Zambian economy needs minimum growth of 5.6 percent GDP

Bank of Zambia
Bank of Zambia

A Financial Analyst and Economist, Trevor Hambayi, has said the Zambian economy needs to be growing at a minimum of 5.6 percent of Gross Domestic Product (GDP) in order to maintain its revenue generation and provide basic services whose population is growing at an average of 2.2 percent annually

 Mr. Hambayi, who is a Senior Partner at Development Finance Associates, observed that the Zambian economy has unfortunately been growing far below the minimum GDP growth in the past seven years.

The GDP growth trend has been lower than the required minimum from 2015 when the country recorded a 2.92 percent mainly due to a global crash in commodity prices, which largely was the reduction in copper prices in the case of Zambia. There was also a drought in the same period which caused electricity load shedding in the country.

In 2016, the GDP growth was 3.7 percent, 3.5 percent in 2017 and it rose to 4 percent in 2018.

“In 2019, our GDP was at 1.4 percent, in 2020, with Covid-19, we went into that recession of minus 3 percent and then we started to recover at 2.8 percent in 2021 and 3.6 percent in 2022,” he explained.

Mr. Hambayi said during the national budget analysis media workshop in Lusaka today that the minimum growth for Zambia to effectively deal with the poverty levels in the country is 16 percent growth.

The workshop, which also highlighted budget components which journalists should look out for in the 2023 national budget, was organised by the USAID-Zambia Revenue for Growth Project.

And Mr. Hambayi has disclosed that the domestic resource mobilization was an important factor towards managing national development in a sustainable manner.

He noted that currently, countries in sub-Saharan Africa are striving to achieve a recommended 22 to 23 percent domestic resource mobilisation of their GDP but are gravitating at between 17 and 19 percent.

He explained that Zambia was facing challenges in domestic resource mobilisation because of the citizens’ low savings rate, which are not sufficient to support government borrowing from the local resources.

“If the funds are not sufficient to support that borrowing, it means that we are actually spending the capital that we are supposed to invest into the economy and that will start to contract the economy,” he explained.

Mr. Hambayi further pointed out that Zambia’s dependence on foreign aid and Zambia Revenue Authority’s (ZRA) low capacity to collect revenue were other challenges that are limiting domestic resource mobilisation for the country.

He explained that ZRA’s institutional capacity to collect revenue was mainly hampered by the fact that a large component of the Zambian economy comprises an informal private sector.

“So it is not very easy to go and collect taxes from there even though the only tax that is missing from the informal sector is pay as you earn,” he said.

In Zambia, Pay As You Earn (PAYE) is the biggest component of the income stream that the government depends on hence the need to improve its capacity to tax the informal sector.

He added that economic stagnation has also limited the domestic resource mobilisation for the Zambian government.

“Having to deal with this economic stagnation will solve all our problems,” he said.

Mr. Hambayi has since cited increasing taxes, ensuring tax compliance, broadening the tax base and growing domestic capital through individuals’ savings as some of the options for scaling-up domestic resource mobilisation for the country.

He however observed that poor tax compliance in the country could emanate from low income among many Zambians and high taxes which the people need to pay.

“The tax base is very limited. We only have 900,000 formal jobs in this country, and then 1.2 million informal jobs, and another almost 2.9 million jobs in the agriculture sector,” he said, adding that the contracted GDP also limits the tax base.

Meanwhile, Chief of Party at the USAID Revenue for Growth Activity, Edward Koos, said government will need to significantly increase efficiency and compliance in tax collection.

Mr. Koos said government should also rebuild a culture that productively engages the private sector in formulating more equitable and broad-based tax policy initiatives.

“The Revenue for Growth Project aims to help Zambia improve domestic revenue mobilisation (DRM) and expand the fiscal space for investments in public service delivery and poverty reduction,” he said.

He further disclosed that the project will engage both government and non-governmental stakeholders to build capacity in tax policy analysis, improving tax compliance and administration and strengthening the tax culture in a manner that facilitates private sector growth and accountability relationships with taxpayers.

Mr. Koos revealed that activities under the Revenue for Growth Project will support four objectives namely improving tax and non-tax revenue administration and compliance, strengthening tax policy, enhancing public-private dialogue and enhancing capacity to address other fiscal policy and management priorities.

Tomorrow, September 30, 2022, Minister of Finance and National Planning, Situmbeko Musokotwane is expected to present the 2023 national budget in parliament.