By Nalucha Nganga Ziba, Country Director, ActionAid Zambia
2021 NATIONAL BUDGET REFLECTIONS
ActionAid Zambia has observed that the 2021 is not realistic and lacks bold measures to
stimulate economic recovery and build resilience to safeguard livelihoods. To begin with,
some of the macroeconomic objectives are not realistic, for instance, there is a target
pertaining to achieving domestic revenue collections of not less than 18.0 percent of GDP,
however the budget has no comprehensive revenue compensating measures. In this
regard, many stakeholders have called for bold tax revenue measures such as cancellation of unbalanced tax agreements that facilitate tax avoidance and lead to loss of
revenue. In the same vein, it seems there is proposal to remove discount on some fees as
a way of raising revenues. For instance, removing discounts on fees paid for online
company registration and filling of returns. However, with the current economic hardships
which has affected companies’ little revenues will be raised.
ActionAid Reflects on the 2021 budget as follows:
Revenue Estimates and Financing
The government envisions to spend 7 percent more than what was projected to be spent
in 2020. This is in the backdrop of a reduction in both tax and non-tax revenue at 1 percent and 31 percent respectively. It is also worth noting that the 2021 national budget tax revenue projection is unrealistic in the wake of COVID-19 without rigorous progressive
fiscal reform to enhance domestic revenue mobilization. We do not see how the
government is likely to maintain the tax revenue in 2021 less 1 percent of what was
projected in the 2020 national budget when we have already projected a reduction in the
same.
ActionAid welcomes the commitment to undertake a thorough review of existing tax
incentives to make them more effective in reinvigorating economic activity. We, however,
wish to remind the government that this should not only be about reinvigorating economic
activity but also about assuring tax revenues to finance public service provision. All
detrimental incentives and tax treaties such as the recently cancelled Mauritius tax treaty
must be suspended.
On the other hand, once again as observed in our submission, the Minister of Finance observed that despite the negative growth in most sectors during the COVID-19 pandemic, sectors like information and communications technology were expected to register positive growth. The 2021 national budget could have introduced a variable Profit Taxes or an excess profit taxes or solidarity tax for such sectors.
Debt Sustainability
The government has already committed to finance more than 40 percent of the 2021 national budget by borrowing. We observe that this is likely to worsen without a realistic revenue projection and fiscal reforms to enhance domestic revenue mobilization. We risk sliding into a debt trap and likely to see a situation where more than 70 percent of the 2021 national budget will be financed through borrowing. We wish to remind the government that, apart from the recent advent of COVID-19 we are in this economic malaise largely due to huge and unsustainable public debt levels. It is, therefore, unfortunate that we do not only want to continue on the same trajectory, but we also want to increase our commitment to financing our national budget by borrowing in the 2021 national budget. Prioritizing fiscal fitness should have not only been pronounced but it should have been demonstrated in 2021 national budget.
Social Sectors
As we indicated in our budget expectations, with our current public debt induced fiscal
challenge, the 2021 national budget was supposed to prioritize expenditure on key and
strategic sectors while demonstrating sustainable spending and/or financing of the same.
Financing our national budget through borrowing is not sustainable and will never be a
sustainable solution. Covid-19 did not only expose the weakness in both the health and
education systems.
The Health sector budget share remains below the 15 percent Abuja declaration
commitment and it has decreased from 8.84 percent in the 2020 national budget to 8.07
percent in the 2021 national budget. The Health Sector budget share has continued to
decrease since 2018. This is disappointing in the wake of COVID-19 battle, which seems
far from over. Likewise, the education sector budget share has not only continued to
remain below the recommended 20 percent but has also been decreasing since 2014. In
the 2021 national budget the sector’s budget share has decreased to 11.5 percent from
12.38 percent in 2020. The development is shocking and questionable especially that
defense, public order management and roads have continued to receive significant share
of the national budget. Therefore, ActionAid wishes to implore parliament to solicit for
upward adjustment of budget allocation towards the health and education sectors.
