Budgeting is one of the most important aspects of financial prudence. When properly implemented, it promotes financial discipline as spending is based on what is available and what is necessary. Due to these reasons, nations, corporations, and individuals need to plan how much they spend based on how much they raise.
Each budget has a revenue part and an expenditure part. The revenue part states how much is available or just a projection of how much will be available for spending and how it will be raised. On the other hand, the expenditure part shows where the money will be spent.
On a national level, the respective governments do the planning on behalf of their general citizenry and the citizenry is informed through parliament presentations. In Zambia, this is done every September of each preceding year, by the Ministry of Finance. The 2021 budget is scheduled to be presented on the 25th September 2020.
Now before we move on to the 2021 national budget, there is a need to look at how the 2020 national budget has performed so far and to check how 2020 budget was been affected by Covid-19.
In September 2019, the government of the republic of Zambia through the Minister of Finance, proposed a K106 billion budget expenditure, for the year 2020. This was an increase, in nominal terms, of K19.2 billion from the K86.8 billion proposed expenditure for the 2019 fiscal year. When looking at how the 2020 budget has performed, we are going to examine what it intended to achieve or to put it simply, what its objectives were.
The minister of finance, Dr. Bwalya N’gandu, stated the following as objectives of the 2020 national budget; achieving and maintaining an average inflation rate between 6% – 8%, getting real GDP growth rate of at least 3%, reducing the fiscal deficit to 5.5% of GDP and increasing domestic revenue mobilization to at least 22% of GDP.
Inflation Rate
Zambia recorded a 0.3% drop in the annual rate of inflation from 15.8% to 15.5% for the month of August 2020. However, the average rate of inflation still remains above the budget’s targeted range and in double digits. Official 2020 published data from the Central Statistics Office shows that Zambia’s average rate of inflation is 13.4% which is 5.4% above the upper bound of the target range.
It is this inflation rate that has contributed to a steep fall in the country’s currency for the year under review. As of the end of August 2020, Kwacha was trading at K19.51 per US Dollar. Compared to August 2019, that is an increase of K6.48. Looking at the country’s current challenges such low reserves and global pandemic which has affected many economies, it is very unlikely that the target range of 6% – 8% will be achieved this year. The central bank itself has indicated that it will take another year and half before inflation begins to decelerate towards the targeted bound. Therefore, inflation rate is likely to remain in the double digits for the tenure of the coming budget.
Real GDP growth Rate
Zambia’s economy was like a vehicle going down a hill and when Covid-19 came, it was more of an added push to the wheels that had already started rolling. The currency was losing value against major foreign currencies; it depreciated by 9.4%, inflation rate could not be kept within the target range of 6% – 8% as it rose to 9.3% by the end of august 2019.
And then Covid-19 came! In the words of world’s leading economists, “Covid-19 decimated demands, created supply bottle necks, shut down production and consequently creating high levels of unemployment.”
It is definitely obvious that, Zambia, achieving a real GDP growth rate of at least 3% is a bit farfetched this year. Institutions such as the IMF projects a GDP contraction of -5% other data such as those from Focus Economics panelist shows that it will contract by -3.4%. Perhaps the coming addition to the nation’s power generation capacity, as announced by the republican president, might actually add some life to the economy, in 2021. However, it being an election year, 2021 might still be an economically challenging year too.
Increase Domestic Revenue Mobilization
In the 2020 national budget, total domestic revenue represented 67.9% of the total budget and most of it was tax revenue. In the first quarter of 2020, Zambia Revenue Authority (ZRA) through its corporate communications manager, Topsy Sikalinda, announced that they had collected revenue above what they projected. However, Mr. Sikalinda, expressed concern, stating; “it might actually be difficult to collect revenue in the periods that followed, as projected.” It is highly understandable why ZRA felt they might not be able to collect revenue as much as they had anticipated before. Trying to raise tax revenue in this economy that has been dealt badly by covid-19 and as a result not being able to be as productive as it should, is like trying to draw water from a drying well. It is difficult! Therefore, government might find it difficult to increase domestic revenue mobilization to anticipated levels for the year 2020. This is an issue that many economists will be seeking clarity in the coming budget speech.
Reduce Fiscal Deficit
Fiscal deficit occurs when the expenditure part of the budget exceeds the revenue part. It is usually normal practice to anticipate a deficit, as such there is usually a projected percentage of which expenditure might exceed revenue. During the 2020 national budget, the ministry of finance set to only have a deficit of 5.5% of GDP. Given that the year 2019, which did not have challenges such as covid-19 that might necessitate emergency or unplanned expenditure, had a deficit of 6.5% of GDP, 2020 might actually have something more. Even national secretary for EAZ, Mr. Mutisunge Zulu, in his recent publication pointed out that data suggest that the deficit this year might be greater than what was being aimed at by the national budget.