The presentation of the national budget is one of the most important dates in the fiscal calendar. This is because the national budget outlines the government’s overall priority for the next financial year. Although the term “budget” actually refers to the section on spending allocations, the “budget speech” goes beyond mere allocations. The government uses the national budget to set the policy agenda for the next financial year by providing a clear direction for fiscal and monetary policy. Within a budget speech, the minister of finance reports to the nation on global and domestic developments and highlights the macroeconomic objectives and sector-specific policies. The budget speech is also an important source of information for the public and private sector on key tax changes.
It can be argued that the budget is a short-term policy and financial tool and is therefore expected to conform with long-term and medium-term development plans. After all, the budget is the most important tool for the implementation of government programs. It should also be noted that the budget is expected to command a great degree of flexibility to address the current macroeconomic challenges. The 2021 budget is therefore expected to continue Zambia’s development aspirations while addressing the effects of COVID-19 and debt accumulation on the economy. Currently, Zambia’s inflation is double-digit while the Kwacha is on a record-high depreciation against major convertible currencies. A budget that overlooks such present challenges would be considered to be limited.
The 2021 budget is likely to be themed around “economic resilience and stimulating the domestic economy amidst COVID-19.” In seeking to make Zambia’s economy more resilient, there is a need to reduce debt accumulation and increase international reserves. As part of the macroeconomic objectives, the government should target an economic growth rate of about 2 percent, on the optimistic assumption that COVID-19 will be addressed within 2021. In line with this, it would be prudent to target a relatively higher level of inflation and to set a lower domestic resource mobilization target.
A large share of the 2020 budget was allocated to debt servicing, defence, and public order and safety at the expense of the social sectors; health, education, and social protection. It is expected that the government will be more considerate of the social sectors in the 2021 budget due to political incentives. However, if the infrastructural development agenda overrides this service delivery objective, debt accumulation will continue in order for government to deliver more roads, schools, and hospitals. Under such a politically charged infrastructural development agenda, the crowding-out of social sectors is likely to continue.
In summing up, it would be prudent for the government to limit the total budget to well below K106 billion due to lower projected revenues on account of COVID-19. An ambitious budget will do more harm than good as it will increase taxes or debt accumulation at a time when the economy requires economic stimulus and stability. Financing the 2021 budget will require, cost-saving measures, selective domestic resource mobilization, and increased external assistance.
Mr. Bright Chizonde is the senior economist at the Public Financial Management Consult. He is a macroeconomist and a public finance management expert. Mr. Chizonde is passionate about simplifying economic issues for effective dissemination to the general public. To contact the author, please email: firstname.lastname@example.org. Special thanks to Mr. Gabriel Simungala.