A peep into the copper briefcase: 2019 national budget

A peep into the copper briefcase: 2019 national budget

By Alexander Nkosi

As she presented the national budget, Hon. Mwanakatwe ensured that the house was awake and attentive. Her energy and command of presentation brought life into the house. There might have been life in the house but was there life in the content of her presentation? Let’s see:

1. Government should be commended for the decision to collect more revenue from mines. Government should stand firm and implement the proposed measures unlike reversing decisions like we have seen in the past. Mining companies are likely to lay off some workers and reduce production in a bid to resist the proposed measures. This might lead to a drop in total revenue collected.

2. The announced penalties related to transfer pricing are welcome. However, government has to ensure there is no corruption in its enforcement. In short government has to fight illegalities in fighting this illegality.

3. Protecting domestic industries is a welcome move. However, this only works if local industries get additional support to increase and improve quality of production. The cost of production has to be low. In the absence of these measures, the now expensive foreign products, arising from increased duty, will still be cheaper and of better quality than local products. In the end, government may get revenue but local companies won’t step up and consumers will bear the burden in form of high prices.

4. The investments in pineapple processing, ruminants value chain support, livestock and aquaculture are welcome developments. However, the levels of investment are too low to have a significant impact on economic diversification. Government should be as aggressive as it is with infrastructural development. Balancing investments is very important.

5. Tax on casinos and lotteries is a welcome move. Gambling is an addiction and government is very sure to get revenue from this. People are unlikely to stop or reduce, they will cut down on other expenses to fund gambling. The impact this will have on family expenditures depends on how widespread gambling is.

6. Reduction in domestic borrowing is commendable but there is a high likelihood that government will reverse this decision and borrow heavily. The prevailing economic environment and negative speculation makes external borrowing very expensive. With a few exceptions, China rarely provides direct budget support. This, coupled with economic pressure may force government into heavy domestic borrowing.

7. The concerns raised over rising debt stock are not out of malice or lack of appreciation of the importance of infrastructural development. Effects are already being felt. Allocation to debt repayment (ZMW 23.6 billion) is more than combined allocations to education and health sectors (ZMW 21.4 billion). The agriculture sector has received four time less (ZMW 5.4 billion). The effect can also be seen by a drop in allocations to infrastructural development, which has been the key driver of debt. With so many incomplete projects, a reduction in infrastructure budget will mean more borrowing. It is also important to note that in the absence of a vibrant export sector, Zambia will continue borrowing which will lead to a higher allocation to debt repayment compared to what key sectors like agriculture, manufacturing, tourism receive. If allocations to sectors that should be driving growth keep reducing then government will keep borrowing. This budget has not done enough to change this pattern.

8. A total allocation to agriculture of ZMW 5.4 billion or $450 million is twice less than what Kenya invested in a fertilizer plant ($1.2 billion). If Zambia wants economic diversification to materialise, the current total agriculture sector budget of ZMW 5.4 billion should be a budget line meant for one activity and the actual agriculture sector budget should be way higher.

9. There has been a reduction in allocations to FISP from ZMW 2.8 billion to ZMW 2 billion and now ZMW 1.4 billion. Ideally, this should be the case as it is unsustainable but the biggest worry is nothing has been done to reduce the cost of inputs on the market. In fact, with kwacha losing against the dollar, prices of inputs are likely to be even way higher.

10. With an allocation of ZMW 672 million to FRA, the maize floor price will remain low. However, very little is being done to promote processing of agricultural produce so as to create a reliable market for farm produce.

In conclusion, these are some of the issues Zambians should reflect on as they debate the 2019 budget. It is also important to note that depreciation of kwacha if unchecked will lead to increase in prices leading to high cost of production for firms and high cost of living for consumers, amidst high taxes. This will impact negatively on the implementation of the budget. I have deliberately left out VAT vs Sales tax debate until I see the details

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