The Presentation of the Budget in Parliament
The Presentation of the Budget in Parliament

Herryman Moono, Economist

On Friday 28th September 2018 during her budget speech, the Minister of Finance, Hon. Margaret Mwanakatwe said:

“Mr. Speaker, in 2019 Government will undertake an exercise to rebase the Gross Domestic Product, an exercise last conducted in 2012. The rebasing of the Gross Domestic Product will provide reliable and updated information on the current size and structure of the national economy. The rebasing will also provide Government with an opportunity to update and develop appropriate social and economic indicators to measure progress in achieving the objectives under the National Development Plans and the Sustainable Development Goals.”

Since that announcement, we have seen, heard and read stories about how this move is ‘politically’ motivated and ‘does not bring any value to Zambians’. What is evidently clear is that many people do not understand what GDP rebasing is, why it is done and the implications of such an exercise on the economy. I thought I dedicate some time to share what GDP rebasing is and why it is important for an economy like ours that has been undergoing transformation.

To start with, what is GDP?

To begin, let us be clear that what is being proposed for rebasing is Gross Domestic Product (GDP) and not the economy per ser. GDP is an internationally recognised measure of the size and composition of an economy. GDP attaches monetary value to all the goods and services that a country produces in a given year. It is a measure of how well an economy is performing by capturing either its expenditure or incomes. The higher the GDP, the larger the size of the economy, and, on average, the more ‘developed’, statistically, a country is. Think of this at the household level – in our homes, we can tell how well off a family is by looking at the assets they have, the value of these assets and how much money they make or how much they spend – the same with countries.

Knowing the size and structure of the economy is as important as the economy itself:It is an invaluable input in national development planning and helps the government know
whether or not the country is growing or contracting. In addition, knowing the size and structure of the economy helps government assess its performance by disaggregating the source of economic performance. For example, if government has been investing heavily in agriculture for the purposes of economic diversification, and a review of the structure of the economy overtime shows that agriculture’s contribution to GDP has not changed, then this will indicate that such a policy move has been a failure, and information will aid future planning as well as assess what may have led to failure.

So when you really think about it, GDP measures are key as they provide a general overview of how an economy is doing. If GDP is high, , it is a signal that good things are happening or about to start happening – such as people getting more jobs or more money in their pockets or businesses beginning to boom.

In addition to the above, GDP measures help a country gauge itself against other countries. For example, in 2017, Zambia’s GDP was measured at about $25 Billion. South Africa’s GDP was for the same year measured at about $350 Billion and Kenya’s at $79 Billion.

Comparatively, it means that the South African economy is 14 times bigger than the Zambian economy. It means that collectively, we need 14 countries the economic size of Zambia to make one South Africa. At the same time, the Kenyan economy is 3 times bigger than Zambia’s. During the same period, the Chinese economy was 480 times bigger than the Zambian economy. With regards economic might, therefore, at our current economic performance, Zambia is the size of a tiny mosquito in relation to China!

How is GDP Measured?

The Central Statistics Office – a division of the Ministry of National Development Planning – collects data on all economic activities and their monetary value and then annually calculates Zambia’s GDP. Economically and statistically, there are two main approaches to calculating a country’s GDP; The Expenditure Approach and Income Approach. I will not bore you the economic jargon but briefly, under the expenditure approach, we compute GDP by calculating and summing all the monies spent by the different economic players in the country. For example, individuals/households or consumers in general spend moneyto buy various goods and services from businesses, and these businesses spend money as they invest in their business activities through, for example, purchase of machinery, farm inputs, or labour. Governments also spends money in the economy through its investments in roads, vehicles, medical equipment etc. Once all expenditures are summed, we have the country’s GDP.

The income approach is the reverse of the expenditure approach in that here, we focus on the money that individuals, household, firms and government earn. Income is of course earned by what we economists term ‘factors of production’: Wages/salaries paid to labour; Rent earned by land; Interest earned on capital investment and the profits made by entrepreneurs.

