Government will fail to deliver on its promise of fiscal consolidation in the 2019 national budget next year because expenditure will far exceed revenue mobilization, says the Centre for Trade Policy and Development (CTPD).
In a statement, CTPD executive director Isaac Mwaipopo stated that expenditure in next year’s K86.8 billion budget will be excessive and outweigh the government’s revenue mobilization efforts.
Ahead of the full release of a 2019 national budget analysis, Mwaipopo argued in an executive summary that government will overshoot its expenditure in the targeted areas of next year’s budget compared to revenue generated.
“In light of the analysis above and findings of this paper, CTPD is of the considered view that the 2019 national budget will not deliver on fiscal consolidation as fiscal consolidation is achieved when government increases resource mobilization while reducing government expenditure. In light of the analysis above and findings of this paper, CTPD is of the considered view that the 2019 national budget will not deliver on fiscal consolidation as fiscal consolidation is achieved when government increases resource mobilization, while reducing government expenditure. Firstly, in the 2019 budget, the total budget allocation was set at K86.8 billion against a target of K75.3 billion in the 2019-2021 MTEF (Medium-Term Expenditure Framework). This means expenditure is expected to be above the projected by over 15 per cent. This raises questions on commitment towards fiscal consolidation on the expenditure side,” Mwaipopo stated in the summary released, Tuesday.
“Secondly, the fiscal deficit is expected to widen since the macroeconomic target has been relaxed from 6.1 per cent of GDP in the 2018 budget to 7.4 per cent of GDP in the 2019 budget. A widening fiscal deficit means that fiscal consolidation will remain an illusion. Lastly, government plans to increase total borrowing by 43 per cent, while reducing domestic borrowing and increasing external borrowing. This means interest payments are likely to be higher in 2019 and thus making it more challenging to achieve fiscal consolidation on the expenditure side. Domestic resource mobilization has already been excessive with more taxes levied on the struggling working population.”
He highlighted the government’s proposed increase in defence spending, among others, which is far outweighs other critical social sector areas.
“With regards, budget allocations indicated in the 2019 budget as compared to the 2018 budget allocations, we note the following: there will be a significant increase in budget allocation towards defence (45 per cent), and public order and safety (33.6 per cent) against minimal increases in education (14.8 per cent); health (19 per cent) and economic affairs (19.7 per cent). Furthermore, the 2019 budget proposes to increase debt payment by 66.1 per cent from K14.2 billion in the 2018 budget to K23.6 billion. On account of increased debt payments, there has been a reduction in the budget share of education, health and social protection. The allocation to social protection has been reduced by 5 per cent, while that for environmental protection has been reduced by 8 per cent,” he narrated.
He further appealed to government to consider reducing its budgetary allocations towards areas like defence in favour of increasing social sector spending.
“In light of these, CTPD recommends that government should consider reducing its allocation towards defence, and public order and safety in order to increase allocations towards critical social sectors such as health and education. Furthermore, there is need to relocate resources to social protection since expenditure in this regard impacts the living standards of the poorest in the society. With regards to policy changes in the budget, CTPD recommends that government should promptly reduce the stock of public debt in order to mitigate the risk of debt distress. Furthermore, government should implement measures aimed at reducing debt payments, such as refinancing,” advised Mwaipopo.
The CTPD’s full 2019 budget analysis is dubbed: “Writing on the Wall: The illusion of fiscal consolidation in the presence of growing Public Debt.”
The 2019 national budget, which is still being debated until its enactment in Parliament, was delivered by Finance Minister Margaret Mwanakatwe on September 28 under the theme: “delivering fiscal consolidation for sustainable and inclusive growth.”