THE 2021 budget clearly lays a foundation for economic recovery, build resilience, safeguard livelihoods and protect the vulnerable, says finance minister Dr Bwalya Ng’andu, as he unveiled the K119.6 billion national budget.
He notes that the thrust and priority for 2021 and the medium-term will, therefore, be to re-invigorate growth, restore macro-economic stability, attain fiscal fitness, restore debt sustainability and dismantle domestic arrears and at the same time safeguard social protection spending.
The budget total is K119.6 billion and the government projects that K68.0 billion would come from domestic revenues and grants, while the balance, K51.6, would be raised through financing.
When Dr Ng’andu presented the 2020 national budget amounting to K106.0 billion on September 27 last year, acclaimed economic commentator Professor Oliver Saasa described him as Minister without finance.
That description sounded like a mordant. But six months later, reality dawned; the budget had been thrown into disarray.
Budgetary forecasts have not been met.
Actually, Dr Ng’andu himself, on a ZNBC TV Sunday Interview programme on September 29, 2019, said the K2.3 billion he had allocated in this year’s national budget for dismantling of local debts, of over K16 billion, was a “drop in the ocean.”
That is just one example; many other pronouncements in the 2020 budget have not tied and yet, only a quarter remains before the close of this financial year.
The macro-economic targets for this year include achieving a real gross domestic product (GDP) growth rate of at least three per cent and to achieve and maintain inflation within the target range of six to eight per cent.
The Zambia Statistics Agency announced on Thursday that the inflation rate for this month is 15.7 per cent.
The other targets are increasing international reserves to at least 2.5 months of import cover, reduce the fiscal deficit to 5.5 per cent of GDP and to increase domestic revenue mobilisation to at least 22 per cent of GDP.
All these targets have been missed.
There are many reasons for that poor performance of this year’s budget but to the PF government, it seems only the COVID-19 stood in the way of an excellent implementation.
Yes, the deadly pandemic has inflicted destruction on world economies. But the PF government, it seems, wants everybody to believe that such destruction is worse on Zambia.
Yesterday in Parliament, Dr Ng’andu stood on the same platform he stood on a year ago and presented another document containing income and expenditure projections – the national budget.
Dr Ng’andu said the 2021 budget aims at stimulating economic recovery, through practical and tangible support to businesses.
He said the budget also enhanced Zambia’s social protection response programmes to prevent the worsening of poverty levels, despite constrained fiscal conditions.
Dr Ng’andu told the House that commodity prices had been volatile this year.
“For instance, during the first half of the year, copper prices averaged US $5,500 per metric tonne compared to US $6,200 in the corresponding period in 2019,” he said. “Over the same period, crude oil prices averaged US $41 per barrel compared to US $66. The fall in copper and crude oil prices was mainly on account of reduced global demand. For crude oil, excess supply and lack of storage capacity exacerbated the decline in prices.”
On the macro-economic objectives, policies and strategies for 2021, the minister said the COVID-19 pandemic had stifled economic growth worldwide, including Zambia’s.
He noted that the focus in the medium-term would be on containing the spread of the virus, mitigating the effects of the pandemic and restoring macro-economic stability, as well as growth.
“In addition, priority will be to move towards attaining fiscal fitness and restoring debt sustainability, dismantling domestic arrears and safeguarding social protection spending,” Dr Ng’andu said. “This budget, therefore, sets a foundation for the achievement of these objectives in line with our economic recovery programme.”
The specific macroeconomic objectives for 2021, according to Dr Ng’andu, would be to achieve a real GDP growth rate of at least 1.8 per cent, reduce the inflation rate towards the six to eight per cent medium-term target and to increase gross international reserves to at least 2.5 months of import cover.
The other intentions would be to reduce the fiscal deficit to 9.3 per cent of GDP and to achieve domestic revenue collections of not less than 18.0 per cent of GDP.
On economic diversification and job creation, Dr Ng’andu noted that economic diversification and job creation were key pillars in supporting the country’s economic recovery.
In that regard, the minister told the House, agriculture, mining, tourism and industrialisation were expected to drive economic growth while energy and infrastructure development would be key enablers.
He further outlined specific measures to attract more investment in the agricultural sector.
On tourism, for instance, Dr Ng’andu pointed out that the sector was the hardest hit by the COVID-19 pandemic: “with virtually no international tourist arrivals since March 2020 due to travel restrictions and subdued domestic tourist activity.”
“To revive the sector, government has implemented relief measures such as time to pay agreement covering income tax and Value Added Tax…” he said. “I am pleased to note that domestic tourism has started to rise. I wish to encourage all citizens to continue supporting the tourism industry while observing the COVID-19 health guidelines.”
He pledged that the government would continue to diversify the mining sector from copper to other minerals, particularly gold.
“In this regard, the Zambia Gold Company Limited has been established to spearhead gold mining and trading activities in the country,” Dr Ng’andu said. “Further, government will continue to enhance the regulatory framework in order to optimise returns from our mineral wealth.”
