deficits are political phenomena. Supposing the politicians who believe they have discovered a new, easy formula for national development through unrestrained borrowing get their way? Supposing the deficits will continue to grow beyond acceptable levels? What can we expect for our economy?
There are a number of serious negative consequences to continued and consistent excessive budget deficits such as that estimated for 2013.
Firstly, deficits unless financed by grants (gifts) increase the stock of national debt, whether foreign, domestic or both. Bigger deficits quickly accelerate the growth of national debt to the point when it becomes a problem to service, as was the case before HIPC.
I have heard some people say, Zambia’s debt service burden is still manageable. This is correct. But we must remember that debt service unsustainability is not arrived at as an event. It is arrived at as a process. Large deficits accelerate the arrival to the time when debt becomes unsustainable. May I ask some of the economists reading this article to develop scenario, at different levels of budget deficits and at realistic expected growth of the economy, to see when (time period) debt unsustainability kicks in?
[pullquote]I have heard some people say, Zambia’s debt service burden is still manageable. This is correct. But we must remember that debt service unsustainability is not arrived at as an event. It is arrived at as a process. [/pullquote]
Secondly, running huge deficits reduces the willingness of those with surplus cash to lend to us. Increasingly, they will see us as big risks and hold back even at a time when we desperately need credit such as in an emergency. According to the World Bank study on Zambia that I mentioned earlier, the following observation is made on page 11:
“Fiscal policy remains on a sustainable trajectory, but escalating recurrent and off-budget expenses must be reined in. Major global credit rating agencies have a negative outlook for Zambia.”
Indeed, both Standard and Poors and and others have now published their credit ratings for Zambia both of which portray negative outlook.
Thirdly, we must therefore indeed consider what would happen if lenders, domestic and foreign, were to reduce their willingness to lend to us.
Possible Outcome
One possible outcome would be for the government to aggressively seek funding by attracting money that is more expensive. In other words, this means raising interest rates. This is the so-called classical crowding out – the government attracting more credit to itself at the expense of the private sector and economic growth.
Another possible outcome if there are no lenders is simply to reduce planned expenditure to the available resources. I believe this is what the Minister is planning when he proposes a smaller deficit in 2014, even though in this particular case it has not been occasioned by reduced interest from lenders. But, as said earlier, reigning in expenditure is easier said than done.
In reality therefore, consistent big deficits raise the odds that the Bank of Zambia will be forced to expand its credit to the government. This is what economists call printing of money even though the physical side of printing may not happen, at least not immediately. The expansion of credit by the Bank of Zambia is what caused the instability of the 1980s and the 1990s that I spoke about earlier. There are all the chances that the same result will happen now. The zeros that we cut off when re-basing our currency, at high cost to the country, will automatically come back.
Best wishes to the Minister of Finance in controlling expenditure so that what we suffered from in the 1980s and 1990s does not return to Zambia.
Situmbeko Musokotwane-Former Minister of Finance
BEST AFRICAN MINISTER OF FINANCE 2011
Ichisungu ba guy chalishupa te? Lmao
@Jo, unless you sat in his class like I did you will not understand his analysis. Well articulated article Doc.
Can you imagine we have a president who cant read this and all he wants to hear are praises that “nawu contolola”.Dr Musokotwane to use the president’s own words please “simplify” for him then translate it into Bemba maybe then he will understand the mess his pathetic “with immediate effect”policies are having on the nation.
IWE MUSOKOTWANE……WE WILL PRINT MORE MONEY!!
Excellent!!! I enjoyed reading this. It was like sitting in a lecture theatre, listening to a great visiting economist speaking … in those days. Doc, please come back to the University of Zambia.
This should be “simplified” and translated in the native Bisa dialect…
This is what we call “objective criticism” unlike blanket criticism from under five politicians
He taught me “Money and Banking” at UNZA more than 20 years ago! I thought he did very well, actually.
Interesting reading the article and some of the facts the man pointed out,SADLY and this is where my problem is,he doesn’t offer a solution to what is clearly a problem,as a patriotic Zambian surely if you have a solution,feel free to offer it,it will benefit Zambians after all,Sitting and observing from a distance and making the comment ” Best wishes to the Minister of Finance in controlling expenditure so that what we suffered from in the 1980s and 1990s does not return to Zambia.” to my mind sounds like a bitter person wishing us Bad Luck, be it UPND, MMD, UNIP or even PF,and that person should rather not comment on our national issues – EXTREMELY DISAPPOINTED!!
