ACTIONAID Zambia says the 2021 national budget lacks progressive fiscal reform to enhance domestic revenue mobilisation and risks plunging the country into a debt trap.
In a statement, ActionAid country director Nalucha Ziba stated that Zambia risked sliding into a debt trap that will see a situation where more than 70 per cent of the budget is financed through borrowing.
“We are of the considered view that the 2021 national budget is short on progressive fiscal reform to enhance domestic revenue mobilisation, hence risks plunging the country in more debt. The budget did not also demonstrate the prioritisation of both education and health sectors, which have been adversely exposed by the COVID-19 pandemic as well as the agriculture sector, which is key in much-talked about economic recovery post-the COVID-19 pandemic,” Ziba stated.
“Debt Sustainability: Government has already committed to finance more than 40 per cent of the 2021 national budget by borrowing. We observe that this is likely to worsen without a realistic revenue projection and fiscal reforms to enhance domestic revenue mobilisation. We risk sliding into a debt trap and likely to see a situation where more than 70 per cent of the 2021 national budget will be financed through borrowing. We wish to remind government that, apart from the recent advent of COVID-19, we are in this economic malaise largely due to huge and unsustainable public debt levels. It is, therefore, unfortunate that we do not only want to continue on the same trajectory, but we also want to increase our commitment to financing our national budget by borrowing in the 2021 national budget. Prioritising fiscal fitness should have not only been pronounced, but it should have been demonstrated in the 2021 national budget.”
She also urged Parliament to solicit for an upward adjustment of the budget allocation towards the health and education sectors before it is passed and comes into force, January 1, 2021.
“The health sector budget share remains below the 15 per cent Abuja Declaration commitment and it has decreased from 8.84 per cent in the 2020 national budget to 8.07 per cent in the 2021 national budget. The health sector budget share has continued to decrease since 2018. This is disappointing in the wake of the COVID-19 battle, which seems far from over. Likewise, the education sector budget share has not only continued to remain below the recommended 20 per cent, but has also been decreasing since 2014. In the 2021 national budget, the sector’s budget share has decreased to 11.5 per cent from 12.38 per cent in 2020. The development is shocking and questionable, especially that defense, public order management and roads have continued to receive significant share of the national budget. Therefore, ActionAid wishes to implore Parliament to solicit for upward adjustment of budget allocation towards the health and education sectors,” Ziba stated.
She further wondered why government continued to prioritise the Farmer Input Support Programme (FISP) and the Food Reserve Agency (FRA) when both programme produced lower productive returns.
“Additionally, while we note that there is an increase in the agriculture sector budget share from 3.7 per cent in 2020 to six per cent in 2021, we, however, note that government continues to prioritise FISP and FRA, which have lower productive returns and are less of agricultural activities. More resources of the agriculture budget go towards FISP at the expense of invested in key areas, such as extension and research services, which have shown to have return rates. These areas should be prioritised,” she advised.
Ziba, however, welcomed the thorough review of existing tax incentives to make them effective in improving economic activity, but expected a variable profit tax or “solidarity tax” for the information and technology sector, which is expected to grow.
“ActionAid welcomes the commitment to undertake a thorough review of existing tax incentives to make them more effective in reinvigorating economic activity. We, however, wish to remind government that this should not only be about reinvigorating economic activity, but also about assuring tax revenues to finance public service provision. All detrimental incentives and tax treaties, such as the recently-cancelled Mauritius Tax Treaty must be suspended. On the other hand, once again, as observed in our submission, the Minister of Finance (Dr Bwalya Ng’andu) observed that despite the negative growth in most sectors during the COVID-19 pandemic, sectors like information and communications technology were expected to register positive growth. The 2021 national budget could have introduced a variable profit taxes or an excess profit taxes or solidarity tax for such sectors,” stated Ziba.
Data from the 2021 budget shows that K27 billion will be due to be spent servicing Zambia’s external debt alone, up from this year’s K21.1 billion allocation, representing 23 per cent of the total budget amount.
Domestic debt servicing has equally increased to K18.3 billion next year, up from K12.6 billion allocated in this year’s budget.
Next year’s K119.6 billion budget represents an increase from this year’s K106 billion, and is intended to be partly financed by domestic borrowing amounting to K17.4 billion and K34.2 billion emanating from external resources, representing 14.5 and 28.6 per cent of the total budget, respectively.