Additionally, while we note that there is an increase in the Agriculture sector budget share from 3.7 percent in 2020 to 6 percent in 2021. We, however, note that government
continues to prioritize FISP and FRA which have lower productive returns and are less of
agricultural activities. More resources of the Agriculture budget go towards FISP at the
expense of investing in key areas such as extension and research services which have
shown to have return rates. These areas should be prioritized.
Climate Change
Likewise, though we have seen an increase in Environmental Protection budget share
from 0.58 percent in 2020 to 0.8 percent in 2021, however an allocation of 0.8 percent
does not reflect the urgent need to address Climate Change holistically. Climate Change
poses challenges to Zambia’s ongoing efforts to combat poverty, reduce food insecurity
and sustainably manage natural resources. We have witnessed an increase in the effects
of Climate Change in the last two decades that have adversely impacted food and water
security, energy generation and livelihoods. Agriculture, which is key in economic
diversification, is highly sensitive to changes in climate, as demonstrated in the past few
years. Extreme climate events also pose a risk to other sectors such as health and
infrastructure and to biodiversity conservation. Parliament, should therefore, reconsider the budgetary allocation towards environmental protection which houses climate change
mitigation measures.
All in all, we are of the considered view that the 2021 national budget is short on
progressive fiscal reform to enhance domestic revenue mobilization, hence, risks plugging
the country in more debt. The budget did not also demonstrate the prioritization of both
education and health sectors which have been adversely exposed by the COVID-19
pandemic as well as the agriculture sector which is key in much talked about economic
recovery post the COVID-19 pandemic.
Action aid is another useless conduit for the western agenda on our culture and norms. You are told by your funders what to do in order to achieve their mission to force their values on us. I just laugh at such organisations. Very politically charged NGOs
Time value of money at play could be the reason the bond holders are holding back. Is Zambia offering more interest in asking for the debt to be suspended for 6 months? The money due now won’t have the same value after six months so what compensation is Zambia offering for this loss in value? Maybe the bond holders will hear them but again does Zambia have that capacity to pay more?
What makes budgets look useless is unavailability of resources. I have said it time and again that we are a very lazy country. Truth be told. Most of us complain without contributing anything to the treasury directly or otherwise. The white collar job arrangement is killing this nation. If we all became productive, we would import less and government would concentrate on bigger things. Can you imagine that we relied on government for 100 percent of our medicals till recently.
I hate reading bad English when people pretend that they can write in English. For example we do not say ‘This is in the backdrop’ but ‘against the backdrop.’ Let us become like Rwandans who just use the local language to communicate. Ms Ziba, just use Lozi and we can then translate into any language for ourselves. Reading the first sentence put me off from reading the rest. Aaaargggh
Madam, these people are broke to the bone due to reckless borrowing. There is no way the finance minister can come up with any budget, he just wait to parliament to say something as per tradition. Forget any budget coming from PF, they are done these people
Some good points here to note on revenues enhancements protection and concerns about sustainability of budget However certain points needs to be observed When reviewing the budget as presented by minister of finance read it with the medium term flame work together with the 7th national plans because expenditure will be modelled over the medium to long-term See the budget theme This year the budget could place more emphasis on certain measures to model and perform the economy and alleviate risks on those sectors on conversational and dynamic revenues estimates that is tax and other are within international best estimates of 20% to 60% spending by functions are with best budget estimates say health 10 to 20%,,general public service of 5% to 20% so is others like education…
expenditure to GDP Though issues of long-term sustainability is critical additional levels of debt financing to GDP is with norm so is 1 to 10% capital investments to GDP True covid19will impact sectors differently social and food will be impacted negatively whereas virtual business it healthy and supplies power and home entertainment businesses may perform but the outlook is still uncertain to charge them valuable tax