Since ideally we will spend what we earn, both the Income Approach and Expenditure Approach to GDP measurement should yield the same result. CSO does a fantastic job in reporting both methods in their statistical bulletins.

So why Rebase GDP?

As the economy grows and evolves, GDP measures need to be recalculated to account for the new sectors that are emerging. For example, prior to the 1994, our GDP estimates would not capture the role of mobile telecommunications in Zambia because we had no mobile telecoms industry. It means that until the GDP was rebased, we underestimated our economic size because we ignored the new sector. In addition to including new sectors, the relative importance of GDP sectors change as time progresses. Recently, we have seen new economic activities such as gambling as well as the increasing importance of the real estate industry, construction and agricultural sectors. These changes need to be accounted for, hence the need for rebasing.

Rebasing our GDP given these developments is thus an important undertaking as it will provide government, private sector as well as the foreign sector with up – to – date information on the size, composition and relative strength of the Zambian economy. This information is key to making well informed planning and investment decisions.

At the household level, think of it this way:If someone who was in school has now graduated and is contributing to the incomes and expenditures in the home, do you still treat them as students? No, rather, you acknowledge their contributions to the household, just as you would recognise a new member of your home such as an in-law who is contributing to the economic livelihood of your home. What are the consequences of rebasing the GDP?

Once rebased, there are only two feasible outcomes: Either the economy has grown further or that it has shrunk.

It is, however, highly unlikely that the Zambian economy would have shrunk from the last GDP rebasing of 2012. Most likely, the Zambian GDP would have expanded, and this should thus make us ‘richer’, statistically, than in 2012.

We may all recall that Nigeria’s GDP was recently rebased from about USD 270 billion to USD 510 billion for 2013 with the increase of about 90% attributed to new sectors of the economy such as telecommunications, movies, and retail which were previously not captured or under-reported. As a result of the rebasing, Nigeria is now the largest country in Africa beating South Africa which had dominated the top for many years. This rebasing, however, did not reduce Nigeria’s poverty – it remained as before rebasing!

For Zambia, once confirmed that our GDP figures are higher after rebasing, the following will be obvious:

  1. It will mean that our Debt to GDP Ratio will reduce, which implies that we would have more room to borrow than we earlier imagined. This will reduce the risk of debt distress.
  2. Our Tax to GDP Ratio will further reduce, meaning that we would have to see more enhanced efforts to collect more taxes. Such efforts could be either increased tax rates or a broader tax base or the introduction of more innovative tax collection measures on already existing taxes.
  3. We would cement our position as a middle income country as we head towards vision 2030.

I therefore doubt that there is anything sinister or political with such an undertaking.

Conclusion

I hope we are now all on the same page with regards rebasing. With the above, let us, however, agree that more than rebasing, what Zambia needs is a stimulation of the economy to create sustainable job and high disposable incomes and low poverty. Given what has been happening in our economy, we expect the rebased GDP measures to be higher, and therefore we may feel ‘richer’ than before rebasing. However, even with the new GDP measures, if poverty reduction programmes are not enhanced and sustained, we would have only grown as an economy on paper. Pessimists of this exercise argue, and rightly so, that while it is important to have up to date statistics on Zambia’s economic performance, such will not on their own lead to economic prosperity or change the reality on ground., and thus this calls for more to be done.

What is now required given that 2019 is near is for government through the Ministry of Finance and Central Statistical Office to carry out a sensitization campaign to inform the stakeholders and citizenry about the process and possible outcomes from the GDP rebasing exercise and their possible implications associated with the results. Importantly, government will have to convince the citizens why such an exercise is important now given that we rebased our GDP in 2012.

Importantly, it is critical that people clearly understand that a high GDP does NOT imply an increased standard of living. Furthermore, people should be made aware that to achieve accurate and reliable economic data for effective planning will only be realized through adoption of best practices in national accounts statistics which must be updated as regularly as possible to aid planning.

