11 February 2004

Zambia: 2004 Budget Should Create Jobs - O'Donnell

Lusaka — IN October last year, secretary to the treasury Situmbeko Musokotwane, released on behalf of government the first ever 'Green Paper' on the Medium Term Expenditure Framework (MTEF) and the annual budget, which he said would be presented every year.

According to government, the introduction of the 'Green Paper' was one of the steps it had taken to make the budget preparation process more transparent and consultative to ensure ownership of the budget by all stakeholders.

The 'Green Paper', which is derived from the macroeconomic and fiscal frameworks, will form the basis for the preparation of the 2004 to 2006 MTEF and the 2004 budget.

And this is the framework from which Zambians expect the government has drawn an activity based 2004 budget, which finance and national planning minister Ng'andu Magande will be presenting to Parliament this afternoon.

The macroeconomic framework of the MTEF provides projections on the growth of the economy, on inflation, exchange rate, balance of payments and domestic and foreign debt service payments.

Some of the specific macroeconomic targets for the period 2004 to 2006 are to achieve gross domestic product (GDP) growth rates of 4.5 per cent in 2004 and 5 per cent each in 2005 and 2006, to bring down end-year inflation to 12 per cent this year, 10 per cent in 2005 and 6.5 per cent in 2006.

Other targets are to reduce the fiscal deficit to 2.9 per cent of GDP in 2004, 2.3 per cent in 2005 and 1.6 per cent in 2006.

The government further hopes to improve the country's external sector's viability by increasing the official gross international reserves (GIR) to two months of import cover in 2004, 2.5 months of import cover in 2005 and three months cover in 2006.

Yet another target is to reduce the current account deficit to 15.3 per cent of GDP in 2004, 13.4 per cent of GDP in 2005 and 12 per cent in 2006.

The government further hopes to remain current with foreign debt service, which amounts to K248 billion in 2004, K223 billion in 2005 and K246 billion in 2006.

The fiscal framework, itself based on the macroeconomic framework, outlines the expected amounts of resources available to government and proposals on how they will be allocated, by type of expenditure.

Under the fiscal framework, the government expects to raise domestic revenue amounting to around K4.4 trillion this year, nearly K5 trillion next year and about K5.5 trillion in 2006 which will be spent according to expenditure plan, including K36 billion on by-elections spread equally across the three years.

This afternoon, Magande is expected to announce to Parliament several new fiscal measures both in terms of revenue collection and expenditure.

The finance minister has already announced to the nation that there will be several changes in the tax regime.

Magande's statement was fortified by President Levy Mwanawasa during the ceremonial opening of Parliament on January 13, 2004, who forewarned the nation to brace for tough new economic measures this year.

For Zambia Association of Manufacturers' (ZAM) chairman, Mark O'Donnell, today's budget should be one that will create jobs, stimulate economic growth, and reduce inflation to the lowest levels as well as that with the lowest taxes.

O'Donnell justifies the need for lower taxes, saying this is the only way Zambians would have enhanced spending power and this would be a means of stimulating the economy.

"Our concern is that the government keeps talking about tax increases. This will not stimulate the economy," he says.

O'Donnell says as ZAM, they last year put forward to the government a comprehensive submission which in their view has workable suggestions on how the economy can grow.

He says for the manufacturers, reduction of duty on machinery and raw material importation would enhance the performance of the economy.

He also advises the government to "put its house in order".

O'Donnell further cautions that the government should not listen to unrealistic demands coming from civil servants because they understand the situation in which the government is regarding resources.

He says civil servants' demands for housing allowance and other conditions of service from the government are not only unrealistic but unattainable too.

"If the government will attempt to meet those demands, then it's going to have a negative impact on economic growth," warns O'Donnell.

But Civil Society for Poverty Reduction (CSPR) assistant co-ordinator, Gregory Chikwanka says as a priority, CSPR expects a budget that will mean something for the poor, a budget that will reach the most disadvantaged Zambians.

He says the 2004 national budget should ensure that incomes of the poor grow at the same or higher rate than the growth of the whole economy.

He says the International Monetary Fund (IMF) and World Bank's norm of emphasising economic growth at the expense of poverty reduction should be reversed in this year's budget.

"Unpopular macroeconomic and structural policies have proved that they cannot work for the Zambian economy and emphasis on them will be catastrophic," he stresses.

"For instance, liberalization of the financial sector has made it difficult to provide credit, particularly to rural farmers and the end result has been more poverty. The same applies to the policy of privatization. The Minister of Finance and National Planning ought to understand that failure to attack higher poverty levels today will only guarantee lower growth tomorrow."

Chikwanka believes that the most direct way this year's budget is going to assist the poor is by putting in place policies that will create quality jobs.

"In this context, economic sectors, which absorb a lot of labour such as agriculture, tourism and manufacturing, should be given priority," he says.

"In the case of agriculture, we hope that the budget will also pay attention to supporting factors such marketing, productivity and value added. It ought to be understood that emphasis on grain production only will not bring us development."

The CSPR also hopes to see greater and significant allocations to social sectors, especially education, health, water and sanitation in line with the Poverty Reduction Strategy Paper (PRSP) and the Transitional National Development Plan (TNDP).

"CSPR calls upon Government to win the fight against poverty in this year's budget by increasing expenditures on poverty reduction programmes through internally generated resources unlike in the past where this fight has largely been left to the international community," Chikwanka adds.

He warns that failure to increase spending on the social sector could derail the country's new effort to reach the floating completion point of the enhanced Highly Indebted Poor Countries' Initiative (HIPC) later in the year.

In this context, CSPR expects Magande to go beyond setting the standard macroeconomic targets of economic growth, inflation and money supply growth but instead set himself some social targets to be achieved in the course of 2004.

These targets should relate to access to education, shelter, water and sanitation facilities, according to CSPR.

On the anticipated new tax regime, the CSPR hopes that Magande will seriously take into account the effects of increasing tax on the already overtaxed citizens.

"Our view is that measures that will broaden the tax base and fight tax evasion will be more prudent than tax increases," advises Chikwanka.

"We also hope that this year's budget will improve fiscal administration since it will be based on activities."

For Zambian Alliance for Progress (ZAP) president, Dean Mung'omba, there is no faith or confidence that any Zambian budget in their current format can ever resolve the socio-economic problems the country is faced with.

"I am even more disillusioned by the general lack of capacity by the government to design and implement any serious socio-economic programmes," Mung'omba says.

"They are generally inspired by the donors' wishes and wills rather than by the general aspirations of the country. For example, in an attempt to reach [Highly Indebted Poor Countries] HIPC, the government will attempt to starve and deny the Zambians social well-being because they have been instructed by IMF or the World Bank that HIPC completion point is everything."

Mung'omba anticipates that there will be nothing much that may come from today's budget because the budget presentation process, like the ritual annual Presidential address to Parliament, have simply been turned into academic exercises lacking both inspiration and direction.

He believes that any budget has to derive its content and meaning from the general socio-economic activities and general performance.

"However, in the last one year, we have not seen any socio-economic growth, development and improvement in the social well-being of our citizens," Mung'omba contends.

"In fact, we continue on the path of complete socio-economic degradation. The inherent difficulties with our budgets is that they are not only consumption expenditure related but they are also donor dependent and both of which make the exercise meaningless. And unless we reach a stage of dealing with these two problems, we will never reach anywhere."

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