Now comments Debt sustainability though important to consider in those debt financing of government investments and operations the limitations of all to determine debt benchmarks beyond which macroeconomic fiscal sustainability are at risk are neither here no there and the discussion on debt sustainability must be put correctly viewed the concept of a debt limit is not universal it’s how the transmissions in elevated debt levels adversely affect macroeconomic and financial stability For instance,
The level of debt beyond which public debt starts to hamper growth is different from the level of
Debt associated with a high probability of default Debt sustainability” has theoretical validity for a floating currency sovereign like Zambia The concept of “debt sustainability” is the usual alternative to the argument that inflation is the only constraint on floating currency sovereigns fiscal sustainability is that the interest burden of government debt does not rise beyond the productive capacity of the economy, or alternatively, the debt-to-GDP ratio does not become arbitrarily large We cannot really hope to create an exact forecast of the long-run trajectory of the economy
The usual convention is to assume that the economy will revert to a long-run average behavior that the economy will revert to some average growth rate in real terms, which cannot be controlled by policymakers
Whether or not a steady state fiscal policy is sustainable depends upon the relationship between the growth rate of the economy, and the interest rate on debt
The possibility of the debt-to-GDP ratio rising to infinity is quite curious. That interest payments are more than 100% of GDP. That is, bond holders receive more interest from the government than is needed to buy everything produced by the economy, and put the excess income into buying more bonds.
Budgeting has always been a dynamic exercise and in someway most specific to national macroeconomic effects but these often will converge to best international practices Some countries will have different account balances and deficits but expenditures and revenues on yearly budgets should be modelled in MTEF both on mandatory and others to perform the economy Just address the exposure in sovereign debts especially that of geopolitical concerns in 60% SOE captive and IMF and G20 will as of tomorrow provide budgetary and fiscal support The rest is not the main concern Twapyamo until 2021
@Honest
The problem is not contributions to the treasury. Zambians are contributing a lot to the treasury. Trouble is Fiscal indiscipline by this unpatriotic party. Our treasury is like a bottomless pit! If we compare Magufuli’s infrastructure Development in terms of quality and cost, that is when you can understand that thieving leaders is our biggest cancer in our country. Tanzania has done much more with less while Zambia has done very little with too much borrowed money! This is why we are Failing to budget now. The next thing is slavery! How to you make Fines a big contributor to revenue, even more than contributions from mines?
The only way to make our budget make sense is to cut the expenditure side of things! Reduce the size of Government and civil service, then there will be…
This appears to be criticism just for sake of criticism. Do you expect the reforms to happen overnight? We are talking about economy, sir and not cooking some noodles. Hope you understand this. Given the current global economic situation, the budget could not get better than this.
Why don’t ActionAid Zambia prepare a budget that would be an ideal one? Why not give it a try. It is easier said than done. The ground reality is far more different than the text books. Hope you realise this soon.
What a double speak you are ActionAid Zambia! On one hand you say bold tax revenue measures such as cancellation of unbalanced tax agreements that facilitate tax avoidance and lead to loss of revenue. And in the same breath, you oppose cancellation of discount on some fees! How can it be?
The projections in the budget are based on certain assumptions and permutations – combinations. It is not necessary that they will materialise in total. Economics is not like mathematics where 2+2 is always 4. But in economics, it could be 6 or 8 or even 0. So chill sir, wait and watch. With the improvement in global economic situation, Zambian economy will also show improvement. Just wait and watch.
ActionAid seems to be in a hurry to turn around economy overnight. This appears to be more of a political document rather than an expert research paper. You seem to be overwhelmed by the current political events ahead of elections. It is not good for the researchers.
The provisions made for various sectors shows how meticulously it was thought and drafted. Having difference of opinion about something is acceptable but it should not be influenced by political thought process especially that of the opposition.
All in all, we are of the considerate view that this report is short on holistic and long term analysis of the current financial situation of the country as well as the world. Hence it can’t be considered an expert one, but a politically motivated one.