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52 COMMENTS

  1. Too much theories what we want are practical isues. Put kamunani pambale not thoeries on how you will put kamunani pambale.

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    • First of all Moono lesrn to summarize. We are not here to read books. We sre boogers.
      Secondly no financial system can successfully work in Zambia as long as these guys continue stealing

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    • Very good and informative article @Moon. Being someone from a different field, this was definitely educational. We need such unpoliticized articles that are simply about informing and educating citizens. Thanks a million!

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    • One important factor you forgot to mention Mr Moono is that the increase of the population will have a negative effect on what ever gains were obtained with a higher GDP. A higher population will lead to a lower GDP per capita which is infact often used as the key economic parameter over mere GDP or even GNP. So with a lower GDP per capita means less expenditure from those below a certain income threshold which in Zambia’s case we are talking about around 75 to 80 percent of the population earn below say USD 3000 per annum. So a high population growth rate is a challenge that also has to be addressed.

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  2. Rebasing the GDP should be done after ten yrs or more. This PF govt rebasing is an attempt to cosmetically dress the economy to mask the high foreign debt and high budget deficit.

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  3. Just from recent 2012 Zambia is now rebasing her GDP after only 5yrs? I smell a big dirty rat in this exercise.

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  4. Zambia is the size of a tiny mosquito in relation to China – is a wrong analogy.
    Zambia is the size of a dump site rat in relation to China – sounds about right.

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    • Nah.. If the Chinese GDP is 480 times bigger, then – assuming my weight is 80 kg’s – the mosquito would weigh in at about 167 grammes… Thats one big mosquito ????

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  5. They just want more room to borrow and put us deep in the debt trap, rebase what!! just say we will cook the figures so that we go and borrow more……that’s PF for you ati austerity measures these chaps are clue less as they come.

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  6. Its only just because our southern neighbor rebased theirs in recent weeks. Its a no-brainer Margaret thank you and we know you will fiddle with the numbers so that no one will believe in the size of our economy leading to disastrous consequences in the financial markets.

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    • exactly with consequences they did see as a result, go to Zim now you will be queuing for fuel for days and will be hungry coz there is no food.

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  7. Zambia is heading to big disaster!!!!!!!!!!!!!!!!!! How can we copy what Zimbabwe is doing (rebasing)…. You rebased the kwacha by removing three zeros and slowly the zeros are coming back!!!!!!!!!!!!!!!!!!!!!!!!

    Later on you blame us that we are saying evil regarding our country coz we are not in Zambia…………..You want us to keep quite yet you are copyning cholera from Zim……………………….Watch out 2021 next stop

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    • The Zimbabwean economy has shrunk, ours has grown. There is no basis of comparison there. Higher copper production, more food production, cement, sugar, etc, etc.

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  8. Herryman,I am an admirer of how you simplify the complex economic topics just like i do, even if i am not an economist.That is what it means to be an expert in my books. Propounding an issue so that ordinary Zambians can understand.There are Phd holders,professors who cannot write the way you do.Just like our Opposition leaders,even those who claim they can fix the economy, cannot simplify the impact of excessive debt,corruption,low reserves,mines,chinese problem etc and other issues to the man on the street and demonstrate how and what they would do differently lso that they provide checks and balances and sell themselves to the electorate.Although some of us can simplify that,but given the toxic environment and political tribalism,we hold our horse lest we are labelled names. We also…

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    • the impact of corruption, excessive debt, low reserves and imprudent spending are felt by everyone no need for them to be simplified. only a fool would fail to feel. and it has nothing to do with even literacy levels for instance

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  9. Rebasing an economy basically means revising the methods and base data used to calculate GDP. We did this as recent as 2012.Does it mean that it was poorly done to warrant another one within a decade? There is nothing wrong in rebasing the economy but everything wrong if the exercise is done every after two or three years.It shows lack of integrity by the parties involved.

