The sugar coated and upbeat election year budget for 2016

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Finance Minister Alexander Chikwanda
Finance Minister Alexander Chikwanda

By Kalima Nkonde

There is no doubt that the 2016 budget does contain some very positive policy initiatives that the government intends to pursue but at the same time it has been prepared with the 2016 election in mind and political rather than economic considerations must have influenced the allocation of funds and the type of projects that needed to be prioritized in some instances. The budget looks good on paper in the light of the targeted economic objectives on growth, inflation, deficit, debt levels etc.
In this article, i will briefly outline the positive aspects of the budget as far as their impact on the economy is concerned and thereafter discuss the elephant in the Zambian economy – massive infrastructure programme – which the budget did not address and is likely to negate some of good initiatives in the budget – at least in the next twelve months – as the budget deficit may not go down substantially and might even get worse given that it is election year!
My analysis of the budget is based on the fact that I listened to what the finance Minister was not saying and in reviewing the actual document, i read between the lines so that I give the readers a differentiated interpretation and different angle to the budget. My analysis of the budget will fall into the following categories: diversification, mining, citizen empowerment, employment creation, foreign exchange and kwacha depreciation, public debt, debt policy and infrastructure

Diversification

The budget went to great lengths to put policy initiatives meant to diversify the economy from mining. The targeted areas are agriculture, energy, tourism and manufacturing. In agriculture, the government’s intention of providing technical and financial support to the Livestock and fisheries sub sectors is laudable. The planned provision of disease control measures for livestock and rehabilitation and construction of deep tanks throughout the country is a great initiative. The setting up of a fish fund to provide credit to small scale fish farmers and the building of fish hatcheries in each provinces is also welcome .
In energy sector, the policy of encouraging private sector participation in electricity generation by adjusting tariffs is certainly going to have an impact on availability of electricity. In addition, given all the initiatives and projects in the pipeline that were announced, if they are implemented, this is likely to result in Zambia being a net exporter of energy within a year.
The Tourism sector interventions are so thin that i do not see any major impact in the foreseeable future as the diversification is all premised on the ill conceived national airline as the magic wound. The government majority owned national airline’s costs may even exceed the revenue from the tourism industry. There is a fallacious belief that the national airline is a panacea to Zambia’s tourism sector problems. The other factors like the importance of domestic tourism, the costs of running tourism business, the taxes, licences, the visas etc are ignored. It is clear from the budget presentation that diversification through tourism was not properly thought out got lip service. They should involve private sector stakeholders and find out the practical impediments to tourism growth in Zambia.

Mining

The Minister recognized that mining is still an important sector but we should not just rely on Copper. He pointed out that other minerals like gemstones, diamonds, manganese, gold should be encouraged in order to diversify the mining sub sector. He called upon IDC and ZCCM to work together to exploit opportunities available. This is a good initiative but we should now ensure that Zambian entrepreneurs are involved in mining rather than remain as spectators in their own country.

Citizen empowerment

The government recognizes the importance of empowering Zambians and the interventions like the reservation policy on procurement by public institutions for purchases below K3m being reserved for Zambians. The allocation of K187.5m to CEEC, K199mm to youth programmes, K35.7m women, should all be commended. The only problem is that, in practice there is the lack of transparency and fairness in accessing these funds. There is too much corruption involved and the funds are politicized as the bulk of the money goes to cadres of the ruling party. It is my view that the empowerment policy should be looked at broadly rather than from the finance point of view only but to include the following: requiring foreign investors to partner with Zambians with land and minerals used as contribution in case of mining, skills and technology transfer requirements from foreigners, restriction of certain mundane and easy businesses like restaurants, butcheries bars, etc for Zambians.

Employment

The budget has gone some way to address the unemployment situation in the country and initiatives like the reduction of borrowing by government from the domestic market will help reduce interest rates and help the private sector to borrow for expansion and thereby increase employment. The banning of the importation of edible oil will ensure that we stop exporting jobs but rather create them right here. The preferential procurement from Zambians will also help job creation. The revamping of the cooperative movement and extending it other sectors rather than restricting it to agriculture will certainly help in employment creation. The Cooperative movement needs to be marketed aggressively and explained so that people can participate. As most people especially young people do not understand the concept.

