CTPD Researcher for Public Finance Wakumelo Mataa says government’s domestic debt increased by 119 percent to K189 billion from K86 billion between the first quarter of 2020 and third quarter of 2021.

Speaking during CTPD’s launch of the state of the economy brief, Friday, Wakumelo said the domestic debt signified government’s reliance on domestic financing.

“We saw a sharp increase in domestic debt by 119 percent to K189 billion from K86 billion from 2020 Q1 to 2021 Q3. In the back of our minds what we should have there in terms of those numbers is something that signals the reliance of the government on domestic financing. When we look at the numbers from January to November 2021, we see that the target in terms of domestic financing was that the government was going to source about K17.4 billion domestically to support the budget implementation but the actual out turn was almost 100 percent above target,” he said.

“So as we continue to talk about the need to resolve the external debt problem, this just tells us that we should not forget about domestic debt because as we may all expect, over reliance on domestic financing by the government has a crowding effect on private investment. If we are going to have an active private sector in the economic recovery process, then we certainly need to create a conducive environment for the private sector to thrive. And the issue that needs to be addressed is this reliance on domestic financing.”

And Wakumelo said the staff level agreement which government and the IMF reached last year was vital as it would ensure a direct boost to budget support.

“The economy stands to derive some benefit in the medium to long term from the programme and these would include a direct boost to the budget support. Of course there is that monetary injection that has to come to the programme of about US$1.4 billion over three years. Given that the 2022 national budget is being implemented in an hostile environment where the expenditure side of things sort of increased, we expect that programme to sort of be a direct boost to the budget support,” he said.

“Further we expect the programme to reduce that reliance that we saw of domestic financing to the government. That would stimulate private investment and of course ensure that the private sector supplements or complements efforts being made by the government and public sector to contribute to employment as well as economic growth. In reaching the level staff agreement, indications from the government are that there have been some ambitious reforms that they seem to have committed to the IMF.”

Wakumelo, however, expressed concern that the new dawn government had not disclosed its stance on the economic recovery programme after the August polls.

“The economic recovery programme, a document of that kind which sort of explains what reforms we expect to see as we rebuild the economy. I think after the August, 2021 elections, we have not heard word to the best of our knowledge from the government on its stance on the economic recovery programme, whether we continue implementing it or replace it with another document. That’s a missing piece in the puzzle because such a document tends to inform policy analysis and to cool down the effect of information symmetry in policy conversations,” he said.

Wakumelo said there was need for the country to ramp up copper production.

“In the mining sector. what we observe is that there is some global consensus that the demand for copper will remain strong over the coming decade. I think there are various reasons for that expectation, but one of the key reasons that seems apparent is that there is a worldwide shift towards electric cars which use more copper than fossil fuels. That is expected to sort of steer demand for the mineral over the coming decade,” he said.

“There is a strong need for us as a country to ramp up production and claim a fair share of the global cake. However, we put a caution there that as we ramp up production for the next decade, there is a risk that we may deplete our reserves whilst the sector continues to post a constant benefit in terms of contribution to the national cake. Our recommendation there as CTPD is that the government should consider increasing the percentage benefit stake from the mining sector.”

Wakumelo also discussed revenue performance.

“In terms of revenue performance, beginning with 2020, we see that the target in the budget from January to November was to raise about K75 billion. However, by November 2020, we had raised about K62 billion as a country and that of course signaled the impact of COVID-19 on domestic revenue mobilization. Moving on to 2021 in terms of revenue performance, I think we saw a revision downwards in terms of the budget targets,” said Wakumelo.

“So for the January to November fiscal period, the target was to raise about K67.9 billion and by November we had over performed I think, we raised K90.9 billion as a country. In terms of expenditure we see that in both years it persists above target levels. In 2020 for the same period, the target was to spend about K93 billion and we ended up spending K95.4 billion. In 2021, the picture sort of worsened, we were targeted to spend about K102 billion and the out turn was around K125 billion.”