ESTHER MSETEKA, Lusaka
VARIOUS stakeholders have been providing guidance on how Zambia ought to drive its economic development agenda.
However, there is a possibility that some of the empirical evidence brought to the fore by stakeholders such as the Zambia Institute for Policy Analysis Research (ZIPAR), the World Bank, the International Monetary Fund and the Jesuit Centre for Theological Reflection are yet to elicit government action.
The country is still trying to find a way of effectively implementing some of the recommendations or indeed embracing the various economic strategies to address debt and budget overruns.
Government is applying austerity measures to address debt and economic challenges, but how much money is Zambia saving from these initiatives?
Currently, Government is implementing the Zambia Plus and the Seventh National Development Plan, among other instruments, to bring fiscal fitness into the economy.
As at June this year, Zambia’s total debt stood at US$15.95 billion, out of which US$9.37 billion was external, US$5.87 billion is domestic while arrears are standing at US$1.39 billion.
This represents 58.2 percent of gross domestic product (GDP) of the total debt as in external, domestic and arrears, using an adjusted nominal GDP of US$27.4 billion in 2018.
GDP is a monetary value of all finished goods and services produced within a country’s borders in a specific period of time.
On the other side, Government’s expenditure in the first half of this year was K40 billion, higher than the projected spending of K34 billion.
So far, Government has already spent 55 percent of the K71.6 billion national budget for this year, while rural poverty stands at 77 percent and urban at 23 percent.
This year’s budget is in line with the Economic Stabilisation and Growth Programme which sets a path for accelerated fiscal wellbeing to create a conducive environment in which different economic players and ordinary Zambians can thrive, generate wealth and prosperity without leaving anyone behind.
However, there is need for Government to rein in expenditure and manage debt and overspending by revisiting the 80 percent completion rate threshold for projects.
It is, however, trying its best to come out of the rocking ship and is cognisant of the risk that weak financial management and debt pose to the country, if not well handled.
Ministry of Finance Permanent Secretary for Economic Management and Finance Mukuli Chikuba agrees that the increase in public debt over the years is raising concerns among the citizens and other stakeholders in Zambia and the international community.
“True to it, debt can accelerate growth through investment in growth enhancing projects. However, when debt is accumulated to levels where it causes a debt overhang it can slow down growth and negatively impact on social services,” Mr Chikuba noted.
And presenting the 2018 mid-year budget review, dubbed ‘Debt Servicing and the Delivery of Social Services’ last week, United Nations International Children’s Fund (UNICEF) acknowledged that the fiscal consolidation measures that Government has instituted have resulted in some improvement in economic sustainability.
UNICEF chief social policy and research Sam Muradzikwa said fiscal discipline will help Zambia to reduce recurrent spending in relation to domestic revenues.
Mr Muradzikwa notes that the strides achieved so far are due to a number of factors, including the restricting of recruitments to mostly frontline staff in health and education sectors.
“The reduction in recurrent expenditures and the increase in capital costs can in the long run be beneficial for economic growth and help improve service delivery. However, the infrastructure projects have been marred by several challenges and has continued to put strain on the limited government coffers,” he said.
Mr Muradzikwa is, therefore, advising Government to embrace various financing options to help free up resources that can be used to improve public service delivery and social welfare.
He believes that to alleviate the liquidity crunch currently being faced by firms that are owed value added tax (VAT) refunds, there is need for Government to establish a temporary reserve fund to pay claims mostly, for exporting companies, while audits are ongoing to ease the financial crisis.
Mr Muradzikwa is positive that this will serve as a fiscal stimulus for the private sector to bring corresponding tax revenue that the country considerably needs at the moment.
Indeed, there is no doubt that budget overruns were worryingly high in the first half of 2018 and ZIPAR public finance unit research fellow Shebo Nalishebo feels that the overspending experienced in the period under review are due to huge capital expenditure.
Mr Nalishebo explains that with subdued economic growth, it is difficult for a country to collect enough money from domestic revenues to fund the budget.
He feels that increased borrowing has raised the debt servicing costs and is limiting Zambia’s capacity to respond to future shocks and pay for other critical spending such as health, education, social benefits and empowerment programmes.
To finance the deficit, Government borrowed K4.7 billion domestically (43 percent of approved budget line) and K8.5 billion externally (142 percent of approved budget line).
Mr Nalishebo said this violates the medium-term debt strategy (MTDS) for 2017-2019, which prioritises domestic borrowing and further reflects the challenges of implementation of the plan.
“Zambia has effectively added US$1.3 billion to the stock of public liability in the first half of the year. Increased credit translates into higher debt servicing costs, leading to crowding out other spending, including the social sector,” he said.
In the first half of this year, Government projected to spend K6,659 million on debt servicing, but there was an out-turn of K9,070 million hence a budget of K14,141 million was approved.
This represents 64 percent spending on debt.
Mr Nalishebo observed that the huge investment in building infrastructure countrywide has forced Government to look for external funding to finance the various projects due to limited domestic resources.
“This has made Government shift from concessional low-interest long-maturity borrowing to the more expensive and shorter maturity semi-and non-concessional borrowing, thereby increasing the servicing of liabilities, which are taking up an increasingly sizeable part of the limited resources.
“As a result, the share of capital spending, interest and principal payments on debt has been on the increase. Capital spending is not generating the needed economic growth yet,” he added.
For Zambia to register any tangible economic development, there is need for Government to continue to ‘walk the talk’.
ESTHER MSETEKA, Lusaka