FINANCE Minister Alexander Chikwanda made some decisive promises during his budget speech on October 12, this year and set out a comprehensive strategy to put Zambia’s economy on a path to sustainable long term and balanced growth.
The action taken in the Government’s first formulated budget since the last one in 2012, is aimed at maintaining stability and keep inflation and interest rates near record low.
Further, the Government’s desires in 2013 is to achieve Gross Domestic Product (GDP) growth rate of more than seven per cent and limit the overall fiscal deficit to 4.3 per cent of GDP, of which domestic borrowing would be 1.5 per cent.
It targets to create at least 200,000 jobs and has outlined tourism, agriculture, manufacturing and infrastructure development as key strategic sectors to be implemented under the National Strategy for Industrialisation and job creation.
With the theme: ‘Delivering Inclusive Development and Social Justice,’ the minister’s focus to create employment, reduce poverty and put more money in people’s pockets, underpins the seriousness the Government is undertaking to achieve sustainable and inclusive growth.
The K32.2 trillion Budget, up from K27.7 trillion in 2012 and K21 trillion in 2011 shows significant shift towards self-financing as about 76.8 per cent or K24.7 trillion would come from domestic revenue, while K1.5 trillion or 4.6 per cent would be financed from cooperating partners.
The deficit of K 5.9 trillion or 18.4 per cent would be financed through domestic and external borrowing.
It is however clear that the Government’s agenda next year and beyond is aimed at improving the livelihood of the people through the provision of quality social services at the same time focusing on growing the economy and reducing poverty.
In the 2013 budget, the minister announced wide-ranging reforms to the tax system to reward the workers and support growth.
These reforms would lower the tax rates, diversify and broaden sources of revenue, and reduce reliefs.
These reforms are based on the principle that the tax system should be fair, efficient and simple.
But experts have said the sudden shift by Mr Chikwanda to propose an exempt amount per month of Pay-As-You-Earn (PAYE) only by 10 per cent, from K2 million to K2.2 million showed that he was moving away from unrealistic approaches to a more practical commitment in growing the economy and creating jobs.
It has been observed that the budget has shifted from just concentrating on consumption to growth promoting infrastructure projects aimed at creating jobs.
The 2013 budget laid out the next stages in the Government’s plans for supporting businesses and removing the various barriers for accelerated and inclusive growth.
This shows Government’s commitment to driving through the measures announced in the plan for growth and is taking further steps in the budget to stimulate investment, exports, enterprise and the employment market.
As part of this, the infrastructure plan in the 2013 budget has placed priority on improving the road network, railway system and upgrading of infrastructure in the energy, health and education sectors particularly skills development.
In addition, the budget maintains the Government’s strategies and sets out further action it would take to maintain a stable economy through a proactive approach bearing in mind the more recent uncertainty in the global economy coupled with sluggish growth, depressed prices for copper and other major exports due to the turbulence in the Euro zone and the lethargic growth in America.
On the other hand, the minister announced a wide-ranging programme of how the US$750 million Eurobond proceeds would be utilised for investment in infrastructure.
For instance, generation of power and transmission, the Government allocated US$255 million, transport targeting roads and rail US$430 million and human capital and access to finance US$49 million of which rehabilitation of central hospitals would receive US$29 million and among others.
It is for this reason that the World Bank believes the budget had provided insights to Government’s policies aimed at achieving development goals articulated in the PF manifesto.
The World Bank country director, Zambia Malawi and Zimbabwe Kundhavi Kadiresan observed that the budget’s focus on poverty reduction and jobs creation was welcome adding that, it was a clear indication of the PF Government’s commitment to these development goals.
“We commend Government’s strong and continued commitment to a stable macroeconomic environment through adherence to prudent policies.
These policies are helping Zambia to develop a track record in macroeconomic management and build investor confidence. The recent successful Eurobond issue is a reward for Government’s success at maintaining a stable macroeconomic environment,” Ms Kadiresan said.
It is noted however that Zambia faced enormous development challenges led by high poverty levels amidst high economic growth.
In this situation, Ms Kadiresan said the Government’s attention to agriculture, health and education is appropriate and encouraging.
The Government intends to spend K1.9 trillion in agriculture out of which K1.1 trillion is provided for core agriculture programmes including the promotion of the diversification and carter for livestock, Fisheries, crops and irrigation development.
Further, K500 billion would be spent on the reformed Farmers Input Support Programme (FISP), which Mr Chikwanda pointed out that by mainstreaming the e-voucher system it would encourage crop diversification.
In the health sector, we saw an allocation of K3.6 trillion or 11.3 per cent of the budget out of which K594.1 billion would be spent on drugs and medical supplies and lastly K110.8 billion provided to procurement of varied medical equipments.
It is interesting to note that, the Government has provided K186.1 billion for infrastructure development in the health sector.
A further, K204 billion has been provided to the University Teaching Hospital (UTH) and Central hospitals in Kitwe and Ndola.
Ms Kadiresan said: “Increased budgets for health and education will help improve opportunities for human capital development by the poor. We expect that special attention will be paid for the implementation of programmes, and service delivery will be improved to achieve the budget’s intended objectives. In addition, timely release of resources allocated in the budget and limiting supplementary allocations would enhance intended budget outcomes.”
“We are encouraged that the Government will reform the operations of Food Reserve Agency (FRA) and utilise the savings for expanding productivity-improving interventions in the sector in line with Food Reserve Agency policy of focusing on maintaining the national strategic reserves,” she said.