This is what is collectively lacking in PF… rather than a collection of schooled brains, the have a collection of thugs
@GpGp
If you can not get it in your head that the good Dr is saying stop spending what you do not have or you will fail to pay, i doubt you even understand what the article is about….
Roughly at 30% of GDP zed debt stands at close to $6billion. Growing at 8.5% of $22b zed gdp, the deficit level, grz has to borrow $1.8b which means debt grows at close to 30% p.a. The debt will equal $12billion in 72 divided by 30 or 2.3years (2016). Gdp 2013 of about $22b growing at 7% will equal abt $26b in 2016. Debt to gdp will be abt 45% and grz will spend abt $1.2b per year paying interest of about 10% p.a. money that could be used to build other things. Not good
Ishina ububi atase kuti nalikana ine
Which name are you complaining about iwe chimbwi, nkandwe wo panda muchila? Situmbeko and Musokotwane are common Lozi/Toka Leya names. What is bad about them? Just comment about the issue at hand or you cannot understand a single thing about this article? Ask Mushota uwasambilila ukunya.
i think i know i who this joe # 2 and # 1.2,, “joe“ just use your usually name,,, we know as a die-hard PF,, no need to be changing shadows…the name Musokotowe is now making you hide,,, sure!!!
The stuff has gone over Jo’s empty head and all he has to comment on is the good Doctors beautiful African name. Craze that there are even morons who have ticked this loser up!
@Ndobo is right. There is usually only one blogger who writes from “Jo’s” location, who is “Jo” himself a well known PF sympathizer with a name a 7-letter name starting with “S”. He has truly failed to comprehend what Musokotwane said.
tiye uko noko ichinyoh,imwe lishina nshi mwakwata? wafula ifya kunya
@JO. If you don’t understand issues ,try to engage a grade 9 or 12 to help you. why should you be commenting on someones name when every sane person is busy analyzing the content.
You thinking is disjointed just like Sata.
2.5 @ super glue. You need deliverance.
Be objective.
I like the Analysis…
Big Brain Musokotwane we miss you big time.
Very educative stuff Situmbeko. The only thing is that you should have gone a little bit further than narrowing your analysis to the deficit. One is bound to argue that there are some counterbalancing measures contained in the budget. I though do not see them but to confine yourself too much to the deficit is leaving yourself prone to even unwarranted critism. Great stuff bo ndate Musokotwane.
I don’t think you read his introduction:
“I have received many requests to comment on the 2014 budget proposals. After reflecting on the requests, I thought I should indeed comment. Rather than comment on every sundry, I feel I should JUST FOCUS ON A SINGLE THEME that is of critical importance to the future of the country: the finiteness of financial resources and the budget.”
Thanks my bro. I see it but that is where I am comming from. Unless the jet lag from JHB to New York is making me not see certain things.
No problem 🙂
Another possible outcome is credit crunch! The good Dr actually spared The old man,basically he is advising to stop borrowing like you did in the 80s when you were FM
Good evening
A lengthy, but good analysis. He starts by pointing out the great challenge and responsibility that lies upon the office of the Finance minister and then presents his arguments in a quite objective manner.
It all comes down to finding a way to stop the neverending deficits. Milking the cow without feeding it is not acceptable. Zambia is a rich country and we do not deserve to be where we have been, much less where we are. I wish all these great minds could sit down together and talk about ways of how to sustain our economy.
There comes a time when the interest of the nation overides and must overcome the parochial or secterian interests. And we are in such dire times. I therefore raise a clarion call to the finest of economist and developmental minds bequeathed by our creator for our good to rise to the challenge and engage with our Finance Minister and Republican President on National Good. Today a few of us are in priviledged positions but what shall we bequeath our children? Debt or wealth? Can we continue ‘developing’ beyound our capacity? If it were that easy, wouldnt all nations have Link 50 000, university per district in two years, cash transfers to all the poor? It is not sustainable and beautifully tantalising as it sounds.
I have no grudge against ba PF. I voted for MCS. BUT…..but…you CANNOT built your way into prosperity through massive borrowings. It is NOT possible. Can my brother in John Laing, Kuku, Chipulukusu, Kamitondo, Zambia Compound, Malota built themselves a KR4 million mansion, buy a speed boat, Hummer, Jacquar, send their children to USA, Canada and get medical check ups in UK and France and shop in Paris from BORROWED money. Not possible. And yet we are doing the same. A budget deficit is local borrowing on the necks of posterity. Stop it, ba mudala ba Chikwanda. We are enslaving children and grand children. Let us live within our means. Already we have borrowed almost half of what HIPC forgave us in TWO years. What shall we borrow in five years??? MCS, please stop it!!!