Foreign exchange/Kwacha depreciation

The finance Minister recognized the depreciation of the kwacha as the foremost problem facing the economy. He further elaborated that it has been caused by external factors like the dollar strength, low copper prices and noticeable reduction in portfolio investment inflows. He also recognized the local factors like net low supply of foreign exchange and widening of fiscal deficit but he did not mention low investor confidence in economic management which is local also! The budget, however, does not mention any short term controllable measures in to be implemented in 2016 to improve value of the kwacha. One would have expected announcement of government restrictions non essential imports and suspension of some infrastructure programmes which are done by foreigners who externalize dollars. The suspension of some Capital projects would have addressed three causes of kwacha depreciation which are too much demand by contractors when they are paid, reduced the budget deficit and brought back investor confidence and improved foreign direct investment inflows.

Public Debt

The government has undertaken to reduce public debt especially domestic borrowing in the 2016 budget. This is a welcome move and it is gratifying they have listened and realized the damage that excessive borrowing was doing to the country. The public debt currently stands at $6.3billion foreign and K26.5 billion domestic. I have argued before that our borrowings are excessive but the government and the President have argued that it is below 40% of GDP and within internationally accepted norms! This argument can longer hold water as the 2016 budget has vindicated most of us in that the debt has started suffocating the economy and diverting resources from other sectors including the social sector. The servicing of the total debt including the setting aside for the sinking fund for 2016 is (K7.7billion) K7, 701,062,972 (K7.7billion) which is 14.5% of the total expenditure for 2016. This is higher than the Health budget at 8.3%, the Social protection at 2.4% and Farmer input support and FRA procurement budget at 3.3%! As the kwacha depreciates the share of debt servicing budget will keep on increasing and I will be not surprised that it will start chewing 30% of the budget very soon.

I predicted two months ago that the excessive borrowing will affect us all but some doubted my prediction and criticized me but the results are there for all to see given the high cost living. It is in this vein that i appeal to fellow Zambians on social media and the rest of the country, including the outspoken PF officials such as Mr. Chishimba Kabwili, Mrs Mumbi Phiri, Mr. Sunday Chanda, Mr. Davies Chama, Mr. Amos Chanda etc to learn to respect other people’s professions and try to learn from them and desist from commenting on macro economic issues which are inherently complex,interrelated and which are beyond their competences. The practice of commenting blindly on issues just exposes one’s ignorance because too little knowledge is very dangerous. It is the decision making process of PF leaders at the very top with too little knowledge and understanding of the consequences of critical economic decisions that has messed our economy and not global factors which could have been mitigated against if we had competent managers! Many of us predicted the mess we are in three to four years ago.

Debt policy

The budget’s debt policy section was had very little detail. The finance minister merely said “Government will, therefore, limit domestic borrowing and focus on accessing external financing with lower interest rates and longer repayment periods”. The meaning of this statement is that the Government will no longer borrow Euro bonds because they are now expensive following our credit rating down grade but will approach multi -lateral institutions, which in this case is the International Monetary Fund(IMF).Once the a deal is reached with IMF, it will unlock loans from bi-lateral partners like USA ,UK, Germany, France, Scandinavian countries etc These are the loans that have lower interest rates and longer repayment periods that the minister was referring to. He could not mention the IMF by name in an election year budget! The debt policy did not also mention the issue of setting up an independent Debt Management Office (DMO) made up of professionals to help us manage the debt which is becoming larger by the day. The Debt Management Office’s purpose will be as follows: resource mobilization, debt and risk analysis, management of information systems and settlements.

