2019 Budget lacks clear, specific measures to cut budget deficit-ZIPAR

Leading think tank, Zambia Institute for Policy Analysis and Research has observed that the recently announced 2019 Budget does not have any clear, specific measures to reduce the fiscal deficit to 3% of GDP by 2020, as targeted in the Medium Term Expenditure Framework.

In its detailed analysis of the 2019 budget entitled, “The Elephant in the Room,” ZIPAR states that the deficit and the debt will remain as large elephants in the room in 2018.

It said to reduce debt distress and return to lower levels of risk, the Government will implement a Debt Strategy 2017-2019 and will revise the Loans and Guarantees (Authorisation) Act in 2018.

Fiscal fitness or consolidation measures will be applied on both revenue and expenditure, with: a slower increase in spending in 2018 (K7.2 billion) relative to 2017 (K11.4 billion); and a significantly larger revenue increase in 2018 (K6.1 billion) compared to 2017 (K800 million).

It however points out that policy risks from unanticipated spending pressures, particularly inflated procurement costs, still remain and could readily derail the fiscal discipline agenda.

ZIPAR also states that key fiscal legal instruments – Public Finance Act, Loans and Guarantees Act, Public Procurement Act and the Budgeting and Planning Bill – need urgent revision and enactment to ensure accelerated fiscal fitness.

“In the 2018 Budget, the deficit and debt situations are essentially the elephant in the room. Zambia’s fiscal deficit has been on the rise since 2013 due to ambitious infrastructure development programmes. Consequently, the national debt stock has mounted, reaching 47% of GDP in 2017,” the report reads.

“In 2019, K20.1 billion or 28.1% of the budget will be financed through domestic and external borrowing. Debt servicing is expected to be around 20% of total Budget expenditure and of this, external debt payment will total K7.3 billion while domestic debt repayment will amount to approximately K7 billion. Clearly, the deficit and the debt will remain as large elephants in the room in 2018. To reduce debt distress and return to lower levels of risk, the Government will implement a Debt Strategy 2017-2019 and will revise the Loans and Guarantees (Authorisation) Act in 2018.

It added, “However, the 2019 Budget does not have any clear, specific measures to reduce the fiscal deficit to 3% of GDP by 2020, as targeted in the MTEF. Moreover, an essential element that should be incorporated into debt management legislation is a provision for the setting of fiscal rules or legally binding, long-standing quantitative restrictions on some budgetary or fiscal aggregates.”

It noted that the age-old big push for infrastructure expansion is set to continue in 2018, positioning infrastructure spending as a sacred cow in the Budget.

“Ironically, the sacred cow syndrome is perpetuated at a time when the country needs fiscal discipline in order to attain fiscal fitness. With the planned spending specified in the 2018 Budget and possible pressures for unplanned infrastructure spending, the unrelenting drive for infrastructure development pose a significant risk for Zambia to accelerate its fiscal fitness.

Meanwhile, ZIPAR has noted that some important budgetary commitments were mysteriously deferred to 2018 (from 2017) or dropped from the Budget.

It says these shifting and vanishing pledges threaten the integrity and credibility of the Budget.

“For instance, the 2017 Budget pledged to “support the creation of at least 100,000 decent jobs”; this simply vanished in the 2018 Budget, leaving the country wondering what happened to the 100,000 jobs. Similarly, the total proposed Budget for 2018, at K71.7 billion, is nominally 9.5% larger than the MTEF projected Budget for the same year (K65.4 billion). The proposed 2018 Budget was also larger than the projected 2019 MTEF Budget (K69.1 billion). Thus, MTEF projections are not good predictors of final budget allocations, even over time horizons that are as short as one month.”

“Ultimately, the shifting and vanishing pledges risk undermining fiscal governance. On the whole, the 2018 Budget has charted a course for accelerating fiscal fitness and putting Zambian back on the path of robust sustained and inclusive growth and development that leaves no one behind. However, the Budget will only be worth its salt and will only achieve the accelerated fiscal fitness it desires if the Government can must the will, persistence and discipline to stay true to the policy, strategic and numerical commitments it has stipulated.”