Well said. I would want to add that with a negative rating from credit agencies, the country is unattractive to foreign investments, and available investors start to scale down as long term business planning becomes difficult due to unstable interest and exchange rates. This leads to job losses their reducing aggregate demand and putting more pressure on the economy.
We need to put a clause in the constitution for allowable budget deficit beyond which we should vote for another govt into office.
Time to have ignorant people leading others is certainly not now, that time is behind us.
Bo Situmbeko has spoken, but where are “EARS”?
the statement below is the conclusion of the whole analysis. there is more to this and let those with eyes and ears see and hear respectively.
“Best wishes to the Minister of Finance in controlling expenditure so that what we suffered from in the 1980s and 1990s does not return to Zambia.”
@Saulosi, just come out. Do not use pseudo names. We already know you are the same @Ndime and @Jo.
Too bad u fooled by my flag. U could even be my apt neighbor. Check out on 635 and skilman.
PF has empty minds…
These are the type of brilliant MMD brains that brought us record forex reserves,bumper harvests and a BB rating. All of that is gone with the clueless kolwestans we have in office.
Ochisankwa
My brother this is not a time for politiking or name calling. This is a most sobre analysis that our beloved President MCS and his able Finance Minister and Cabinet and Civil Service should digest and consider at length. This country is headed for disaster if we dont heed the advice from Doc Musokotwane. Where is Caleb Fundanga, Jacob Mwanza, and other eminent economist to buttress this fine analysis. Lets know when to politik and when to save our country.
@Simbedreki
I believe most of what Enka has stated has nothing to do politicking – truth must be spoken. Yes no name calling….
@Enka mind the way you comment, we mbushi wee
I think we neck deep in problems.
THIS IS DISASTER POOR PEOPLE.let me see those still proud of PF and honestly wanna vote them back?
You will be surprised dude, Zambians can be pretty unpredictable and give these nincompoops and their totally clueless president a landslide.
This is what we needed Sata’s advisors to be telling him about. ABC must be prudent enough to tell Sata that his Grade 4 Approach of ruling a country is not feasible. We need integrated economic intelligence that shud see us develop in tandem with other sectors of the economy. We cant have a situation where the president thinks only road development is economic development.We a balanced mind with a broader scope of looking at development. We dont seem to have economic advisors. Welldone Doc for article n I hope ABC is reading it now. That partnership that Sata has with KK is making him extremely irrelevant to New Zambia
ABC is the one who is clueless. He made the same mistakes b4!
Eeeee Ndobo u are rite, BA Joe niba Die-hard P F. Iyee baimwenamo ubukopo shaamee! He can’t contribute objectively or he probably has no clue on what the brain MUSOKOTWANE has articulated how visionary a Finance Minister ought to be. Bwafya sana me.
Now understand why this man is considered one of the brightest brains that Zambia has ever seen judging from his academic profile.Nice article bosses.I agree with you.
That is one smart Zambian!Now,I know why why MMD left a surplus in Zambia’s coffers.
If I had my way, I would employ him as a consultant to the present government under the IMF as he was in the past. We all need his help in economic administration.
Well said, For some of us who dont understand what a budget deficit is, I will try and explain in simple terms. Imagine you earn K100, your normal budget expense come to K90. That would mean that you have a 10% surplus every month. Now say you marry and your wife is a house wife who needs to be supported with her niece as an assistant to her which raises your expenditure to K104, it then means that if you dont find additional resources you will end up having a monthly deficit of K 4 which represents 4% out of a hundred. If left unattended it will mean that your deficit is at 4% you need 4 dollars to support your growing family and you have to borrow that K4 from somewhere usually the neighbour, bank or cash loan pa kaloba. in 1 year you will K48 thts 48% thats why th warning. Bad to worse
Good simplification – however, since you have maintained a 4% deficit throughout the year, your deficit is 4% (i.e., ((4×12)/(100*12)*100).
@ Adviser yes, the deficit remains 4%, due to posting space what I would like to add is that since your family has grown and need resources beyond the K100 which you earn and forecast, you have to find other means. If you cant then you have to cut your expenses which Dr Musokotwane is highlighting the days of Structural Adjustment Programme (SAP) of the MMD when we had severe austerity plans in cutting expenses whilst raising taxes. On a K 100 budget it would mean, cutting your entertainment allocation, perhaps transport, meals, clothing, number of dependents, etc. It would mean a severe outlook. The PF government expenses are rising every year. Growing expenditure would entail going beyond the threshold which we in this case we believe is already beyond 8.5%.
