Last week Friday, 27 September, 2019, the Minister of Finance Hon. Bwalya Ng’andu presented a K06.01Billion National Budget for 2020. In dollar terms, the budget is equivalent to US$8.15Billion.
The Minister stated that the 2020 budget is 32.4% of GDP. This means the GDP in 2020 is estimated to be US$25.15Billion. In 2014, the GDP was US$25.74Billion. This implies that the economy of Zambia in 2020 will be smaller than it was in 2014 by US$586Million.
Now, year in- year out since, successive minister have been presenting budgets where they have been claiming real GDP growth of between 3-5%. The question is: if the economy has been growing at such rates since 2014, how come the real GDP in 2020 will be less by US$586Million compared to the real GDP in 2014? The arithmetic is not adding up properly here, and mind you, numbers don’t lie. So it can only be someone somewhere telling a lies.
In 2015 elections, and subsequently the 2016, we promised to grow the economy by boosting the non-traditional exports from US$500Million to US$36.5Billion. We stated that US$36Billion of the non-traditional exports was going to be generated from high value crops fronted by a medical and industrial cannabis business. If this export line was ventured into at the time, the real GDP would have leaped from US$25.74Billion is 2014 to US$61.74Billion in 2016 and subsequently to US$86Billion by 2018. At the estimated population of 17 million people, Zambia needs a real GDP of not less than US$80Billion. That is our position as the Green Party. Put simply, why the arithmetic is not adding up on real GDP despite the claimed economic growth rates is because there is no specific stimulus presented to the nation to be the driver of the growth other than the usual bluff.
Coming to the arithmetic on budget projections, the Minister claims he will raise K106.01Billion in 2020 from revenue and grants. Now, in presenting budget performance for 2019, he says he has managed to raise K42.8Billion revenue and grants from January to August, 2019. Compared to the total budget for 2019, what the Minister raised in 8 months from January to August is only 49.26% of the total budget which is less than half. This means the Minister will have to raise K44.07Billion or 50.74% of the remaining 2019 budget in next 4 months. The question is: Is this achievable and realistic? The realistic and achievable figure is maximum K22Billion. This means that the total achievable budget revenue and grants is K64.8Billion of K86.87Billion. So, the realistic deficit for 2019 is K22.07Billion equivalent to 25.4%.
Realistically speaking, if all the Minister can receive as revenue and grants in 2019, is K64.8Billion, at the maximum, are you sure he will manage to receive K106.01Billion in 2020? Are you sure the Minister will manage to double the collections for 2019 in one year based on the measures he has proposed?
What are the measures proposed to double the 2019 revenue and grant receipts? First, the Minister has proposed to increase the General Public Service Expenditure by 14.6% to K41.6Billion which is almost 40% of the total budget. Now, General Public Service is a consumptive head, not a growth head. So, the Minister has missed the first point on economic growth. The second measure proposed by the Minister is to increase Home Affairs and Defence budgets by 15% and 5% respectively. Again, Home Affairs and Defence are consumptive heads. This is the second miss. Now, to add salt to injury, the Minister has decided to reduce the Economic Affairs head by K3.19Billion representing a reduction of 13.4%. How on earth can one grow wealth by reducing the capital base? The rule of the thumb in business is that the more capital you invest, the more return on investment you get. Meantime, the Minister wants to double the receipts by reducing capital investment. This approach defeats all logic, in my view. One wonders what is happening considering that the Minister has increased other consumptive head such as religion (increased by 17.6%) and community amenities (increased by 27.9%) while reducing budget allocation to cross-cutting economic drivers such as environmental protection (reduced by 40%); education (reduced by 18.9%) health (reduced by 5.38%); and social protection (reduced by 4.7%). How does the Minister expect to achieve 3% economic growth by employing such matrices? Prima facie, such growth is not tenable.
Coming to the issue of international reserves, the Minister informed the Nation that as at July, 2019, only a paltry US$1.4Billion is remaining from the US$3.2Billion in coffers as at July 2015. This shows that Government has been chewing the international reserves at a steady rate of US$450Million per year since 2015. The Minister stated that between January and July this year, US$200Million was chewed from the reserves leaving only 1.7 months of import cover. Expectedly, US$250Million will be chewed by end of December this year equivalent to 1.4 months of import cover. Since, we expect to start 2020 with only US$1.15Billion or 1.4 months of import cover, how achievable and realistic will it be for the Minister to achieve his stated target of increasing international reserves to 2.5% -3% of import cover bearing in mind the trend on international reserves since July 2015? Put simply, the Minister is unrealistic as the arithmetic is not adding up.
