Honourable Dr. Situmbeko Musokotwane, MP, Minister of Finance and National Planning, presented the national budget for 2022 to the National Assembly on October 29, 2021.
With the theme “Growth, Jobs, and Bringing Development Closer to the People,” the Minister announced a K173.0 billion budget. As expected, the budget is greatly influenced by changes in the political landscape, as indicated by the new dawn government’s reiteration of its policy agenda.
The government expects to expand support for social sectors and social protection programs in this budget, bringing resources closer to people to improve service delivery and include residents in decision-making. To that purpose, the Government has increased the Constituency Development Fund (CDF) per constituency from ZMW 1.6 million to ZMW 25.7 million.
The Minister indicated that the economy is steadily recovering from the adverse effects of the COVID-19 pandemic. Overall, the economy is projected to grow at 3.3 percent in 2021 against a contraction of 2.8 percent in 2020.
2022 budget objectives:
• Attain a real GDP growth rate of at least 3.5 percent.
• Reduce inflation to single digits by end of 2022 and within the target band of 6-8 percent by
mid-2023.
• Limit international reserves to at least 3 months of import cover
• Increase domestic revenue to not less than 21.0 percent of GDP
• Reduce the fiscal deficit to no more than 6.7 percent of GDP
• Limit domestic borrowing to no more than 5.2 percent of GDP
• Government proposes expenditure of ZMW 172.8 billion in 2022
• Government expects to raise a total of ZMW 172.8 billion in revenues from the following
sources:
• Tax revenue – ZMW 77.9 billion
• Non-tax revenue – ZMW 20.7 billion
• Domestic financing – ZMW 24.5 billion
• Foreign financing and grants – ZMW 49.7 billion
• The composition of the sources of the revenue measures are 57% from domestic revenue
and 14% through financing. The remaining 29% will be raised through foreign financing and
grants.
In a speech made by the minister of finance during the availing of the 2022 budget, he noted the challenges currently being faced by the energy sector especially the electricity sub-sector, tariffs are not cost reflective hence the low private sector investment. In the electricity sub-sector, ZESCO controls over 75 percent of installed generation capacity, transmission and distribution network in Zambia. Other key players include; Independent Power Producers (IPPs), Copperbelt Energy Corporation (CEC) and North- Western Energy Corporation (NWEC), this is according to the ERB Energy sector Report of 2020.
Zambia has a hydro power potential of approximately 6,000 megawatts. Regrettably, the country only has an installed capacity of roughly 1,788 MW, which is less than a third of its potential. Which has contributed to the country’s electricity imbalance. To help fix these inefficiencies, government plans to introduce cost reflective tariffs.
A cost reflective tariff reflects the genuine cost of supplying power and eliminates the need for State Government subsidies to offset the difference between the present price and the true cost of supplying electricity. This means that money currently used to subsidize electricity can be diverted to infrastructure investment, allowing for increased generation and thus more reliable power supply for businesses and homes, which inevitably results in increased economic activity and thus additional revenue for the country.
He added that the government will launch a Renewable Energy Investment Plan to improve the energy mix. This will lessen our vulnerability to climatic shocks by utilizing our large solar, wind, and geothermal energy resources.
To boost renewable energy, the government plans to abolish the 15% and 25% customs duties on solar street lights and solar charge control devices, respectively. The VAT has also been zero rated on the same items.
Zambia has an average 2,000 to 3,000 hours of sunshine per year and an average irradiation of 5.5 kilowatt-hours per square meter per day.
Zambia’s shift to solar is not new, but the hydro power issue i.e low water levels, has accelerated it.
For the first time, Zambia is implementing the Scaling Solar program, which combines World Bank Group services to develop solar energy markets.
A new solar plant in Lusaka’s Multi-Facility Economic Zone was opened by former President Edgar Chagwa Lungu in 2019. The 54-MW facility would power 30,000 homes and businesses.
“The Scaling Solar Project will make Zambia save significant amounts of money in the long run,” said Ina Ruthenberg, World Bank Country Manager for Zambia. “For a 54-megawatt project over a 25-year concession period, it equates to a saving of almost $140 million.”
The government and investors haven’t shown much interest in wind and geothermal energy sources in the past , but recently Kalahari Geo Energy announced an estimated capacity of 5 to 7 MW to be contributed to the national grid from the shallow outflow reservoir of the Bweengwa River Geothermal Resource Area in Zambia. An additional 10 to 12 MWs is expected from the other exploration sites in the same area.
For wind energy, An independent power producer (IPP) registered in Zambia, has recently launched studies to prepare for the construction of its Unika wind farm in the Katete district in the east of the country. With the support of the Zambian government, Mphepo power is now launching studies to determine wind speed more accurately, and thus better assess the site’s electricity production potential. Mphepo Power hopes to begin construction of the Unika wind turbines in the first quarter of 2021. These wind-powered turbines, equipped with blades, will be able to produce 200 MW. This electricity will be fed into the grid of the state-owned Zambia Electricity Supply Corporation (ZESCO). Since this announcement in 2019, no news of works beginning has been shared to the public during the writing of this article.
The budget comes as no surprise, as it is a personification of the UPND manifesto in regards to policy behind the budget figures.