Deloitte & Touche also questions PF 2016 budget

‘The now unavoidable increase in external debt-service costs may crowd out expenditure on social infrastructure and services in the 2016 budget,’ says Deloitte & Touche.

Commenting on the 2016 budget, Deloitte said ‘It is not clear from data provided in the 2016 budget speech whether government will reduce growth in consumption expenditure, particularly whether it intends to limit growth in the public sector wage bill (salaries and wages), as advised by agencies and the IMF.

Deloitte explained that the fall in the Kwacha will significantly increase Zambia’s debt service costs (foreign-currency denominated debt) while on the revenue side falling copper prices and output is having a negative impact on Government’s tax receipts.’

And Deloitte says despite 45% depreciation in the Kwacha, the Government intends in its 2016 budget to increase foreign financing (borrowing) by 92% on 2015 levels to K7.9 billion in 2016. But Finance minister Alexander Chikwanda concealed this fact in the following words “focus on accessing external financing with lower interest rates and longer repayment periods”.

Deloitte emphasised said Zambia’s economic challenges have been reflected in a dramatic depreciation in the Zambian Kwacha, which has lost 45% of its value against the U.S. dollar in 2015 Impacting the expenditure side of the budget.

And Deloitte has accused the PF government of exaggerating revenue it expects to collect locally. ‘Government forecasts a K7 billion or 20% increase in total domestic revenue collections. This is expected to come mostly from 206%, K7.9 billion increase in nontax revenues. We note that this is slightly overstated as the K2.9 billion of mineral royalties were reallocated from tax to non-tax revenues in 2016. Without them a 130% or K5.0 billion increase in non-tax revenues (feel, fines and exceptional) is anticipated,’ Deloitte said.

Deloitte further said contrary to what Finance minister Alexander Chikwanda said in parliament, total` budget expenditure will increase.

‘To this end, the Minister notes that, “Government has drastically reduced allocations for non-core recurrent allocations by more than 50% and has taken measures to enhance domestic revenue mobilisation, consequently, the fiscal deficit in 2016 is projected to reduce to 3.8%

of GDP.”

‘However it appears from our analysis of proposed budget expenditure below, that despite cuts in certain areas, total expenditure will still increase by 14% year on year in Kwacha terms as a rise in debt service costs and the election budget outweigh spending cuts in other areas. ‘It is not clear from the 2016 budget speech, which expenditure items constitute the ‘non-core recurrent allocations’ that have been reduced by more than 50%.

See Deloitee & Touche’s 2016 budge analysis here Zambia Budget 2016_DT

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