On debt, the Minister was very stingy with numbers. As I have earlier stated, numbers don’t lie. Quite alright, the Minister informed the Nation that the external debt as at end of June stood at US$10.23Billion. However, as regard to the domestic debt, the Minister just disclosed the non-VAT debt which he stated was K20.2Billion. He deliberately glossed over the VAT debt which is also as high as the non-VAT at K20.6Billion which is equivalent to US$1.6Billion. The total domestic debt is K40.8Million. The Minister was obliged to disclose the VAT debt because US$1.6Billion is not numbers a Minister must gloss over. Mind you, the figure of US$1.6Billion we are talking about is more than the current stock of international reserves. The Nation deserves to know this, and most importantly how the Minister intends to dismantle it.
As the Green Party, we have issues with the VAT regime and the monthly accrual of this debt at K1.2Billion per month. There is no way a responsible government should continue with a tax system where the tax debt exceeds tax revenue. This scenario beats all logic, and is the reason we supported migrating from VAT to GST tax regime. The cover up of this debt by the Minister intrigues us. We cannot surmise the intention and logic.
Furthermore on debt, the Minister stated that he has allocated K636Billion (equivalent to US$48.9Million) for dismantling of the Eurobond debt. This will bring the total amount so far earmarked for Eurobond debt repayment to US$58.9Million since there is already US$10Million in the Sinking Fund. Now, in there is only 3 years before US$750Million is due as lump-sum payment. If the Minister honors his commitment to raise the Eurobond fundraiser to US$58.9Million, then that will make the total at hand to be a paltry 7.85% of US$750Million. Considering that the following year (2021) will be the election year, and meantime, the year to raise the remainder US$691.1Million or rather 92.14% of US$750Million, the Minister should have been emphatic on this issue. Rather, he simply glossed over it. We are disgusted with his unenthusiastic approach on the Eurobond debt as this, if anything is the most deadly time-bomb on the horizon.
Finally on export earnings, we note a reduction of US$700Million from copper exports compared to 2018 for the period January to June. This is attributed to reduction in the importation of copper ores, concentrates and chemicals for processing copper and cobalt. When we look at budget measures proposed (zero rate capital equipment for mining sector; minimize input VAT claims by mining companies on diesel; limit input VAT for mining companies on electricity), none is targeted at addressing the concentrates and chemicals importation draw back. None is also targeted at addressing the problems which led to hostile take-over of KCM, for example. So, for us, the forex portfolio looks gloomy into 2020 and beyond.
“There is no way a responsible government should continue with a tax system where the tax revenue debt exceeds the tax revenue.This scenario beats all logic,and is the reason we supported migrating from VAT to GST tax regime.”
Bwana Sinkamba,here you are spot on and can you believe it that the Finance minister even indicated that government will not introduce GST any time soon? He must have called for more consultations.
On Cannabis business,if as Sinkamba promised to grow the economy by boosting NTEs from $500 million to $36 billion,then why is government so reluctant in venturing into such a lucrative economic activity? Especially that Zambia has a natural comparative advantage in Crop production and cannabis is not an exception.
There are too many numbers and percentages in the thing.
@Nosradamus: Budget is about numbers and percentages…. teyabana
Truely if we don’t remove PF from power we might end up worser than Zimbabwe another point for people to note is if we don’t remove PF in 2021 it will be like telling them we like the direction the country is heading and those criticising PF are bitter hence the PF government will do even further damage I hope well meaning Zambians can really think this through and reflect on everything that has transpired since Mr ECL took over we all need to ask ourselves if we see a future under this man’s rule let’s forget party affiliation, tribe, region, religion, skin colour because if Zambia sinks we all sink with it and at that point it won’t matter if you are self employed or creative the fact is if the economy crushes it crushes every business running
I would love to agree with you we need PF out but I don’t see any one promising a better Zambia than Zambians themselves changing the mentality. Politicians seem to be like call boys, they all behave almost the same way.
Maybe the same leaders we keep rejecting could have grown our economy better! Not long ago, Zambians rejected Mwanawasa. We thank God for Chiluba who saw the good in Mwanawasa and the evil in Sata that is now eating Zambia. Zambians would rather choose leaders who have the best insults and the best songs. The ugly evil spirit of Tribalism will always haunt Zambians during elections! As long as the Northeast block continues to want to dominate the Northwestern block, nothing good will come of it. The Leadership scoreline remains:
Northwestern block – 1 (Mwanawasa)
Northeastern block – 5 (KK, Chiluba, Sata, ECL)
Numbers don’t lie!