The scenarior for my K100 family is that the K4 X12 =48 after twelve months, but then if the medical expenses go up? Bereavement in the family, other unforeseen expenses arise, which demand resources beyond the K100. It would eventually put the family is severe straights. What the government should then do is increase the revenue base. Mineral taxes, we know that the Capitalist system is the best because its a system that is able to multiply 10 to 100 and 100 to 1000 or 10000. It is a system of gains massive gains. I do not think that socialism as portrayed by the PF works. We can not drain resources on feel good projects and sympathy for investors. They know why they are taking the risk of being in Business its about the bottom line (profits). Increase mineral taxes, alcohol & luxuries
brilliant analysis..those are the ideas needed to run the economy
Ancle musokotwane we thank you for your concise analysis ..PF over promised hence the over expenditure resulting in budget deficit,with the many district,universities,tarred roads done & others underconstruction,&many more projects,it is evident we are spending more than we have.in basic economics unless you have cash generation strategies don’t overspend let alone borrow to feed consumption.Reduce expenditure empower entrepreneurs and encourage agriculture incentives &networks that encourage beneficial returns to the farmer.Lets continue we will get there.
But surely, if you woo a woman and tell her that you earn KR20 000 and she agrees. Would you still attempt to spend KR20 000 when you are a clerk who earns KR1 200 (close to minimum wage). I say, PF or MCS lying brilliance brought the woman into their bossom. For the future of this nation, tell this woman that you are just a smooth talker and pauper. Dont borrow to build the mansion you lied to her as you will be arrested for obtaining money by false pretenses. Zambia’s treasury cannot support the current infrastructure developments. I too would love to own several houses in Kanseshi, Garneton, Kabulonga, etc. But I cant borrow for that and thank God no bank will allow me. But GRZ has one weakness, it can print money and sell the future of the young people into debt!!
Bauze!
This is brilliant step-by-step analysis; where we are coming from and where we are today. Former Finance Minister is also sounding a warning in a highly diplomatic terms of the effect of over borrowing. The sad thing is that it is not that long ago when Zambia had its debt written off and of course it took 27 years for Zambia to accrue debt of USD7billion by 1991, but despite debt write off by G8 in 2005 and bright economical outlook left by MMD just over 2 years ago, the speed at which we are drifting back into debt is scaring to say the least.
I hope those who feed with short spoons will learn from this. There is no subsititute for education in governing the country. You bring a dance boy for forged a certicate ati Minister?????
Get f u c k out space. S h i t my ash
Dr Musokotwane, this is how you should have started off from the begining when MMD left government. Please continue to shine as a source of wisdom in the country, dont muzzle in the dirty politics. I like the analysis and the carefulness not to accuse or blame but to be sincere in your ettiquette and choice of words….
Good observations but it could have been better if solutions were more pronounced just like the observations.
Its time also an advisory committee of men and women was constituted to participate and form a reference to those in operational policy making but such should not stifle progress in policy shifts like well researched past governors and ministers including distinguished policy makers and academics to complement the good work being done by current advisors who are in operations.
Such can be consulted only when it fits and for genuine historical or thorough review.It should be observed that such are not full time but rather a committee on country economy and progress.
An advisory…
The only critising I have is the growth we had without infrastructure development the growth did not trickle down the ordinary people. The only way money can be spread to all Is by creating employment through infrastructure development . Otherwise we end up like Malawi , money sitting in coffers and being prone to theft
If the deficit is as a result of expenditure that creates accelerated economic growth then the PF govt is taking smart risks.
Building more Universities should have been done many years back.
In Zambia we have had a situation where dull children from rich families have proceeded to obtain higher academic qualifications from abroad while deserving intelligent children from poor families have become economic push outs.
The deficit equation has many variables that the current Finance Minister is trying to play with intelligently and not just stick to the traditional Zambian factors.
quite right.the doc has tactifully avoided to mention by elections as the source of a substantial portion of the deficit.politics…politics…and many get blinded.these deficits are a price we all chose to pay for the love of democracy
An extended analysis and statistics to GDP and potential can also help see and confirm weather the deficit will be a thing of the past or came to stay. A trend analysis.
Yes because of nature of economics of a country deficits have been a feature but efforts to reduce and contain have been the norm within a figure of below 4 %.
