THE Economic Recovery Plan (ERP) has implored the government to make huge adjustments consisting of a balanced combination of revenue mobilisation, expenditure rationalisation and reduced debt accumulation to attain fiscal and debt sustainability.
And the ERP says the wage bill and external debt servicing in 2021 are projected to absorb over 100 per cent of the budget’s domestic revenues, leaving no room for operational and other priority spending.
According to the plan, launched by President Edgar Lungu last Thursday, government would have to rationalise expenditure in the short to medium-term, whilst reducing on borrowing to put the country’s economy back on track.
“Fiscal and debt sustainability are critical for restoring macroeconomic stability. Large fiscal imbalances, a narrow tax base, unsustainable expenditure levels and rapidly rising public debt have raised concerns about the sustainability of fiscal policies. Further, external and domestic shocks led to significant spending overruns and wider fiscal deficits averaging 8.0 per cent during the period 2016-2020. A large part of this increase in the overall deficit is due to the primary deficit remaining high over the past few years, averaging 3.6 per cent of GDP between 2015 and 2020, or 19 per cent of domestic revenues. There is, therefore, need to lower debt vulnerabilities and create a better platform for growth. This comes at a difficult time of weak growth, exacerbated by the COVID-19 pandemic,” read the ERP in part.
“As part of its determination to achieve debt sustainability, government will put in place fiscal consolidation measures through a sustained implementation of fiscal adjustment and structural measures to address elevated liquidity constraints, the continued accumulation of domestic arrears, high debt levels and high debt service costs. The ultimate objective is to gradually reduce the overall deficit to five per cent of GDP by 2023. This will not only help to bring the economy back to a sustainable growth path, but also help to improve its creditworthiness and reduce borrowing costs. To attain fiscal and debt sustainability, government will over the ERP period pursue the most appropriate policy route under the current environment. The adjustment needed is large, and will be a balanced combination of revenue mobilisation, expenditure rationalisation as well as reducing the pace of debt accumulation.”
It further states that the wage bill and debt service were projected to absorb over 100 per cent of the budget’s domestic revenues next year, necessitating the need to halt accumulation of new external debt, among others.
“Resource Mobilisation: the main actions required relate to enhancing tax policy and administration reforms in order to improve compliance levels. To address the aforementioned challenges, the following measures will be undertaken to enhance tax revenues: with increased spending pressures, the fiscal space has been narrowing. In 2021, the wage bill and debt service are projected to absorb over 100 per cent of the budget’s domestic revenues, thus leaving no room for operational and other priority spending. Expenditure rationalisation is important in achieving macroeconomic stability and fiscal sustainability, creating fiscal space, increasing allocative efficiency and enhancing efficiency. To this end, government will streamline key drivers of expenditure such as the Farmer Input Support Programme (FISP) and capital expenditure,” read the plan in part.
“Fuelled by the rapid exchange rate depreciation, electricity supply constraints, the heavy reliance on external sources to finance the growing fiscal imbalances, and more recently the COVID-19 pandemic, public debt has now exceeded 100 per cent of GDP, far above the sustainability threshold of 35 per cent of GDP. To attain debt sustainability, it will be imperative that the primary balance is reduced with a view to achieve a positive balance in the long-term. This will entail halting accumulation of new external debt, raising domestic revenues and constraining expenditure.”
Other adjustments the ERP suggested included reducing foreign financing and debt servicing.
“Reduce foreign financing in the budget through implementation of re-scoping of projects of up to US $280 million and cancellation of US $1.1 billion undisbursed loans by end of 2020; obtain formal debt service deferment under the G20 Debt Service Suspension Initiative (DSSI); Establish an Electronic Trading Platform (ETP) to enhance price discovery and transparency in the bond market by end-March, 2021; reduce debt service payments by engaging non-G20 creditors for a similar arrangement and moratorium as the Debt Service Suspension Initiative (DSSI) and Establish an Electronic Trading Platform (ETP) to enhance price discovery and transparency in the bond market by end March 2021,” stated the ERP.
“In the medium-term, government will continue to engage various creditors for liability management of public debt. During this process, government will abide by the standard and commonly admitted international rules of engagement, including transparency, good faith and fair and equitable treatment of creditors.”