Former Finance Minister Ng’andu Magande says the recently-approved supplementary budget may have an adverse impact on the economy if government intends on raising taxes to finance it.
And Magande has observed that Zambia’s current economic situation has delayed the prospect of the country securing an International Monetary Fund (IMF) economic bailout package.
Asked whether he felt the approved supplementary budget would have a positive impact on the economy, Magande who attempted to succeed Levy Mwanawasa before the Rupiah Banda controlled MMD turned against him, said:
“It depends on whether the austerity measures have already worked that they have a surplus that they can apply to the supplementary budget. But if they don’t have, and are hoping to go and borrow or perhaps raise it on taxes, it’s going to obviously have an impact on the economy,” Magande told News Diggers! in an interview.
“You are just increasing now the printing of the money when the goods are not there; so, that causes inflation. And inflation, therefore, slows down business because consumption is curtailed, and consumption not only on expendables, but even of materials for industries and so on. So, there is a correlation, and there could be an effect if that supplementary [budget] is going to be financed by a deficit again.”
He also expressed concern on the fiscal deficit recorded at around K5 billion by end of June, and feared this could further widen by the end of the year.
“I think if the deficit is already around K5 [billion], then, definitely, we are still talking about very large numbers. So, everything is really not going the way one expects to say, ‘in the immediate future, we are going to balance the budget.’ That is why some of us are saying, go to the cheaper creditor, get cheaper money and then try to close up the gaps that are basically of priority,” he said.
“But if you don’t do that, then where do you go to raise the money to cover up your supplementary budget?”
And Magande observed that Zambia’s economic situation with huge recurring expenditure has prolonged the country’s proposed IMF bailout package.
He noted that the Zambian government has been unable to meet the Fund’s conditionality’s hence the ongoing delay at clinching the much-needed US $1.3 billion for the country’s balance of payments support.
“Normally, the IMF would want to give this money on conditions. So, it’s those conditions that IMF will impose on us, which will have to say either no or yes. But if we say no, then it means we are saying we don’t want to go along with you, which is what we are hearing. Obviously, when someone who has got money and wants to give you, you say ‘no,’ there is nothing else they can do. So, it is actually, the current state of our financial system; how does that match with the conditions that the IMF might impose? Clearly, it is a question of what are those conditions, which government cannot accommodate in order to get this bailout,” said Magande.
Last month, Parliament approved reallocating K7.2 billion, roughly US $721 million, in a supplementary budget.
About K7 billion is envisaged to come from reallocating resources and the remainder from “cooperating partners” and carry-over funds from the 2017 financial year, according to Finance Minister Margaret Mwanakatwe’s statement to lawmakers.
Out of the total, K3.6 billion is for domestic and external debt obligations, K1.3 billion to be spent on completing infrastructure projects and K2.3 billion expected to cover shortfalls on government-support programmes, by-elections and the recruitment of a further 3,700 medical personnel.
The approved supplementary budget was in addition to this year’s K71.6 billion budget.
Government has already exceeded its threshold for the first half of 2018 by K5 billion owing to huge interest payments and capital expenditure, according to Mwanakatwe.