Building revenue streams and accumulating reserves saves the economy the much needed reserves that can be used to finance the cost of managing deficits for the future and mark the economy more attractive resilient and competitive in doing business otherwise you never realize that you have failed to return ashore and continue drifting deeply.lets create value hoping to…
Monk you sound shallow, Building projects does not accelerate economic growth but it’s a result of a good economy, and not all the borrowed money is being used on developmental projects, with no reports most might have been spent on bye-elections and salaries
CHINA you cant remove infrastructural development from factors that accelerate development. in LIFE u have to take risks if u must change your position.there is no single country that will not borrow, yes we all agree that this borrowing has to be checked but lets not down play the morality behind the roads been constructed.lets do some checks how many people currently on this page have thier net pay above 50%, very few i guess meaning what? they have borrowed
Good piece from Dr. Musokotwane. I would now like very much to see and hear of remedies from Dr. Musokotwane and others. A discussion on remedies must begin very soon. Some of our ambitious developmental projects must stop. We need to get more clever and creative.
The solution is very simple… create more revenue or stop spending what you do not have…. you do not need a PhD
Yes Bwana Engineer, I long for our society to see that we cannot spend beyond our means. I see it in our society, we need to take a different view to finances and kaloba, we feel its natural to just take on debt. Debt for an unnecessary European car just to fit in. At national level and because of globalisation Zambia tends to compare herself to western nations in terms of infrastructure development. I say lets not copy others, they stole their wealth over 500 years… so we must grow slowly and sustainably..And i would like us to focus more on food production and a little less on unpredictable mining for revenue.
Useless Zambian politicians! This guy is an MP, he should raise these issues on the floor of parliament not some digital media which many Zambians don’t even read. Are we still listening to the world bank? If building a University is the biggest unplanned expenditure, I wonder what they will call it if Zambia went to war! Musokotwane has ignored what the increased number of educated manpower will to do to improve the economy but he has rushed to mention maintenance costs of universities! No investor is interested in investing in a country which is full of unskilled manpower! Labour intense industries are in the past, In 20 years if MMD govt had built 10 universities, Zambia would have been more attractive to investors.
@Mig The budget is debated in parliament, this is a glimpse of what is coming in 2014, so the debate is necessary, there is still time for suggestions and improvements. Remember that our budget is now coming at the end of the year for implementation for January unlike in the past when it would come in February and projects had to wait till funds where available when the financial year closed in March/April. Am sure by then repairs would be done to the budget. Its not the best as it is neither is it a quick job by Hon Chikwanda without thinking of what they are doing. The problem we have is the carder selection above Academics and Technocrats in the system. After 49 years we still appoint people who will help us to hold on to power unlike people with the know how. I miss Levy.
How the finiteness of financial resources and govt. expenditure in the budget are handled is what yields budget deficits or indeed deficits. Ours is a classic example of a serious deficit resultant from very silly and reckless unplanned expenditures, mostly created by an erratic president. If this country continues allowing Sata and his Iturian jungle to fuel these unsustainable budget overruns, we will sooner than later once again be heavily indebted with nothing to show for it. All he is doing is building Gbadolites in Muchinga, ku pusa ngako!
” These are the type of brilliant MMD brains that brought us record forex reserves, bumper harvests and a BB rating. All of that is gone with the clueless kolwestans we have in office”. What good did the above achievement profit Zambians? Nothing. 64% of Zambians living in poverty at that time. Can one rejoice in that. Absolutely not. Keeping money in reserves when many people are living in abject poverty is nonsense. The money put in reserve should have been used in creating wealth and infrastructure. The above achievements have not helped Zambia to develop. Unless politicians stop looking at poor people as trees, but as human beings and stop being greed, then Zambia can developed. Budget deficits can be a blessing if creation of wealth and reduction of poverty is a purpose.
We needed to attract investors who would trust that the Forex was available when needed, so the reserves helped us a lot to gain confidence from foreign investors. Our people need to be entrepreneurial than Government dependent. Our elderly and Children can depend on the Government to assist but all of us must contribute to develop our country. Government or MMD government should have done more as Levy did to open up the economy for the local sector to grow. Learn from Kagame and what he is doing. We need serious business, Information Technology is the way to go.
How the finiteness of financial resources and govt. expenditure in the budget are handled is what yields budget deficit or indeed surplus. Ours is a classic example of a serious deficit resultant from very silly and reckless unplanned expenditures, mostly created by an erratic president. If this country continues allowing Sata and his Iturian jungle to fuel these unsustainable budget overruns, we will sooner than later once again be heavily indebted with nothing to show for it. All he is doing is building Gbadolites in Muchinga, ku pusa ngako!
