GREEN PAPER GETS THUMPS UP – NATIONAL BUDGET: THE CASE FOR GROWING NATIONAL INCOME AND EXPENDITURE PRUDENCE

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The Medium Term Expenditure Framework [MTEF] upon which the current Green Paper for the 2019 national budget is based is a fair one. It is a very good reference platform for national economic behavior.

Nonetheless, we ca do better. That it is a dynamic document that calls for public consultation and debate should console all citizens aware that the requisite reviews will be periodically undertaken.

What ought to comfort the nation is that this framework is a clear illustration of what intentions our Republican President Mr. Edgar Lungu and his team have for the economic future of Zambia in the near term. It is a good ideas map which only requires our concerted efforts as the requisite compass to steer the nation where we want it to go.

Its theme of Economic Stabilization and Growth Program should deliberately place emphasis on growth, which economic growth would then eventually be stabilized. Presently, it appears growth is playing second fiddle to stabilization. However, it is granted that growth can be an offshoot of stabilization.

Further, the MTEF ought to be renamed as it appears to value expenditure more than income. Income as an indispensable component of any budget does not receive the required attention in the title of this framework.

Perhaps, medium term budget framework [MTBF} or medium term fiscal and monetary policy framework [MTFMPF] could be considered as more apt titles.

Just like prudent cashflow management of a private enterprise ensures growth and sustainability of that enterprise the principles are similar to managing the balance sheet and subsequently the economy of a country.

The most important side of the budget equation is the income side. What the country earns should determine what it spends. Further, what is borrows for spending should also be based on its income projections over time.

It follows then that growth of a company or an economy is a function of prudent expenditure.

Not only should we spend for consumption but we must fund our consumption based on judicious spending called investment to assure us of sustainability.

The green paper notes the following successes:

  1. Stabilisation in exchange rate

Stabilisation of an exchange rate is NOT wholesome success in itself. This stability ought to be coupled with the rate’s enhancement of local business as well as the assurance of a favorable purchasing power of the currency for citizens. Should a stable rate fail to achieve the foregoing conditions then such stabilization remains hollow or devoid of expected value.

At present, though the exchange rate favors local exporters, existing relatively high production costs negate their gains. It also remains prohibitive of the citizen who earns his keep in Kwacha when faced with purchases that are dollar denominated.

  1. Reduction in inflation to single digit level

This is commendable.

In the long run it must reflect stable prices in the face of increased or increasing purchasing power of our currency.

  1. Improvement in external current account position

This is also commendable.

It is hoped that this sum will continue to increase and, over time, there should be a noticeable increase in the per capita income of each citizen which development them must translate into falling poverty.

What is noteworthy though is that it is not savings that lead to wealth creation but investments. It is actually investments that lead to savings. It follows then that when such gains in balance of payments are scored private citizens’ investments in our country should increase, for example, following the reduction in lending rates which might ensue from increased money supply from the central bank.

Challenges cited in the green paper are:

  1. Growing public service wage bill

In a healthy economy, a growing public service wage bill ought to be a premise for rejoicing because this would mean an increase in employment opportunities, or reduction in unemployment, in the face of sound liquidity status of the workers.

If this increase in the wage bill is not as a consequence of the said expected outcomes but, say, that it is a consequence of stagnated or reduced/contracting government paying capacity then it reflects poorly on the economic managers of the country.

In the long run, the wage bill should increase as more workers are employed and paid at or above the minimum wage rates.

Stress on the national income from the wage bill could be a direct reflection of failure to grow the said income, which failure requires appropriate attention.

People require work and good pay.

  1. Rising public debt

Debt contraction is a sound way to manage a budget insofar as the credit obtained is targeted at investment to grow national income and the borrower’s capacity to repay.

It follows then that if public debt is rising then the national debt and investments portfolio is NOT being managed properly. Credit will always be available on the fund markets. Debt in itself is NOT a bad thing. It is its utilization that gives it either a good or bad name.

Zambia should continue to access inexpensive credit and utilise this to grow its national income through guided investments over time.

It is this failure by government to liquidate public debt that may now be making the citizens poorer. Liquidity is low amongst citizens and so is demand tied to the said availability of money to citizens.

In the long run, the government being the largest spending agency in the country needs not only to dismantle this debt through, for example, paying its suppliers and all it owes, but should also increase its expenditure on local business enterprises to over 50 per cent of all such expenditure. This will better the liquidity position of citizens, stem capital flight, grow the economy and lower their poverty in due course.

Aimed at fiscal consolidation, to mean prudent use of public funds, the focus of government’s austerity measures as captured by the green paper are as follows:

  1. Expenditure limited to priority areas such as health and education

Expenditure to these areas needs to grow as a consequence of increased employment [as we pursue the required health worker to patient and teacher to pupil ratios], payment of favorable salaries and government’s mutually beneficial engagement with local suppliers of goods and services.

Over time, over-reliance on foreign and imported goods and services should be curbed in these vital social sectors.

To reiterate, this will promote growth of local SMEs, boost the liquidity standing of citizens and thus reduce their poverty and also ensure that capital is retained within the country.