Ms Kadiresan said the World Bank fully supported the Government’s objective of expanding infrastructural services in transport and energy sectors that would enable Zambia to become a developed country.
It also saw a major boost to the transport sector specifically the railway system, where the Government has mobilised K642.6 billion to recapitalise the rail network. Also, the road network would receive K3.4 trillion in 2013 budget.
The resources would make it possible to work on at least 1,500 Kilometres of roads, while on-going projects would be continued under the Link Zambia 8000 programmes.
She said the World Bank however expected that infrastructure projects would be selected strictly on the basis of expected economic returns after careful project appraisal.
Also, the fiscal policy stance has been expansionary in the past few years at a time when Government revenues have been booming due to high copper prices adding that the need to expand public investment must be balanced with the need to preserve room for policy manoeuvre to counter unforeseen shocks.
“Poverty being at the core of World Bank business we commit to our partnership with Government in making Zambia a developed and low poverty nation,” Ms Kadiresan said.
Nevertheless it is important to mention that the youth empowerment programmes and the Citizen Economic Empowerment Commission (CEEC) fund have not been outlined in the 2013 national budget.
With the United Nations World Tourism Organisation (UNWTO) underway, the Finance minister saw it prudent to propose tax incentives to the sector in readiness for the conference in August next year.
About K32.3 billion has been allocated for tourism marketing and promotion, with particular focus on the UNWTO conference and the Tourism of Zambia (TCZ) was pleased with the increased funding adding that it would support the growth of the industry.
Commenting on the sector, TCZ chairperson Felix Mulenga welcomed the move by Government to increase the Value Added Tax (VAT) return threshold from the current K200 million to K800 million.
He explained that 75 per cent of the tourism and hospitability operators were small to medium scale operators and had been struggling with VAT return and this adversely affected their cash flows.
The development would also bring about compliance levels and also improve the capacity of small and medium scale enterprises to grow their business.
“What is important now is the prudence in choosing appropriate promotional activities, as private sector we do not expect these monies from tax payers’ sweat to be spent on unnecessary travels, meetings and road shows which are not going to yield results. We expect aggressive marketing approaches for our tourism products by Zambia Tourism Board,” Mr Mulenga said.
As well, the removal of duty for fishing vessels like boats, would boost water related tourism activities, adding that the council also welcomed the decision of duty free beverages as major retailers of beverages would anticipate an increase in beverage sales.
With such incentives to a labour intensive industry Mr Mulenga said it is very possible to create the anticipated 20,000 jobs in the next five years.
By and large, the Government highlighted the strategic focus in the manufacturing sector aimed at promoting value addition to locally available raw materials by putting in place appropriate industrial infrastructure for small and medium enterprises especially in the rural areas as well as promote Foreign Direct Investment (FDI) in the
Multi Facility Economic Zones (MFEZs).
The Government has also made a commitment to tailor the incentives to entrepreneurs that invest in value addition ventures and promote employment in order to achieve the 90,000 jobs in the next five years projected in the 2013 budget.
The Zambia Association of Chamber of Commerce and Industry (ZACCI) president Geoffrey Sakulanda pointed out that the budget would broaden the tax base and support the creation of employment especially from the incentives given from the manufacturing sector.
“Generally speaking, we are happy with the Budget, we think it is a growth Budget that will create employment and broaden the tax base especially with the application of the Eurobond proceeds to infrastructure,” Mr Sakulanda said.
“The allocation of the resources especially into the education infrastructure was welcome,,” Mr Sakulanda said.
The Government has proposed to pump in K5.6 trillion into the education sector for the purpose of providing quality education and skills training to children and youths.
This represents 15.8 per cent increase as compared to the 2012 allocation.
About K475.1 billion has been earmarked for operations and expansion of infrastructure in universities, colleges and trades training institutions.
The Association of Zambia Women in Mining (AZWIM) publicity secretary Gertrude Phiri pointed out that the increased funding towards the sector to K81.2 billion would enable them to purchase the equipment needed for them to conduct their mining activities.
Ms Phiri said: The budget was the beginning of the good steps towards giving practical effect to the attainment of inclusive growth to the mining sector and the country’s economic growth.
She said the introduction of property transfer tax at the rate of 10 per cent on the sale of transfer of mining rights was a good move for the mining industry as well as the nation adding that, this was in line with the international standards.
Also, the Government proposed a reduction to 25 per cent from 100 per cent the capital expenditure deduction rate applicable to the mining sector.
But the Economic Association of Zambia (EAZ) president Isaac Ngoma has urged the Government to work very hard to refine the tax administration system and policy in order to collect more revenue.
Mr Ngoma pointed out that the Government had done a lot of smoothening and cleaning up of the tax regime saying that there was need to refine the tax administration system and policy.
“There has been some smoothening and clearing up within the tax regime but that is an area where Government needs to work very hard refining the tax administration system and policy and we expect Government is going to work hard and do much more on the tax administration so that they can collect more revenue at the end of the day,” Mr Ngoma said.
Mr Ngoma said the key measures announced in the annual budget have been tailored to smoothen the business environment with notable increase in resource allocation to the economic sectors.
“We have started moving into investing more in the economic sectors as well as to the social sectors so that we can increase the pace that we can be able to create wealth and jobs for the people.
On the expenditure side, Mr Ngoma pointed out that Government should tighten all the loose ends and focus on the building capacity to enable the effective implementation of the projects noting that the country lacked the ability to implement major projects.
By MAIMBOLWA MULIKELELA
Source: Times of Zambia