The national budget that was presented by the Finance Minister Hon. Bwalya Ng’andu, the last of the PF Government, is worrying and a reflection of total failure in economic management. Firstly, the week started with the announcement that Zambia will not only fail to pay the first Eurobond bullet payment due in 2022, but is having challenges in paying the interest owing on Eurobonds up to April 2022, and calling on creditors for a meeting on September 28, 2020, to discuss the Eurobond debt service suspension.
Fair enough, this is a commendable effort to admit that things are not the way they should be, especially if it means we shall soon get on a program to live within our means as a country. Therefore, our creditors and the citizens expected that the budget would address how going forward, the government will be on course to make necessary adjustments to place the country on a path of sustainable debt, and ease the suffering of the Zambian people.
Shockingly, the Minister of Finance plans to finance the 2021 budget through borrowing K51.6 billion (US$2.6 billion), representing 43.1 percent of the total budget. Of this K51.6 billion, the PF wants to borrow K27.7 billion or $1.4 billion from external sources, an amount equal to total interest payments on external debt and about the size of our reserves. What this means is that, on the one hand, PF has hired White & Case LLP, a law firm, and Lazard Freres financial advisory firm, to help negotiate for the restructuring of the debt and suspension of interest payment, while on the other hand, seeking additional debt that will increase the publicly disclosed external debt to $13.4 billion.
Worryingly, the budget is shallow on specific measures to be implemented in areas of identified opportunity envisaged to deliver the recovery; case in point is how the citizens can take advantage of the continental free trade area and the industrial parks. Given the poor track record of the PF administration at the execution level, such lack of details spells doom on the horizon, and prolonged economic uncertainty if this government is given an opportunity to present another national budget.
Our other significant concerns on the 2021 budget are as follows:
• We are extremely concerned about the planned domestic financing of K17.4 billion, or 15% of the budget, and the consequences of inflation therefrom. With the change in Management at the Central Bank, there is a likelihood of a spike in the money supply, and inflation is very real. Excessive money printing risks bringing the much-dreaded situation of stagflation, in which we have both high inflation and low growth. Zambians need assurances that this will not be the case.
• Given that domestically generated revenue from Zambia Revenue Authority and other government agencies is a paltry K66.0 billion and yet to pay our public workers and service our debt, we need K74 billion, we have reached the point we feared most as a country. Simply put, we cannot pay our workers and debts without borrowing.
• Out of the K66.0 billion that will be generated domestically, PF is expecting to raise 5.5 percent or K6.6 billion of the budget through fees and fines – how can you run government expecting to make money charging those who drill boreholes because the government is failing to provide water, hoping your citizens can commit traffic offenses and other misdemeanors?
• Zambia Revenue Authority will start charging more for imported second hand cars, that they have decided to call high-value motor vehicles. They are back to that old system that they discarded. They have decided to exclude the so-called high-value motor vehicles from the definition of used motor vehicles, and adjust them to ad valorem import duty.
• While the budget has given K175 per month as a relief to lower-income earners earning K4,000, this cannot cushion the devastating impact inflation and depreciation of the Kwacha has had on the less privileged members of our society.
• We continue to argue that the PF has wrong priorities. We find it strange that the budget line for health was increased by only 3% in the middle of a deadly pandemic. Adjusted for inflation, the PF has reduced the allocation in real terms. Further, we also note that you set aside K202 million as gratuity for MPs. At the same time, we appreciate that they worked for this money, like many public servants that have not yet obtained their pension. A normal father will not ask his children to tighten their belts while he continues feasting. They can wait for their gratuity. Prioritize paying the outstanding pensions of those public servants who spent over 30 years serving this great nation.
We can point out further shortcomings in the 2021 budget, including the need to close the wastages and leakages through by-elections and corruption, we will leave it here for now. This budget doesn’t attempt to address the challenges our country is facing. We need to go back to the drawing board. Like the way we pointed out way before, that your careless borrowing was unsustainable, we stand ready to provide guidance on the economy to alleviate the suffering placed on our society.
HH aka Bally