Leo Phiri’s point is very valid. Those MMD surpluses and reserves without ingrastructure development or trickle down effect to the common man was also shocking to some of us. We cannot postpone building roads and universities indefinitely because after all, Zambia also has a finite population. Sooner or later we will know where to slow down with these types of expenditure and reprogram.
Mig, you contend, and quote: “Musokotwane has ignored what the increased number of educated manpower will to do to improve the economy but he has rushed to mention maintenance costs of universities!” Well, nearly all these universities and expenditures are in one part of the country for a particular ethnic group in Zambia, Bembas, for the Bembas and the Bembas. Now, do you think such bigoted increase in “the number of educated manpower” is what improves economies? You’re a stupid ***** Kolwe iwe, this is what creates tribal/civil wars in Africa.
Is that hospital I saw being finished in Western province Shango something bemba land. Please be objectively and the English language has no thick accent like the way you are reasoning. Where did you receive your education?
Good but Doc you could have been doing the same when you were in power. You are now wise after being ejected. I only hope the PF will still heed your observations.
True why didn’t you do that when you were a finance minister? I think you are no serious.
I think he was actually doing it and thats why in MMD there was no funny deficit but a surplus. So am really failing to understand what you and the dude who agreed with you are talking about.
Bo ndate Musokotwane, thumbs up for the good 2014 budget analysis but do you think these goons in government will take it ? The momps are only good at collecting catapillars not running a government. By the time the PF government comes to an end, Zambia will be in huge debts which will take the incoming governments many years to settle. Such brains like our President, do you think he understands all these things including the fossil Minister of Finance ?
I have always said and i will say it again BRAINS are not in short supply in that area of the LOZIS.
I used to tease him when he would hummer us in physics and maths that ninshi mwalya ba guy.
Iam bemba and have many lozi freinds and this i will always admit lozis are genius.
It has been said and he who has ears let him hear. But PF as usual will try to portray as though all is under control and will castigate Situmbeko. Theses tu PF making our country worse than they found it. Bane 2016 vote no on PF
Tne ‘higher’ deficit simply shows that the economy is expanding, why should we confine or stunt our economy when we are capable of growing even further? ther is light at the end of the tunnel payback is coming in the near future. More investment in infrastructure good for the future economy.
No, growing Government Expenditure is always a concern. Why do you think the republicans and the Tea party forced a closure of government?
UNIP left each one of us then 1991 a population of 8 million Zambians owing the IMF and World bank a massive US$ 130 000 each that is equivalent to K650 000. It is not a joke. Government should reduce expenditure.
If you are in business you wont have difficulty understanding Doc Musokotwane’s article. Somehow, things work step by step; grow here and grow there. Bit by bit. If you try to incrrease business overnight by borrowing from bank or kaloba you will lose your business and go bankrupt. Zambia bola nipanshi……slow down. Slow down…..bola panshi……borrowing slow down…..bola panshi…..link 8000….. bola panshi……make it link 2000…..make it two universities for whole country……bola panshi….make deficit 4% of gdp….bola panshi……..
He has explained Over trading (trying to do a lot of things with little resources) and the consequences. A budget is a road map on how to generate and use resources. At the end of the day you check the variances (positive or negative) and take necessary measures. I think those in charge have done the variance analysis and as such they have project a small deficit in 2014. A budget deficit is not bad in itself what is important are control measures and investing resources in infrasracture so that benefits are accrued.
And the time, I did school we were advised to watch working capital and gearing. In short wether over trading or by whatever name you may wish to use, Zambia debt contraction rate is completely unsustainable. To date 30% of our expenditure is from borowing. In simple terms, if you earn KR7 000 and you borrow KR3 000 to sustain a KR10 000 lifestyle you would end up in trouble.
I do not agree with GOVTS which see building more hospitals, schools, employing service workers as unplanned budget expenditure. This kind of Doctors in Finance are irrelevant and giving them more cash in their pockets is not contributing to unplanned expenditure but their people. Keep money and let your stupid people die. Look at obama economics then your little Economics education will be pretty useless. MMD left plenty potholes and poor mining policies. Stop writing stupid things; Give PF a chance to think.
you are the worst ***** of the lot you fool
hahaha, you’re funny! Thinking and PF are mutually exclusive. Filabafuluma if they try to think so they avoid doing it at all costs.