Further, expenditure should also be targeted at reduction of the disease burden through public health activities to reduce the present stress on clinics and hospitals; and the required curriculum review so that at primary school level, the most important for a formative child, our children must be taught the fundamentals of business/project cycles in preference to the life cycles of frogs, butterflies and houseflies.

  1. Enhancing domestic revenue mobilisation

This is commendable.

What is noteworthy is that as we seek efficiency in the collection of taxes we must NOT increase the tax burden on citizens both in quantity of taxes and taxable amounts.

Over-taxing citizens will lead to an economic slow-down or contraction and increased poverty. It is also politically unwise as this is one of the surest ways of triggering social upheavals from poor economic management through poor policies and blind, uninspired and dogged implementation.

As a policy, we must reduce taxes that will spur local production of goods and services.

  1. Scaling down on debt contraction

There is nothing wrong with debt contraction. What may be wrong is our utilization of the debt.  For example, presently the selection of government projects to spend upon is not as inspiring as expected and the pricing of these projects is questionable.

In addition, the borrowed funds end up in the very pockets of our lenders through our engagement of their companies to provide us with goods and services. This way, the lenders make a double profit on us through collection of both interest from loans and profit from business. This status quo affords the government an opportunity for expenditure reviews.

To attain the required reduction in our budget deficit and increase the per capita income of citizens, and through these targets, achieve a measure of national prosperity, in broad terms, the national budget must premise it measures on the following thematic areas:

  1. Income growth
  2. Expenditure prudence

Policy measures and targets that will help, and should be considered for implementation include the following:

  1. The projected economic growth rate of 4.5 per cent is too modest/timid. It should be adjusted upwards. Though ambitious, double digit growth must remain our national target.
  2. Reduction of taxes that hinder local production to make our goods and services competitive
  3. Increased generation of electricity aimed at exports, and the eventual lowering of its local cost
  4. Ensure inexpensive landing costs of fossils fuels through judicious procurement processes
  5. Encourage local investments in mining focusing on high value commodities such as cobalt, copper, emeralds and gold
  6. Encourage local initiatives that seek to boost domestic tourism
  7. Encourage the use of local institutions of learning by citizens and foreigners
  8. Discourage the use of foreign institutions of learning by citizens
  9. Avoid over-pricing of goods and services by government spending agencies
  10. Maintain donor budgetary support in the immediate term
  11. Develop a weaning-off plan for the social cash transfer to ensure reliance on local resources
  12. Reduce monetary stress on citizens through the curbing of fleecing by banks as has happened by the Bank of Zambia through elimination of hidden charges
  13. Borrow more for support to national investment infrastructure
  14. Avoid borrowing from the open fund markets
  15. Refinance all our problematic debt such as the Eurobond
  16. Increase government expenditure on local companies. Over time, the government should spend more on local companies than on foreign ones.
  17. Pay suppliers of goods and services [especially local ones] on time
  18. Curb tax avoidance and evasion by corporate entities
  19. Lower the lending rates to make credit available to citizens
  20. Encourage vending of all types especially with deliberate emphasis on the structured and organized kind
  21. Support start-ups that seek to process our locally produced crops , minerals and other commodities
  22. There should be deliberate channeling of FDI [Foreign Direct Investment] towards capital intensive investments, areas with vast post potential for job creation and high dividend yields such as agriculture, mining, service industry and manufacturing. Further, appropriate regulation should address the current loophole of FDI being a conduit for capital flight.

It must be noted that our increased strategic engagement with China and such countries will be met with increased hostility from some traditional cooperating partners. We must therefore anticipate shocks to our budget as this hostility might take the form of withholding of their budgetary support or a full blown yet covert push for regime change. Economic absorbers of such shocks ought to be in place.

It is incontestable that China is a significant economic fixture in the world. With a population of over 1.4 billion people it makes judicious sense by any nation to establish fair trade relations with China.

And as Africa, with a population of about 1.2 billion people, endeavors to relate equitably with china in commercial terms, the stigmatisation of China will be ratcheted up by those that view this relationship as inimical to their interests.

When you add India to this emerging pool of economic actors it follows then that the redundancy of certain traditional economic partners will increase and their hurt might translate into dysfunctional nefarious behaviour towards us.

The IMF remains a hostile lender as often its prescriptions go beyond the economic as to force a recipient country to surrender its sovereignty as economic restoration is sought through its conditionalities.

The relevance of the IMF to developing countries that seek to assert their authority of self-determination will continue to wane for now until it reforms it attitude. Further, the creation of a new development bank as planned by the BRIC nations might render this western fixture of western lordship moribund.

In the end, to attain the required balance sheet and economic buoyancy, Zambia will require inspired leadership, faith in the abilities and talents of its own citizens and the placement of its economic behavior on competitive production of quality goods and services.

Fortunately, with President Edgar Lungu aware of these national economic demands, and his permissive attitude of allowing patriotic citizens to lend him a hand, we remain in safe hands and on course to national wellbeing and prosperity.

Our land, peace and national unity remain the key resources to our envisaged prosperous future.

Zambia remains one of the top ten richest countries on the continent of Africa. It must remain in our hands, and its future should be fashioned as we want, by our own hands.

Dr Canisius BAND

Development Activist

Former UPND Vice President

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