ECONOMIST Professor Oliver Saasa says it is difficult to grow an economy in an election year as most government rarely engage in austerity measures.
And former permanent secretary in the Ministry of Finance Felix Nkulukusa says the 2021 budget is an ambitious budget.
Speaking on Capital FM’s Budget and Debt programme, Tuesday, Prof Saasa warned government not to try and appease voters at the expense of drowning the economy.
“The realism is this, we should not try to appease the people so that they vote for us or they prefer you at the expense of drowning the economy. The economy is in dire stress, let’s have it very clearly! We are in a very serious state of affairs at the moment. Playing politics yes, we have elections around the corner, but it is important that post elections, survival must be there. It is irrespective of which politician comes to power. Whoever comes into power must find an economy that they can run,” Prof Saasa said.
He said there was need to channel the little resources available towards the right activities.
“Firstly, let me say this and this is nothing to do with Zambia alone, an election year is a difficult year for any government. In an election year, you rarely see a government engaging in austerity measures. But there must be realism. Much as we are accept that, you have to decide as to what extent can we ignore the austerity measures that are important for us to continue to have that level of comfort from the electorates that they will still vote us, because you cannot get in an election year when you have depleted the revenue base. Look at the FISP programme, everybody tells you that this is one stimulus for small scale farmers to increase productivity; but we know that FISP has failed to make a justified cause for us to continue providing those levels of resources because there is very little money between what government brings on the FISP and the productivity that is anticipated to come from that,” Prof Saasa said.
“So when you move in and increase it several fold as we have done for 2021, you are more or less, for someone in the terraces like me, campaigning. Because essentially what you are saying is that you know that your resource envelope is limited and you also know that the electorates would like to have free handouts. But you know how inefficient that system has been and the efficiency is very fundamental to engineering or bringing the economy back to life. So when you do that, you are putting a price tag that is so high that will compromise the sort of thing you need to do especially in terms of targeting resources where it really matters for the purposes of growing the economy.”
Prof Saasa said the 2021 budget was unrealistic.
“When you look at the 2021 budget in that context, if you ask me, it is unrealistic at different levels. The assumption seems to presuppose something that appears as if the Minister or the Executive have different sets of information and data that we are not privy to. There is a projection of how much will be actually generated from outside, you are talking about borrowing at about 43 percent coming from local and external but you also know how stressed the global economy is. Your credit rating has gone to the dogs so to speak, it is in the junk category, bond holders are not comfortable with the plan that you have given. You have to negotiate hard to bring them on board. You don’t have a stimulus package that brings comfort to the private sector to be able to respond positively especially post COVID because you still need a tax revenue base to continue collecting money for developmental purposes. Essentially, everything looks to be a challenge. What it means is that you were expected to start thinking under these circumstances what assumptions can we make and how realistic should we be,” Prof Saasa said.
“Policy consistency is key, operators in the economy need to have a predictable environment within which policy, once communicated, can be assumed to continue. Right now we keep on changing policy in a manner that has never been really very good. We have to tame our appetite for contracting sovereign debt. We have said this so many times, you have to cut your dress according to your cloth. The biggest challenge that we are having, if you combine salaries, debt servicing alone, consuming almost 90 per cent of the total government revenue, [this] can never take you anyway. Whatever remains is only about 10 per cent, is what we must take care of everything. There are very few countries in the world that operate like that. Much of this stress has been led by our appetite for continuous [borrowing], not only external debt but domestic debt.”
And Nkulukusa said the 2021 budget was an ambitious budget.
“I would describe the 2021 budget as ambitious. I call it ambitious because the Minister projects that we will have an economic contraction in 2020 of 4.2 per cent. Given that the Minister then goes into the budget and projects that we are going to raise the same revenues that we projected in 2020, 2021. If the economy is contracting, it means that business will be affected, it means that the revenues would be affected. The Minister then goes and says 43 per cent of the budget would be raised through borrowing, now domestic borrowing for instance in 2020 was only K3.4 billion and in 2021 we are looking to borrow 17 billion what does that mean? That means we are going to crowd out the private sector. When you look at the treasury bills and bond issuance in 2020 there has been under subscription at K3.4 billion of the money that we wanted to raise and you ask yourself would there be subscription at K17 billion in 2021? This is why I say probably this is an ambitious budget,” said Nkulukusa.
Meanwhile, OXFAM country director Dalles Judge said 69 percent of Zambia’s debt was private debt which made it difficult to request for cancelation.
“We know countries like Zambia really need debt relief but private debt is really shrouded in secrecy. There is a lot of complexity around it and engaging in reviewing or asking for cancelation of that debt is not the easiest thing to do. Essentially the G20 debt service and suspension initiative doesn’t include private debt. So it is really significant for Zambians to look at this because 69 percent of all that Zambia owes as debt is actually from private creditors, this includes the three Eurobonds that total to about $3 billion. So if we look at the $3 billion and how it is going to be dismantled, it is really a tall order,” said Judge.
“From the point of view of Zambia, we have three recommendations that we would like for government to take up. Essentially, it is for the government to start to think around transparency pertaining to the private debt…We are very keen to see that we legislate and improve budget oversight or debt contraction oversight and this is where we keep on calling for the loans and guarantees act for example to be made available. The last thing is also having a very robust kind of management strategy and a repayment plan. So we need to have a repayment plan that is quite predictable.”