October 2015 Events and all that: Part 1 - 2016 budgets

I didn’t put up anything on my blog the entire month of October and the reason is simply that I don’t want to make this blogsite one dimensional – and definitely not in the dimension of always discussing politics. It’s not a good direction and I will try not to move in that direction.

However, current events in the country make it difficult for politics and everything related to it to stay away from my mind. This blog site was born for me to speak what’s on my mind at all times and hey, here is what has been on my mind which I tried to shelve away without blogging throughout October. I will start with the budget presentation to parliament by Finance minister Alexander Chikwanda on 9^th October 2015 for the reason that it is the least political;

Part I: 2016 Budget Speech:

The theme of the 2016 national budget is; Fiscal consolidation to safeguard our past achievements and secure a prosperous future for all. The budget presented to parliament by finance minister Alexander B. Chikwanda indicates that the Zambian government proposes to spend K53.14 billion financed by domestic revenue and grants from donors. K42.11 billion of this will be from domestic revenue and K550 million kwacha grants from donors.

2016 will represent a 13.8% budgetary increase from K46.7 billion in 2015. The K53.14 billion represents 25.8% of Gross Domestic Product (GDP).

Macroeconomic objectives for 2016 include:

·         Achieve annual real GDP growth rate of 5.0%.

·         Increase domestic revenue mobilisation to at least 20.4% of GDP, from 18.1% of GDP projected in 2015.

·         Reduce budget deficit to 3.8% of GDP, from 6.9% of GDP projected in 2015.

·         Limit domestic borrowing to 1.2% of GDP.

·         Maintain single digit inflation at no more than 7.7%.

·         Accelerate the diversification of the economy, particularly towards tourism, energy, agriculture and agro processing.

·         Maintain international reserves at no less than 4 months of imports cover.

·         Create employment opportunities through accelerated implementation of programmes such as the industrialisation and job creation strategy and the youth empowerment action plan.

Debt policy:

•  Significantly limit domestic borrowing
• Focus on accessing external financing with lower interest rates and loner repayment periods.
• Strengthen project appraisal system processes so as to ensure that borrowing is directed to projects with high returns.
• Establish a sinking fund for the purpose of redeeming the euro bonds issued in the international capital market.

Fiscal policy:

• Fiscal deficit in 2016 projected to reduce to 3.8% of GDP.
• Consolidate fiscal position so that Government expenditure is primarily financed from domestic revenue.
• Reduced allocations for non-core recurrent allocations by more than 50%.
• Put measure to enhance domestic revenue mobilisation.
• Engage private sector in identifying and appraising projects which are commercially viable in order to attract private financing.

Public Financial Management:

• Planning and budgeting bill aimed at integrating planning and budgeting will be presented to parliament.
• Public finance act being reviewed to foster and improve accountability and transparency in the management of public resources.
• Implementation of the pilot output based budget underway.
• Commenced the operationalization of the Treasury Single Account to enhance cash management.

My view… my thoughts…

Usually I have to read through the budget speech at the very least four times before I voice out any opinion on its content. I have also made it a point in recent years (last two years to be specific) to dedicate a blog post gauging the budget speech and vetting out my expectations as well as pointing out the significant changes to the previous budget. Usually these posts will be put up on the blog in January when implementation of 99% of the pronouncements from the speech in parliament take effect.

This blogpost however, will not wait for January 2016 or even the end of March when the first quarter of the budgetary cycle comes to an end. I say so because I feel finance minister Chikwanda made one serious mistake in his budget presentation speech – he omitted the word austerity measures.

Looking at the budget deficit of 6.9% projected in 2015 and I presume between 8-10% will be achieved by the time the year ends, the government needed to be tough on expenditure for the 2016 term. This will mean no unnecessary costly travels abroad and within the country for government officials starting with the president and his ministers all the way through the permanent secretaries and all his technocrats. The 3.8% budget deficit projection is still a big ask and I doubt Mr Chikwanda will achieve that in 2016.

The major omission in Mr Chikwanda’s address remains the policy direction towards austerity measures especially in government spending. The free fall of the kwacha in 2015 has made the repayments on the domestic and foreign debts acquired, a lot more expensive than would have been to service had the currency been stable. This will create more pressure on the economy, coupled with rising cost of commodities. For this reason, the projected annual inflation target of 7.7% is likely not to be achievable. Inflation in 2016 will most likely hit double digits instead.

These are the realities which I believe Mr Chikwanda should have prepared the nation for in 2016. The power deficit that the country is currently experiencing will also affect revenue collection for the treasury owing to the fact that most companies are not operating at 100% and with the low capacity utilisation will come a loss of benefits of economies of scale and consequent reduction in revenue and profits. Reduction in production volumes will directly lead to a reduction in revenue from taxes like VAT and Excise duty on items like clear beer and others. 

My take on Mr Chikwanda’s speech is that he needed to spell out to the nation that 2016 will be a year where the ministry of finance will with help from the auditor general’s office implement and police serious austerity measures. He needed to tell the nation that government controlling officers would ensure that only important trips would be undertaken by government workers. He needed to spell out that there would be no travelling to Siavonga or Livingstone for a workshop to discuss how the 2016 budget for each ministry and department would be spent – when funding is availed.

This would have spurred a similar trickle-down effect on our individual homes to realise that we need to cut on spending, times will not be the same in 2016. This is not the broken record of ‘boma itiyanganepo’, but I do believe a government has the responsibility to guide, inspire and change the direction of a nation that is in distress. History is not short of examples of charismatic leaders who stood up and got counted when their nation was depressed. Franklin D Roosevelt’s first Inaugural Speech on March 4, 1933 when the American economy was in deep trouble comes to mind.

I know for sure that the Zambian government has many highly qualified and experienced technocrats to guide the politicians. Unfortunately some of these politicians are too arrogant to listen to wise counsel so they dig a deep grave of economic turmoil which unfortunately affects the ordinary citizens more. To start with, the government was warned against excessive borrowing and excessive expenditure which was not matched by ZRA revenue collections. In addition, the government has been advised against excessive travel for ministers in and outside the country. The results of this are simple and deadly – budget deficits which are followed by more borrowing. This borrowing for consumption is not in any way sustainable.

There is no need to get a Eurobond to finance a budget deficit. Why not just cut expenditure to ensure no deficit is created in the first place? How will we finance our budget in 2017 since our credit worthiness is moving towards negative? What will we do in 2022 when we have to start paying back the euro bonds? For me Mr Chikwanda really missed the opportunity when he omitted the word austerity in his budget speech. He needed to start preparing the nation for hard times of sacrifice. The trade unions needed to prepare themselves and their members that 2016 would not see any major salary increments.

I know he has spoken on a few forums where he says ministers need to avoid unnecessary travels. This at least is what we expect. It just needs to be much louder and pronounced all the time and proof of implementation of these pronouncements should be seen. The minister may have deliberately or by error, omitted the word austerity in his budget speech, but this is what Zambia will need in 2016 starting from household level all the way to the national level.

Make no mistake, 2016 will be a difficulty year. Prudent financial management will be key in making sure that we sail through the storm that 2016 promises to be. It will be a year to tighten belts at individual, community, and national levels.

Since this post has taken close to two months from the day it was written to the day it was posted, a lot of things may have changed. One notable change was the press conference held by President Edgar Lungu at which he outlined the economic path for the country and pronounced a number of measures for cutting down government expenditure. However I decided to still go ahead and post this blog because so far, the actions taken do not correlate to the pronouncements made at that press conference. As the late renowned soccer commentator Dennis Liwewe would say, “let us wait and see.”