Zambia’s $515 Million Mystery Revenue Raises Budget Questions

Zambia’s $515 Million Mystery Revenue Raises Budget Questions

By Taonga Clifford Mitimingi and Matthew Hill (Bloomberg)

Zambian Finance Minister Bwalya Ng’andu plans to obtain almost 10% of the southern African nation’s total income next year from undisclosed sources, raising concerns about the accuracy and sustainability of government spending plans for 2020.

The budget, which Ng’andu presented to lawmakers on Sept. 27, contains 6.75 billion kwacha ($515 million) of “exceptional revenue” that could further stretch the finances of Africa’s second-biggest copper producer if it doesn’t materialize. Government debt has surged from 20% of gross domestic product a decade ago to a projected 91.6% this year, prompting the International Monetary Fund to warn that Zambia is at high risk of debt distress.

“There’s a process tagged to this and an announcement will be made as soon as process completion is attained,” a Finance Ministry spokesman said in response to questions about the source of the funds.

“It would be great if the government gave an indication of this exceptional revenue before the budget comes into effect in January to avoid unnecessary speculation,” Lusaka-based economist Chibamba Kanyama said in an emailed response to questions Wednesday. “I think all stakeholders want to ascertain the efficacy of that source so that we are more than guaranteed it will be realized.”

There are other concerns about the budget too. The government forecasts economic growth will slow to 2% this year, as a drought drastically curtails the hydropower generation that Zambia depends on for more than 80% of supply. Farm output has also plunged. Even if economic expansion increases to the government’s 3% target next year, revenues will still be constrained, according to Irmgard Erasmus, an economist at NKC African Economics in Paarl, near Cape Town.

The spending plan “contains some budget targets that are hard to reconcile with the harsh economic reality,” she said in an emailed note. “Too-optimistic budgetary assumptions may result in a funding gap, which will most probably have to be plugged with further accumulation of external debt.”

Zambia plans to spend 106 billion kwacha according to the 2020 budget, a 22% increase from this year. Nearly one-third of that will be financed through domestic and foreign loans and grants. Still, Ng’andu forecasts the budget deficit will narrow to 5.5% of gross domestic product from this year’s target of 6.5%.

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