FORMER Finance Minister Felix Mutati says the entire 2020 budget needs to be re-worked to provide clarity to the nation regrading what is achievable this year given the huge expected government revenue shortfall amid COVID-19.
And Mutati has urged Finance Minister Dr Bwalya Ng’andu to remain resolute during the novel Coronavirus induced turbulence.
In an interview at his Kabulonga residence in Lusaka, Mutati observed that this year’s budget needed to be scrapped, adjusted and sent back to Parliament for scrutiny and approval.
It is estimated that the budgeted revenue will fall short of target by at least K14.8 billion or 19.7 per cent of the approved 2020 budget following a severe contraction of Zambia’s economy this year, according to Ministry of Finance data.
“The 2020 budget, the assumption on which it was founded, are no longer attainable and they are not attainable for a number of reasons, but mainly the economic fundamentals have shifted significantly as a result of the COVID-19. When the budget was being constructed, there were certain fundamental assumptions that the Minister had. Assumptions regarding the growth of the economy, the exchange rate of the economy and also the tax collection. Now, he already indicated that 19.7 per cent of the revenue that was projected to be collected in 2020 is no longer attainable. The best way going forward is for the Minister to re-work out the entire 2020 budget so as to provide clarity to the nation regarding what is achievable in 2020. Once this budget has been reworked, it can then be sent to Parliament,” Mutati said.
“It is not the reduction in revenue alone, which is at issue, beyond the reduction in revenue. There was, for example, the exchange rate that was assumed sitting in 2019, but the movement of the exchange rate has been so significant that it has impacted on the level of debt servicing. So, the amount that he (Dr Ng’andu) may have provided for the purpose of debt servicing in 2020, that has already gone up by whatever number that is. He almost must have assumed that inflation would have single digits, but that inflation is now double digits. So, all those reasons point to on effect that the budget must be re-done.”
He, however, said there was no need for members of parliament to meet physically, but to take advantage of the use of technology and reconvene sittings digitally.
“The opportunity COVID-19 has provided us is the ability for us to do things in a different way. Our colleagues in the America, the approval for additional funding was done by virtual conversation. There is sufficient technology that can be implored for us to undertake that particular exercise. This is the time we should stretch ourselves and say, ‘we need to achieve the results under difficult circumstances, we need a budget under difficult circumstances’,” he said.
And Mutati urged Dr Ng’andu to remain resolute during the current turbulent period.
“We are going through difficult and hard times, and we want to call upon the Minister of Finance to remain resolute and so far he is taking some steps that are providing direction through his statement,” Mutati said.
When asked if he believed that the ruling PF had the ability to rein in public spending ahead of next year’s general election, Mutati observed that government had no resources to begin with.
“Unfortunately, the situation that we have got is that the circumstances have changed significantly from our ability to generate revenue, which has shrunk a lot so the space for expenditure has also contracted such that even if they had appetite to spend, there is nothing to spend. You may want to have an expansionary stance, but if you don’t have the money in your pocket, it doesn’t matter what you wish for. So, the non-availability of resources will be an expenditure limiting proposition. So, you will find that some of the budget lines for 2020, or even 2021, will be purely underfunded because of shortage of revenue rather than control. So, you have propensity to spend the desire for all these things you can have the wish, but you won’t have the resource. So, there are elections, they want to spend whatever they want to spend, but then, the money is not there so the basic principle is that you can’t spend what you don’t have,” he responded.
Mutati, who is also a former Works and Supply Minister in President Edgar Lungu’s Cabinet, said the K10 billion stimulus package for the Small and Medium Enterprises was a welcome initiative.
“It is a welcome position to support the SMEs. What still remains unclear to me are the terms and conditions under which this money will be provided. But much more important are the collateral arrangements that will be asked of the SMEs to provide and this could be the biggest limitations in terms of access. So, you have money in a pot then you give me these conditions; in particular, collateral and then I cannot fulfill your collateral. So, it doesn’t matter how much you have put in there. The only thing I can ask is that there must be flexibility in terms of collateral arrangements, particularly from the small and medium-sized business, who have already been stretched providing collateral for earlier facilities because as it is, they have already given a house what else have they got? The majority of them have nothing else to offer so the business survival plan for the private sector should be the instrument that will be used for collateral,” said Mutati.