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Alba Iulia
Tuesday, July 14, 2020

Fiscal consolidation not realistic in 2019-CTPD

Economy Fiscal consolidation not realistic in 2019-CTPD

The Center for Trade Policy and Development foresees government target towards achieving fiscal consolidation not to be realistic in 2019 due to a number of factors among which includes policy inconsistencies, rising public debt and potential reductions in revenue generation as even recently announced by the Zambia Revenue Authority.

CTPD Researcher Bright Chizonde says Fiscal consolidation can be attained by either reducing government expenditure, increasing government revenue collection or a combination of both.

Mr. Chizonde said the failure by government to adhere to its own debt management strategy through accelerating the contraction of debt, by about $1 billion in 2018 alone, remains the greatest challenge to achieving fiscal consolidation in 2019.

He said thus far, it has become evident that government liquidity has reduced as indicated by delayed payment of salaries, increased domestic arrears and rapid depletion of international reserves- currently at about $1.5 billion which is less than 2 month of import cover.

Mr. Chizonde said Government in 2018, announced a number of Austerity measures aimed at reducing the fiscal deficit but remained adamant regarding the need to reduce spending.

He said it is clear that Zambians are already bearing an increased debt and tax burden, through the introduction and implementation of new taxes and levies.

Mr. Chizonde said therefore, fiscal consolidation will not be achieved if it remains focused on the revenue side.

He said the only avenue for increased revenue collection currently is through improving compliance levels with respect to exiting taxes-ZRA estimates tax compliance to be below 60%.

Mr. Chizonde said the government should therefore focus on assessing the current spending priorities if it wishes to achieve fiscal consolidation in 2019.

He said the importance of infrastructural investment but this should not be done at the expense of macroeconomic stability.

Mr. Chizonde said borrowing to the tune of about $16 billon is not sustainable for Zambia as shown by the increased debt payments which have crowded out social sector spending, depleted reserves and made the Kwacha more volatile.

“In line with our 2019 Budget analysis themed: “The Writing on the Wall: the Illusion of fiscal consolidation in the presence of huge Public Debt”, we continue to urge the Zambian government to walk the talk on Austerity measures aimed at limiting government expenditure to priority areas. Overpriced infrastructural expenditure, financing of huge entourage trips, Zambia Airways relaunch, purchasing of luxury planes and others should all be replaced with prudent investment in human resource like restoring meal allowances to students, ensuring medical supplies are available in health facilities, scaling up the social cash transfer programme with no misallocations, making sure famers have inputs on time, and most importantly; paying public workers on time”, he said.

Mr. Chizonde said the CTPD is of the considered view that if government fails to realign its spending priorities, fiscal consolidation will remain more of an illusion.

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