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  10. “…. It is a measure of how well an economy is performing by capturing either its expenditure or incomes…”

    I don’t agree with this, i stand to be corrected.

    What if a country survives on foreign aid and borrowing to pay a hudge government work force, that is expenditure , so will GDP be a measure of borrowed and donner monies ????

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  11. What use is a rebased economy if the country still cannot get the full benefit from it’s resources? An increased GDP may look good on paper but it certainly doesn’t make us richer. It is like having a nice car but no house to park it.

    In short, let us get a better grip on our mines and the taxation, re-invest in domestic industries and then we can slowly begin to feel confident about our economy.

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  12. Alot has happened since 2012 we have seen development the likes we have never seen before. Whether you like it or not you HH worshippers we are rebasing. You think insulting on social mefia will win you votes???.Tell us what you will do differently not just displaying your hatred for you fellow Zambians

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  13. Even a grade two can tell that it was a typing error insults won’t make you win iwe HH worshipper @Danny. The problems with chaps like you is that you are one track minded in your Dundumwezl brains. Just because you hate PF and ECL you think that the whole country hates him. Actually the one who love PF and ECL are in the majority ,popularity is not on social media but at the ballots

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    • at least you got media right this time with the help of your whole family…., can`t argue with a dander head sorry.

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    • There is no Junta here, you ignorant piss of crap, r u drunk on chibuku, by the way not economic refuge I left because did want to mix with ur lot…..0 IQ

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  14. Readjustment of GDP figures is a good exercise. The question is: why now? Possible answers include: Why not? Then when? Is it debt? GDP needs to be adjusted constantly in order to track developments in the country, social and economic developments. To the extent that graphs (reliable or unreliable) generated by CSO are missing, it is reasonable to rely on international sources, especially World Bank Open Data. In terms of access to electricity, developed countries (Canada, France, Japan, Russia, etc) have maintained 100% access in 1990 as in 2016. Rising star Mauritius graduated from 98,64% to 100% access. Similarly, Seychelles graduated from 79.40% to 100%. Zambia displayed signs of stagnation with 1.88% to 2.66%. Regarding GDP, Zambia in billions of USD declined as follows:2013=28…

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  15. To the extent that data(reliable or unreliable) generated by CSO are missing, it is reasonable to rely on international sources, especially World Bank. In terms of access to electricity, developed countries (Canada, France, Japan, Russia, etc) maintained 100% access as in 1990 as in 2016. Rising star Mauritius graduated from 98,64% to 100% access. Similarly, Seychelles graduated from 79.40% to 100%. Zambia displayed signs of stagnation with 1.88% to 2.66%. Regarding GDP, Zambia in billions of USD declined as follows: 2013=28.045; 2014=27.151; 2015=20.955; 2016=20.955. It looks like 30 Billion is elusive 5 years after 2013 recorded 28 Billion.

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  16. Thank you for your clear and concise presentation Moono.
    I hope this can be accessed by many so as to create an informed debate on the matter of GDP rebasing.

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  17. I think its a good idea. I think if I understand these things very well. What happened in 2012 was the rebasing of the currency now the economy will be rebased. When the economy is rebased likely it will become bigger than the Kenyan economy it Will make our country look good of course we shall know in our hearts that its actually not but its good for us. As long as the government puts this to good use. Such as if they borrow money let it go towards an income generating venture not paying loans. Let the investments make profit to pay back the loans instead..

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    • Trigo yours is the most dump contribution in a long time. Given that you neither an economist nor have a head for numbers I forgive you. stick to fishing my dear brother

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    • Musonda Ndhlovu, you are the one with a problem who hasn’t understood what am talking about. What i have explained is exactly how an what happened with the Nigerian economy. This is not theory economics am telling you practical economics. I don’t think you have understood the article. I have a great understanding of economics.

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  18. Dr. Habazooka, the man of economics, should be consulted on this one!. This is not for non economists. !!!