Infrastructure

The infrastructure budget in 2016 must huge and it has not been fully disclosed in this budget. The road infrastructure alone is (K6.7 billion) K6, 629,938,778 which is 12.5% of the total revenue which is higher than health, defence, social protection and farmer input support! The other infrastructure budgets like creation of districts, hospitals, schools, universities etc are hidden in other budgets and if there will be included as one, it could be K8 billion or more which is over 15% of the budget. It is because of this reason that I call it “a sugar coated election budget”. It is because of this that the ruling PF is confident of winning the election but at great damage to the short term economy. The confidence of PF winning election is infrastructure as the trump card is clearly demonstrated by The Party Secretary General’s recent statement, Mr. Davies Chama, “ We are winning next year’s general election……… we are working on the roads, we are constructing hospitals and schools and this is what the people of Zambia want and not politicking.”

The problem that is being forgotten is that it is the fast track, massive infrastructure projects that have caused the problems we have today of high public debt, depreciating kwacha and consequently the high cost of living! As Zambians, we should ask as to whether this is a price worth paying! To destroy the whole economy just for the purpose of roads! Is this the route others followed to development? The answer is a categorical no! My take is that these projects should have been shelved for now for the sake of the economy and implemented in a sequential and orderly manner with a heavy involvement of Zambians after building their capacity or invited experienced Zambians in the diaspora who have built sophisticated infrastructure in foreign countries to avoid loss of foreign exchange through foreign contractors. They could have certainly waited as nobody is putting a gun to the PF to build a university in Luapula or Western province, create a district in Western province etc In insisting on going ahead with these projects, leaves one to conclude that the motivation is to win election and for person benefits emanating from the contracts for the ruling class.

Recommendations

I still believe that given the dire economic situation we are in and in order to ensure that budget proposals are implemented, I believe it is important that the President gets involved by appointing temporary Czars rather than rely on the civil service bureaucracy for the purpose of coordinating activities especially that some of them cut across different ministries. The critical areas where he should appoint Czars are: Employment, Energy, Import and export, Mining, Infrastructure, Fiscal discipline.
In view of the fact that we need to restore investor confidence in the Zambian economy and remove uncertainty, and we can only restore confidence in our economy with involvement of the IMF as Ghana painfully found out, and it is also a fact the PF administration cannot start negotiating with the IMF before the election, i would recommend that the Government should call an early election say in April, 2016. This will facilitate starting negotiations with the IMF at the earliest opportunity in order to save our economy and before it gets worse. In view of the fact that PF is confident of winning the 2016 election, i guess this proposal should sit well with them and should not be be out of place! It may be suicidal, economically, if we delay and wait to finish the infrastructure projects and for the copper prices to improve before calling the general elections.

I would also advice government to consider setting up a Debt Management Office (DMO), they should also consider postponing some of the infrastructure programmes which will just make the economy worse in the short term by increasing the budget deficit and unlikely to win them more votes. In addition, they should consider setting up an Export credit Guarantee and insurance Scheme in order to promote non traditional exports. In the tourism sector, they should engage the Private sector in the tourism industry and interrogate them about short term and long term measures to boost both domestic and foreign tourism. They should also consider studying how successful countries in African including our neighbours manage their tourism sectors and learn from them.

Conclusion

I am not very optimistic that most of the 2016 budget objectives of: achieving 5.0% GDP growth rate, increasing domestic revenue mobilization to 20.4 %, reducing the budget deficit to 3.8%, maintaining single digit inflation at 7.7%, maintaining international reserves above 4 months of import cover will be achieved given the PF past record of financial indiscipline, their obsession with winning the 2016 election. The PF would need a “capitao” like the IMF to supervise them in order to ensure that the economic benchmarks are achieved. The PF’s mind set is one where political considerations are deemed more important than economic ones and that may be their Achilles heel because most Governments fall because of poor economy.

The writer is a Chartered Accountant by profession and a financial management expert. He has lived in the diaspora in England, South Africa and Botswana for over 25 years. He is an independent and non partisan financial and economic commentator.