The Tribal and Regional divide is real in Zambia’s political makeup!
Mr. Sinkamba is an historian this is what I like of him.This means that he has organized minds compared to other hungry politicians.
Sikamba practices issue based politics and thats what I like about him. I have never heard him insulting or name calling.
I have heard, and read reactions on the budget from opposition leaders and so-called economists but this analysis is at another level. So far, this appears to me as the best analysis of budget 2020.
It is holistic, in simple but candid language. Sinkamba is indeed an intelligent refreshing politician. He does waffle anyhow, but only intervenes when it matters most and knows what he is talking about. Others parrot what they have read elsewhere.
Please Hon. Ng’andu Bwalya can you respond to key issues highlighted in this analysis? The nation needs answers.
Sometimes to see the Budget analysis well is to take these comments recast and see the numbers in a long-term you can begin from historical 2000 and see the pressures in Financial flows in 2018 that reflected the financial conditions global
You will see that the Minister Budget is well poised for the Future The writer here is answering and accepting the budget options ,by his own analysis ,the Ministers allocations in the Budget and the typical problem of Zambian economy that reflects in Budgets and how Fiscal Plans are maximised on the Revenues from Taxes and other incomes that can be raised to Finance or Refinance (repay) Social and Capital Investments
From 2000 to 2030…
or so ,Spending has always been growing faster than revenues earned and is projected to continue in that pathway if not managed to restructure like the Finance minister has attempted ng to Now The annual average growth (potential GDP) rates have been slower than spending from factor productivity (Potential Factor productivity) and hence the call for those funding methods to perform the economy on which the revenues should have growth to repay within the tenures
A careful review and analysis of the Ministers budget and capping on spending growth by attempting to marginally stem the various classes of mandatory and discretionary expenditure is a positive indicator in the right direction ,given…
,given the Financing orientations current for Zambia .The opposite is to continue the current path and incure huge debt levels and leave others to restructure for the future It’s only a shorterm transition to long-term sustainability
Its better to focus on revenue Growth and methods What the write is supposed to see also is that the Government has tried massively to stem debt levels amidst slower growth levels pegged at 3% global near term. The opposite could have been much higher than achieved had the economy remained the same given the policy options and Forecast period
It’s also within the tactical strategy of the minister also to be innovative ,exercise discretion and create…
and create the Financial restructuring to propel our economy It’s indeed balancing act where you have revenues there and higher spending on the other but once you unlock the potential you prosper The path to prosperity could be painfully so but it has to be achieved If you decide to reduce your debt levels and target a 3% level of deficits ,then you agree also that the minister has attempted well to balance his figures and will refinance those debts to create space in the shorterm, unless he increases his revenues options, like rightly written in sales tax(hybrid) significantly by more than 20% , but even then repayments cannot be met in 2 to 3 years But the earlier restructuring to…
to repay the better in terms of flexibility, Growth including reductions of the Costs Then when you look at the summary external debt principal repayments (long-term) and including interest have some options from which savings and returns can be made,you will see the budget options available there
Presentation also in excel and comments down better also to follow and see Sometimes Inforgram or visual presentation helps to reduce this analysis and see its structural fit on Zambias Fiscas longterm
I like Sinkamba’s analisys. He gets the most disturbing points of the budget and actually analyses them to sugest how they could either have been done differently or their pros and cons.
Other politicians would vehemently just condemn every point for the sake of it, not that what they are saying makes a tiny bit if sense.
Correct many have usual inclination to the theories the “Phillips Curve ” They cannot address the Ministers Budget options effectively We see that also from our Dr
What Yatata could have done was to present yoy review on table and then forecast those baselines to say 2030 and see the Budget options and then comment
At the end of the day it comes to hoe the Financing methods will be optimized to grow the economy reduce deficits and emerge competitively so etc
Correct he reasons but Finance Minister has nicely positioned the 2020 he must be supported in seeing the real options as the past is history we have learnt from to position 2020 better
Mr. Peter Sinkamba is also and Environmentalist. He owns an organisation called Citizens for a Better Environment (CBE) which is based in Kitwe. He is a very good man. I once worked for his organisation after I completed my studies from the Copperbelt University (CBU).