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  19. Key factors stand out, Debt to GDP ratio and Tax to GDP ratio. After rebasing I am sure we will hear that the GDP has grown, increase tax and also borrow more since you now have capacity. Hehehe borrow and tax more until you are back to lower ratios. I am sure that is the intention ,nothing but contracting more Chinese kaloba to facilitate ‘graft’ through tenderpreneuship.

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  20. I salute those contributing objectively to this topic because it does not call for insults. These are issues that should bring true Zambians together. We should check as the author says and other commentators , is this being done with honest intentions? If the good outlook is achieved, will it be used for the uplifting of the national economy? These are issues we should be debating and those who are economists guide with truth. Insulting is a sign of failure to reason. Whether its PF or UPND supporters insulting. Its as simple as that. The stage we have reached now, is that PF should justify why they should continue governing us, using tangible development, whilst UPND should justify why we should vote for them with practical alternative statements.

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    • The Government is going to account for increased copper output, increased food output, Cement (Dangote), Steel, Trade Kings, Sugar, etc, etc to arrive at a correct GDP. This will reduce the debt ratio and stem unwarranted talk about debt distress.

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  21. We need more objective thinkers like the author of this article so that we can have an understanding of things before we criticise even the things we know very little about. This, to some of us Engineers makes a lot of sense. Positive and objective dialogue always helps us all.

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  22. That”s why I despise symbols there deceiving; science is the way to go, let us replace the lion and tasks with science quotation: “science is a beautiful gift to humanity; we should not distort it.”

    we should throw the symbol out the door.

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  23. The ZAMBIA budget should be based upon relative GDP.

    Recently you gave us the Country’s budget, what did you based it on.

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  24. 1. Good clear summary. However:
    2. Why did you ommit Output approach? Rebasing also entails identifying new production units
    3. It is important to recognise that in certain instances rebasing may lead to a smaller reported economy.
    4. My biggest concern is a conclusion which states that if there will be a bigger reported GDP after rebasing, it means Zambia will have bigger borrowing capacity! Capacity to borrow is measured by multiple indicators and not just Debt to GDP ratio. Critical also is revenue collections and availability of foreign exchange in the case of external debt.
    For 2019, 87ngwee of each K1 of revenue collected will be spent on public salaries and debt servicing. This leaves only 13n in the Kwacha for every thing else in the country. It becomes almost impossible to…

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  25. Mr. Mono, thank you for a very elaborate explanation on the topic at hand. While every aspect of your article is factual and to the point, I wish to differ with your use of “Zambia – Mosquito” analogy in your comparison of Zambia’s GDP with that of China. As much as we understand that Economics is a complex subject matter, it is important for experts like you to go a step further in your comparisons, for instance by informing your readers that although Zambia is dwarfed in terms of Nominal GDP values by China, if population dynamics are factored in the picture drastically changes. This does not in anyway change anything about the size of the two economies but your readers will have another perspective (that in terms of GDP per capita we may not be very distant cousins). Zambia’s GDP…

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  26. Its sad to read comments from Zambians.
    Most of the comments belong to the Recycle Bin.

    Why comment on issues which obviously you are not competent on?

    Besides,its annoying to be subjected to a litany of comments flowing from a basic lack of English comprehension skills.

    Non Zambians reading this trash are not surprised.

    Zambians suffer from extremely LOW literacy levels.
    The author has explained what GDP is,why rebasing maybe necessary and its implications.

    Some political animals only see politics in this.They are scared that the rebased GDP maybe high and indicate that despite poverty the economy has expanded.
    Scared little ignorants!

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  27. I think the motivation for rebasing GDP is the appetite to borrow. Wat our govt want is to lower the debt-gdp ratio so dt from 63%, it will reduce to 28% n on comparative terms, Zambia will b seen to hv a high debt carry-capacity when in fact, rebasing GDP will not provide sufficient funds for repayment of this debt n the debt vicious cycle will remain real.

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