THE Policy Monitoring and Research Centre (PMRC) says the 2020 national budget performed more favourably in the first quarter of the year than expected as domestic financing, grants and revenues were above target by less than a percentage.
But PMRC data shows that 73.5 per cent of government’s total expenditure in the first quarter of this year went to debt servicing and personal emoluments.
And the Centre says the kwacha depreciated at a year-on-year rate of 28.9 per cent against major currency convertibles, reflecting the unresolved macroeconomic challenges associated with high debt servicing, huge debt levels and declining foreign reserves, among others.
According to the PMRC Governance Series 2020 first quarter Governance and Policy Review, Zambia’s budget performance in the first quarter of this year was more favourable than originally anticipated.
“PMRC observes that Zambia’s budget performance for the first quarter of 2020 was favourable than anticipated given the projected negative impact of COVID-19 on both revenue collection and expenditure. It was observed that revenues, grants, and domestic financing totalled K18.1 billion, which was above target by less than a percentage, with the majority of the tax instruments being above target, except for Value Added Tax (VAT). The second quarter was characterized by several challenges amid the COVID-19 fight and it is expected that the budget performance figures for the 2nd quarter may not be favourable. The Minister of Finance (Dr Bwalya Ng’andu) has already hinted that the Treasury has been adversely affected due to several factors and the COVID-19 pandemic. The MoF further estimates revenue reduction of K14.8 billion as a result of the COVID-19. This is further exacerbated by the depreciation of the kwacha and debt repayments, among other factors. Value Added Tax collection of K2.74 billion against a target of K4.04 billion was below by 32 percent,” the report read.
“This is due to the general slowdown in economic activities caused by the COVID-19. Insurance Premium Levy collections amounted to K30.76 million against a target of K38.74 million. Collections were below target by 21 per cent due to decisions by a considerable number of insurance consumers to downgrade their policy preferences from comprehensive to third-party. At K1.89 billion, Customs and Excise Duty collections were above the target of K1.86 billion by two per cent. This was on account of increased imports during the first quarter.”
PMRC noted that income tax collection was above target by 23 per cent in the period under review.
“Revenues, grants, and domestic financing totalled K18.1 billion in the first quarter of 2020. Of this amount, total revenue and grant collections amounted to K15.32 billion, 0.11 per cent above the projected K15.31 billion for the quarter. Tax revenue accounted for K11.87 billion, non-tax K3.18 billion, grants K271.96 million, and K2.8 billion came from domestic financing. Expenditure during the first quarter of 2020 amounted to K17.4 billion of which K14.8 billion was financed from domestic resources, while K304.9 million was foreign financed. Revenues, grants, and domestic financing totalled K18.1 billion in the first quarter of 2020. Of this amount, total revenue and grant collections amounted to K15.32 billion, 0.11 per cent above the projected K15.31 billion for the quarter. Tax revenue accounted for K11.87 billion, non-tax K3.18 billion, grants K271.96 million and K2.8 billion came from domestic financing. At K7.1 billion against a target of K5.8 billion, income tax collection was above target by 23 per cent. This was mostly driven by company tax from the mining sector and positive performance of Pay as You Earn (PAYE),” it stated.
“Collection of Export Duties reached K88.8 million between January and March, 2020, against a target of K52.99 million. The 68 per cent above target performance is attributed to the increase in exports of precious metals and copper. Non-Tax Revenue collections reached K3.18 billion against a target of K2.74 billion. The positive performance is attributed to a dividend received from the Bank of Zambia (BoZ) and improved collection efficiencies by Ministries, Provinces and Agencies, such as National Road Fund Agency (NFRA) and the Road Traffic and Safety Agency (RTSA). Collections from this revenue stream were above target by 16 per cent.”
But the report disclosed that 73.5 per cent of the total expenditure in the first quarter of this year went to debt servicing and personal emoluments.
“Debt service payments between January and March, 2020, reached K6.4 billion, therefore, accounting for 36.6 percent of total expenditure. Personal emoluments accounted for 36.9 per cent of total expenditure in the period under review. K6.4 billion was released to cater for salaries, third-party payments and allowances for officials in Zambia’s missions abroad,” it read.
The report, however, noted that grants from cooperating partners, totalling K271.97 million, were spent on the Ministries of Health, General Education, Fisheries and Livestock, and National Development Planning.
And it added that towards the end of the quarter under review, the kwacha came under pressure, which reflected the unresolved macroeconomic challenges associated with high debt service, huge debt levels, rising fiscal deficits as well as declining foreign reserves.
“The kwacha was relatively stable over the first two months of the year following the tightening of monetary policy in November and December, 2019. However, in March 2020, the kwacha came under intense pressure, reflecting the unresolved macroeconomic challenges associated with high debt service and debt levels, rising fiscal deficits as well as declining foreign reserves. The sovereign credit rating downgrade further weighed on the kwacha. The COVID-19 outbreak compounded these exchange rate pressures. During the period, the kwacha depreciated by 9.6 per cent against the US dollar to a quarterly average of K15.18/US dollar, and ended the quarter with a year-to-date rate of depreciation of 28.9 per cent,” read the report.