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.