ZAMBIA: 2014 BUDGET REVIEW

 

BY JAMES MUYANWA

THE 2014 National Budget underscores the need to balance between augmenting expenditure towards programmes directly benefiting the people on one hand and adhering to fiscal discipline on the other.

Coming against the backdrop of the expected bigger fiscal deficit of 8.5 per cent for 2013, the 2014 budget is a mitigation of this year’s economic performance.

In the main it is a full embodiment of Patriotic Front (PF)’s economic belief which is, however, pressured by various distressing circumstances including the poor harvest of most crops including the staple food, maize, in the 2012/13 farming.

Another inflationary pressure comes from the payment of the subsidy on fuel which occurred before the provision was removed in May 2013.

Through the 2014 National Budget which was unveiled by Finance Minister Alexander Chikwanda last Friday, the government targets to achieve real Gross Domestic Product (GDP) growth rate of above seven per cent.

The GDP growth is expected to close this year at six per cent from seven in 2012 which was the initial projection under the 2013 budget.

As already pointed out that target for 2013 will not be achieved mainly because of the drop in agricultural output and the seven-per cent fall in the prices of copper on the international market.

The most consistent feature of the budget by the PF is the job creation target and next year, just like last year, the government aims at creating at least 200,000 jobs.

About 58,000 new ones were created in first three quarters of 2013 and it would be interesting to get the final result as to how many jobs will have been created this year by December 31 2013.

The government, however, indicates that the 58,000 are only those engaged in the formal sector and do not reflect those created in the economy as a whole.

On inflation which, currently stands at seven per cent, the 2014 budget projects to bring down the figure to not more than 6.5 per cent. This is an upward adjustment of the target from not less than six per cent projected for this year.

Internationally, the government aims at increasing the international reserves to more than three months of import cover.

It currently stands at US$2.7 billion which is $200 million more than last year’s and translates into three months import cover.

Another important target is the maintenance of the fiscally sustainable public external debt which limits the amount of serving and paying off to 30 per cent of the GDP.

The government’s external debts stood at a staggering $3.13 billion as at end of last month up from $3.08 billion by end of September 2012.

To be able to achieve most these targets the government proposes to increase domestic revenue collection to more than 21 per cent of the GDP.

This is critical, considering that nearly K30 billion of the almost K43 total budget will be domestic revenue with grant only amounting to K2.63 billion of the total resource basket.

To cap it all on the 2014 macro-economic targets, the government proposes to limit domestic borrowing - currently standing at K18.52 billion - to 2.5 per cent of the GDP and contain overall deficit of the budget to not more than 6.6 per cent of the GDP.

That is a tall order considering that in this financial year, the deficit which was planned at 4.3 per cent of the GDP ballooned to 8.5 per cent as already indicated.

In terms of sectors the country recorded mixed results in this farming season in terms of crop and livestock production.

The situation was compounded by the outbreak of the army worms at the time of planting and lower than normal rainfall in the southern part of the country, resulting in the drop in maize output.

Last year’s lower prices of cotton frustrated the farmers, resulting in major decline in its production.

The country, however, posted higher production in burley tobacco, soya beans, wheat and sunflower as well as in the livestock sub-sector.

The number of heads of cattle in the country has grown by 10 per cent reaching almost four million while poultry rose by 18 per cent to over 92 million.

In 2014 the government envisages diversification of the sector.

“It is Government’s desire to see the agriculture sector grow to its full potential with our many small-scale farmers graduating to become prosperous medium to large scale producers.

“To this end, Government will continue constructing multi-purpose dams and irrigation schemes to limit dependence on rain-fed agriculture,” Mr Chikwanda says.

It will next year continue revamping the Nitrogen Chemicals of Zambia (NCZ) plant to extend the operations towards the production Urea and ultimately localise fertiliser production.

For tourism, which is another priority sector, the main highlight under the 2013 budget was the co-hosting of the 20^th session of the United Nations World Tourism Orgasanisation (UNWTO) general assembly.

 To ensure successful hosting the government had provided targeted tax incentives for the tourism sector.

In 2014, it will continue building on the raised international profile, through  the promotion of product diversification and further investment in facilities.  

The aim is to diversify the tourism base by improving accessibility to national parks, heritage sites and natural attractions.

Streamlining of licensing procedures and enhancement of capacity in the hospitality industry will be scaled up.

The Government says it is committed to developing the creative arts industry and the hologram to protect income rights of musicians and film makers has been established aready.

In 2014, Government will complete works on national film policy.

In the manufacturing sector the promotion of diversification will be doubled up especially for products with export market potential.

This will be done through the speeding up of the development of the Multi-Facility Economic Zones (MFEZs).

Measures to enhance the facilitation of value addition in manufacturing with a view to exploiting regional and international export markets as well as creating more jobs for our youths will be intensified.

For mining, copper production in the country increased by 13.2 per cent in the first half of this year despite the seven-per cent fall in the prices of the commodity on the international market.

This is attributable to improved mining production techniques, the opening of Lubambe Mine and the scaling up of production at Mulyashi Copper Mine.

The government is, however, wary of the fraudulent reporting by some mines indicating that the trend will not be tolerated anymore because the country needs to benefit more from the sector in terms of income through appropriate tax.

In 2014, the Government will continue to implement the Link Zambia 8000 programme and work is progressing well on over 1,500 kilometres of roads.

The programme is expected to promote development of local contracting capacity and create 24,000 jobs throughout the country.

Then there is the Pave Zambia 2000 programme which was launched last month.

The Government further plans to rehabilitate over 1,300 kilometres of the core feeder road network in the country to open up the rural areas.

For energy, the Government will continue working with the private sector to increase installed electricity generation capacity and improve the transmission infrastructure.

Projects include the extension of the Kariba North Bank Power Station which will add 360 megawatts of hydro power to the installed capacity.

By the end of this year, 180 megawatts will be added and the balance will come on stream in 2014.

In addition, the Ndola Energy heavy fuel generating project is nearing completion and will contribute 50 megawatts by the end of this year.

With respect to Itezhi tezhi, the government had secured financing and works have progressed, while for the Kafue Gorge Lower power station, the tender process to engage a strategic equity partner is in progress.

Itezhi-tezhi is expected to come on stream in 2015 with 120 megawatts.

The Kafue Gorge Lower power station with the capacity of 750 megawatts is expected to come on stream in 2019.

“To support these investments, Government will continue with its policy of attaining cost reflective electricity tariffs while ensuring efficient service delivery.

For fuel, two provincial fuel depots will be completed this year and the third one in 2014, with subsequent installations in other provinces.

While efforts to upgrade Indeni Oil Refinery will continue in 2014, Government will also explore other options including construction of a new refinery with ample capacity to meet the ever-increasing demand of the economy.

In coming up with the 2014 Budget, the government has managed to attain some semblance of the balance between the needs of the social sector and those intended to spur economic growth.