What a great analysis. Let us objectively respond to this great economist of mother Zambia, insulting this scholar Mr Situmbeko Musokotwane is retrogressive and a sign of poor culture towards embracing constructive argument which intern can foster developmental solutions. I am challenged to become a better economist and teach my followers on how to give hear to objective criticism. God bless Zambia.
Indeed you are a forgiven sinner…..lol! You are objective. Let us debate this great analysis soberly. And I ask George Chellah to take this analysis to my only President and ask him to also not look at the author but at the contents. This message is an economic life saver for us in PF.
This same former minister cheated us together with RB when they were making shoddy road works prior to the 2011 election that the money they are using was collected from mine taxes. Later we came to know that they borrowed excessively and the PF government had to pay the debt. There is nothing tangible coming from his mouth he just let his colleagues do work.
He will be in the Upnd team that will form government in 2016! Mark my word.
A brilliant article by the former Minister but lets get back to earth and deal with business.
1. The budget deficit is due to the vast infrastructure spending
2. Unreaslistic civil service pay hikes
3. do not be cheated that the deficit is due to by- elections
The deficit is expected given the two issues above. It is suprising that in the last 20years since MMD came to power. Apart from privatising mines and everything privitisable, NO single university was made. Zambia keeps producing less than 100 doctors a year. This is madness! No new major road was done. You honestly cant continue to wait for development. In any economy, infrastruture is never the business of the private sector, its a by the way thing.
Ever heard of Mulungushi University? Ever heard of Mutanda-Chavuma Road? Ever heard of Levy Mwanawas Bridge? Ever heard of Levy Junction? Ever heard of Manda Hill shopping mall? These are some of the MMD projects. So please do not claim that MMD did not do anything. Under PF real development is only taking place in Muchinga. The PF government should seriously consider what Dr Musokotwane has said and spend the country’s finances sparingly.
As long as there is Tangible growth on the ground and no money is going in private pockets, I don’t really care about your questionable economic theories and analyses.
The world can be so cruel! Of all the brains we have in Zambia, we had to vote for these Kaponyas. We need to educate our electorates so that they dont get cheated ever again. Politics of deceits should never be allowed. Let make a law that requires all aspiring presidential candidates to debate and articulate their policies and also explain how they are going to mobilize the resources to improve the lives of Zambians. As things stand to day anyone can go out and promise people heaven on earth and they will believe and vote for him without giving it any thought, as the case was with Sata. People are hungry and they will swallow any hope regardless of how unachievable that hope is. We’ve destroyed everything MMD was achieving. Back to square one. AAGH SHAME
please advise Chikwanda to step down..he will cause confusion again like in the 1970s..
Rather, the man must resign on his own.The outlook is enough to compel him to do so.
He should be sent on attachment to South Africa to learn a lot of things from the South African Minister of Finance.
How I wish RB and Musokotwane were at the helm of affairs!
Miss you President for All Zambians and one of the best Finance Ministers Zambia ever had.
A committee of Ten together with already registered professional associations can participate and ensure refinement and developmental ideas complimenting the minister and what is happening in parliament as we develop.
The solutions is what seems to be in short supply
Your suggestion of having a national economic and development think tank is the way to go. But the problem we have in Zambia is that we have a president who thinks that he knows it all and will not take the advice. PF is rule is a tragedy!
“we must spare our children from those harsh experiences of fighting to bring stability by preventing the re-emergency of instability”
this is what most people in PF see, they only leave for the day and forget about tomorrow. PF will surely through us back into the hard and terrible days of KK and the shame of that moment economically. Wild spending is never the right thing even at house hold level. PF listen while there is still time to do something.
Thanks for the article,but can our leaders understand this english? Someone to translate please.We are rolling back.
Yes they understand the English.
Interesting reading the article and some of the facts the man pointed out,SADLY and this is where my problem is,he doesn’t offer a solution to what is clearly a problem,as a patriotic Zambian surely if you have a solution,feel free to offer it,it will benefit Zambians after all,Sitting and observing from a distance and making the comment ” Best wishes to the Minister of Finance in controlling expenditure so that what we suffered from in the 1980s and 1990s does not return to Zambia.” to my mind sounds like a bitter person wishing us Bad Luck, be it UPND, MMD, UNIP or even PF,and that person should rather not comment on our national issues – EXTREMELY DISAPPOINTED!!
Stop spending what you don’t have! Are you guys so thick? Is the Zambian education system very broken?