Dr Ng’andu also noted that in the energy sector, electricity generation had been constrained by the adverse effects of climate change over the last few years.
He said to mitigate that, the government had been investing in additional electricity generation capacity, including solar energy.
“So far, the Musonda Falls Hydro Power Station has been upgraded to 10 mega-watts from five mega-watts and has been commissioned,” Dr Ng’andu said.
He disclosed that the government was proposing to spend K119.6 billion in 2021, which translates to 32.6 per cent of GDP.
“Of this amount, K68.0 billion, representing 18.5 per cent of GDP, will come from domestic revenues and grants. The balance of K51.6 billion will be raised through financing,” Dr Ng’andu said.
He noted that the fiscal deficit was targeted to reduce to 9.3 per cent of GDP in 2021, from the 11.7 per cent projected outturn for this year.
Dr Ng’andu informed the House that all government ministries, provinces and spending agencies have now migrated from activity-based budgeting to output-based budgeting.
“This budgeting system is more performance-oriented and enhances transparency and accountability,” he said.
For next year’s budget allocations by functions of government, the minister set aside, for general public services, K57,819,227,707, domestic debt interest K18,338,481,000, external debt (interest and principal) K27,745,178,541, dismantling of arrears K2,762,080,579, local government equalisation fund K1,164,567,612, general elections and voter registration K598,112,678, Constituency Development Fund (CDF) K249,600,000, gratuity for members of parliament K202,073,000, public affairs and summit meetings K200,000,000, contingency K125,000,000 and compensation fund K100,000,000.
Dr Ng’andu allocated to the defence K5,642,820,724, public order and safety received K3, 078,694,172 and economic affairs was allocated K21, 499,987,741.
The other allocations are as follows: road infrastructure K6,214,145,268, farmer input support programme K5,701,404,933, international airports K567, 334,377, strategic food reserves K517,500,000, rural electrification fund K307,199,557, empowerment funds K266,285,212, and youth empowerment funds K155,237,025.
Environmental protection has been given K955,530,142, housing and community amenities has K2,221,524,168, water supply and sanitation has K2,172,274,286, health has K9,653,313,513, K1,731,846,564 has been allocated for infrastructure projects, drugs and medical supplies has K1,392,443,990, operations for hospitals has K627,263,831, recreation, culture and religion has K151,357,265, education has K13,772,752,981, K1,216,937,500 is for infrastructure projects, skills development fund has K178,857,469, social protection K4,820,803,202, social cash transfer has K2,344,175,162, Public Service Pension Fund (PSPF) has K1,067,955,725 and K100,000,000 would go to food security pack.
On direct taxes, Dr Ng’andu proposed to increase disposable income of employees.
He proposed to raise the exempt threshold for Pay-As-You-Earn (PAYE) to K4,000 from K3,300 per month and adjust the income tax bands accordingly.
“This measure will result in K455.6 million additional income in the pockets of the Zambian workers,” he said. “In order to cushion the suffering of the differently-abled persons in our society, I propose to increase the tax credit for individuals to K500 per month from the current K250 per month.”
To provide relief to the horticulture and floriculture sub-sectors, the minister proposed to increase the number of years for claiming the 10 per cent development allowance to five years from the existing three years.
He said that allowance was applicable to persons growing rose flowers, tea, coffee, banana plant or citrus fruit trees or other similar plants or trees.
Dr Ng’andu, to harmonise the presumptive tax structure for the gaming and betting industry, proposed to increase the tax rate on betting to 25 per cent from 10 per cent of gross takings.
“This measure will generate an extra K59.3 million,” he said.
On VAT, Dr Ng’andu said to support the scaling-up of agricultural productivity through mechanisation, he was proposing to zero-rate all tractors for Value Added Tax (VAT) purposes.
“Currently, only tractors up to 90 Horse Power are zero rated,” he said.
To combat the spread of the COVID-19, Dr Ng’andu proposed to zero-rate equipment used for full body sanitisation for a year-long period.
“This measure will take effect from midnight tonight,” Dr Ng’andu noted.
“The Value Added Tax measures will result in a revenue loss of K5.1 million.”
In an effort to revamp the country’s horticulture and floriculture sub-sectors and to promote other non- traditional exports, the minister proposed to suspend import duty on biological control agents, remove import duty on greenhouse plastics, reduce import duty to 15 per cent from 25 per cent on selected bulb plants and seedlings and to reduce import duty on Secateurs and pruners to five per cent from the current 15 per cent and 25 per cent, respectively, among other measures.
Dr Ng’andu told the House the country needed to be united in the face of adversity.
“If we all put our hand to the plough, there is no limit to how far we can go as a people,” said Dr Ng’andu, adding that President Edgar Lungu had charged: “us to change the way we think and the way we do things so that we are able to seize the opportunities that the COVID-19 challenge presents to us.”