Presidential speech ‘torn’ apart

Presidential speech ‘torn’ apart

By Alexander Nkosi (Development Economist)

ECONOMIC FOCUS:

The President explained that due to COVID 19, revenue has gone down by K20.8b. What does this mean? It means that domestic revenue which was K72b now stands at K51.2b. If our 2020 budget still stands at K106b then domestic revenue only constitutes 48% of the total budget and 52% (K54.8b) should be financed through borrowing.

The President further highlighted that because of kwacha depreciation debt repayment has gone up by K8.7b. What does this mean? Note that allocation to debt service stood at K33b in 2020 budget so the figure has gone up to K41.7b. With domestic revenue of K51.2b a total of K41.7 b will go to debt service leaving only K9.5b and this is before we add the wage bill. The wage bill is above K20b. So our domestic budget is now not sufficient to cover debt service and the wage bill. This simply means that to maintain social service delivery and cover other programmes planned for in 2020, government has to borrow heavily. Depsite our debt being unsustainable and us seeking restructuring we still have to borrow heavily.

The President explained that government is borrowing K8b locally by issuing a COVID 19 bond. This is expected to go towards paying retirees and dismantling arrears. What does this mean? High domestic borrowing crowds out the private sector and interest rates remain high, it will also neutralise efforts being made to increase credit available to the private sector. With the budget crisis explained above it is unlikely government will prioritise paying retirees and dismantling arrears, debt service and wage bill will be prioritised. Note that in the last 6 months of 2019, arrears increased by K6b and by then the economy was better than at present, hencr there is a high possibility that in the first 6 months of 2020 when the economy is worse arrears have also significantly increased. So the issue is not so about releasing bits to dismantle arrears but it is so much about the net change in arrears.

To make matters worse, the President explained that while revenue has gone down by K20.8b, expenditure has gone up by K20b. In short, the less we have less to spend but we have to spend more than planned.

On youth empowerment, even before we talk about capital, there are so many barriers, the biggest one being the state of the economy as analysed above. The small and medium scale enterprises are struggling and a good number are actually closing down, so even if youths accessed capital how do they make it in such a harsh economic environment? The other challenge is that load shedding is getting worse, fuel is expensive and the cost of production is extremely high. In such an environment loan default rates will be extremely high. So it is hard to address the plight of youths without getting the economic fundamentals right.

The other issue is that we have had CEEC, DBZ, Youth Development Fund and Women Empowerment Fund for a long time. These should have grown to a level where they have a huge capital base and support millions of Zambians. The fact that we have had to refinance them from time to time means there is something wrong with the way they operate. So simply asking youths to go and access funds from these institutions will not help. They will still face the same challenges, it is as good as telling them there is no solution.

The K30m available for artists will most likely be treated as grants and not loans given the challenges faced with the Youth Development Fund.

Over 70% of the population directly depends on agriculture. High kwacha depreciation means agricultural inputs in 2020 will be very expensive as they are mostly imported. Worse still government that plays a key role in influencing maize prices through FRA decided to buy a 50kg bag at K110.

In conclusion, youth empowerment and job creation are a result of a good performing economy, a piecemeal approach will not work. We need a holistic approach, let’s get the economic fundamentals right and the subsequent flourishing private sector and economic growth will create jobs and other economic opportunities for youths and all Zambians.

Thank you.🙏

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