I do not wish to throw names and call you a chikopo or a dumb fimo fimo also Pembamoto which am sure you are!! That is not a solution but seeing that you and me are not of the same calibre Ill end there!! A level of borrowing is required to trigger economic activity (Google Q.E by the US), you need $ to make $, my worry is it sounds to me like Musokotwane is waiting to see us go backwards and who is that going help? If he has answers and solutions to broadening revenue collection without upsetting Zambians he should rather highlight them instead, he sounds like a prophet of Doom who doesn’t care about Zambia,and such comments help no one,Solutions are what we need Politicians will come and go just like insults but Zambia will always be there,THINK ABOUT IT and give meaningful feedback!
@ Pembamoto,
There is no education to write home about in Zambia now. It is just salaula education called “basic education”. And the products are as raw as unripe lemon fruit.
We got ourselves into trouble by careless voting. What we experienced in the 1980s and 1990s should not be allowed to return.Its not good to aspire to get into public office if you do not have the necessary capacity.
We learn from mistakes, We needed change and we were desperate for change. I voted the different voices within UNIP and MMD remember some of our ministers and officials have been in political office for 49 years! Perhaps a chance to new ideas. It will be hard to change the mindset of our people. There is too much sentimentalism in Zambian politics. 2016 is still a long way to go. The opposition parties can do best to explain their policies for now, dont attack government on matters the people can see for themselves, opposition parties can now do best to present their ideas and how they have worked and work elsewhere. Anyone with Capitalist ideas will be candidate for me. Saudi Arabia has done it for its people why not us?
Interesting reading the article and some of the facts the man pointed out,SADLY and this is where my problem is,he doesn’t offer a solution to what is clearly a problem,as a patriotic Zambian surely if you have a solution,feel free to offer it,it will benefit Zambians after all,Sitting and observing from a distance and making the comment ” Best wishes to the Minister of Finance in controlling expenditure so that what we suffered from in the 1980s and 1990s does not return to Zambia.” to my mind sounds like a bitter person wishing us Bad Luck, be it UPND, MMD, UNIP or even PF,and that person should rather not comment on our national issues
Dude, don’t talk like you do not know the type of people who are in government. Can you even picture Sata or PF taking advice? Elo from an MMD person? Don’t be too theoretical. When dealing with the PF phenomenon, being practical is the only way.
He has offered solutions: develop (build) infrastructure, e.g. roads, universities and foreign missions abroad but at a sustainable level; borrow but at sustainable level, i.e., at below 3.5% of GDP; diversify the economy to rein in agriculture and agro-processing industries, as well as tourism; heed advice of IMF, AfDB, WB and international credit rating agencies on economic fundamentals; allow diverse political freedoms and free press.
ati Former Minister of Finance Situmbeko Musokotwane has expressed concern at the size of the budget deficit that the PF government is running. the man is just leaking information to unauthorized people, this person is in government why can’t go to the ministry of finance and advise. Chikwanda is an old person who needs care and support from young persons like Dr. Musokotwane.
Oh dear! Is your head in the right place?
Let him go to the farm and try rearing pigs.
National budget is no secrete, Here Ku beba mune
National budget is no secret, Here Ku beba mune
The analysis is fantastic and exposes the limited capacity of the P.F cabinet,entire government as well as their inability to lead this nation. P.F please u belong on the street. MAY 2016 COME QUICKLY!!!!
GPGP you are not entirely to blame. The article is very well written for people who can read consistently and analyze issues. I must admit that you need to be at a certain level to understand this very very well written piece. It has all the suggestions to the solutions you are looking for, the problem is that you either did not read all of it or you did not understand its concept and points. In fact the former finance minister has set a very good tone for dialogue with the our current overzealous politicians lacking knowledge of how to safely sustain economic development. All we have in the current Govt. are yester year leaders who do not have a deep understanding of real development.
Roughly at 30% of GDP zed debt stands at close to $6billion. Growing at 8.5% of $22b zed gdp, the deficit level, grz has to borrow $1.8b which means debt grows at close to 30% p.a. The debt will equal $12billion in 72 divided by 30 or 2.3years (2016). Gdp 2013 of about $22b growing at 7% will equal abt $26b in 2016. Debt to gdp will be abt 45% and grz will spend abt $1.2b per year paying interest of about 10% p.a. mony that could be used to build other things. outlook is not good
The solutions are in the article itself.
However, Proper Fools (PF) are now at the helm of power. Woe unto ye Zambia!
I will have to include my one hour of reading the article to my unverified CPDs.
Sata uli mbwa sana. Can we please find a way of eliminating this imbwa before 2016! How do you start huge capital projects within a short period of time as if money grows on trees. WHAT A DULL PRESIDENT!