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10 COMMENTS

  1. NO ONE CAN CHEAT ZAMBIANS NOW AND NOMATTER WHAT MAY COME BE IT HANDOUTS OR CHEAT-OUTS, ZAMBIANS ARE NOW ENLIGHTENED BY POLITICAL POLLUTIONS.
    POLITICIANS IN TALKING SEATS LIKE BA KAMBWILI WHAT THEY SHOULD UNDERSTAND IS THAT ZAMBIANS ARE NOW SMART. YOU GIVE THEM FOR FREE, THEY WILL SAY “THANK YOU BUT NOTHING FOR YOU”.
    YOU CAN SWEET- TALK AND IF THEIR IS NO SENSE NO ONE WILL ACCEPT YOU BECAUSE NO ONE EATS YOUR CHEAP POLITICAL WILL. THE CREAM IS ATE BY MINISTERS. I WAS LAST WEEK IN ZAMBEZI, I SAW FLEET OF CARS RUNNING (15GRZ MOTORCADE) JUST TO GO AND SEE A BRIDGE WHICH SISTER CHRISTERBEL KNOWS BETTER IN HER OWN BROUGHT UP VILLAGE AND SHE CAN DO ANYTHING ABOUT IT. WHAT A WORST OF FUNDS!
    RUNNING ONE MINISTER COSTS MORE K1000,0000 A DAY AND LOOK AT HOW MANY MINISTERS ARE NOW TODAY?

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    • Ok guys am tired of GRZ this, GRZ that… are you aware that these politicians are all the same.? Unless we as youths take charge of our country’s development then we will keep getting screwed left, right and center. GRZ is possibly misbehaving because of us citizens – not doing enough to change the status quo. How about we get hold of country’s developmental plans by coming up with solutions amongst ourselves as youths.? How about we become ”My Brother’s Keeper?” How about we use the energy we have to better our lives instead of insulting each other and drinking till cows come home.?

      Let us rise as youths..!

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  2. NO ONE CAN CHEAT ZAMBIANS NOW AND NOMATTER WHAT MAY COME BE IT HANDOUTS OR CHEAT-OUTS, ZAMBIANS ARE NOW ENLIGHTENED BY POLITICAL POLLUTIONS.
    POLITICIANS IN TALKING SEATS LIKE BA KAMBWILI WHAT THEY SHOULD UNDERSTAND IS THAT ZAMBIANS ARE NOW SMART. YOU GIVE THEM FOR FREE, THEY WILL SAY “THANK YOU BUT NOTHING FOR YOU”.
    YOU CAN SWEET- TALK AND IF THEIR IS NO SENSE NO ONE WILL ACCEPT YOU BECAUSE NO ONE EATS YOUR CHEAP POLITICAL WILL. THE CREAM IS ATE BY MINISTERS. I WAS LAST WEEK IN ZAMBEZI, I SAW FLEET OF CARS RUNNING (15GRZ MOTORCADE) JUST TO GO AND SEE A BRIDGE WHICH SISTER CHRISTERBEL KNOWS BETTER IN HER OWN BROUGHT UP VILLAGE AND SHE CAN NOT DO ANYTHING ABOUT IT. WHAT A WORST OF FUNDS!
    RUNNING ONE MINISTER COSTS MORE K1000,0000 A DAY AND LOOK AT HOW MANY MINISTERS ARE NOW TODAY?

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  3. Iwe and your capital letters,we cant get what you are saying,is there anything cheating in the Budget?thats why ba UPND mwaliba shallow minded.

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    • How can you take seriously budget which has been prepared and delivered by senile octogenarian whose brain believes that we are still in KK era? Check INDEPENDENT evaluation before making cadreism inspired shallow and 1diotical comment.

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  4. This Budget is complete and utter rubbish! Even the basic arithmetic does not add up!

    PF was elected on LIES, and now they have taken this strategy of telling LIES to a whole new level!

    It is ONE BIG, BIG LIE!

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  5. @politicalanalyst I don’t understand why you call yourself like that because your thinking is very shallow. Stop masturbating your ignorance in public. There is an issue at hand but what you writing is utter nonsense typical of an illiterate idiot. You try nit school may be you can pick up otherwise you are wasted sperm.

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