ADDING IT ALL UP

Zambia 2017 | ECONOMY | FOCUS: ZAMBIA PLUS

On October 20, 2016, at the 2017 Budget Address, Finance Minister Felix Mutati launched the government's economic recovery program, christened "Zambia Plus." The program is designed to spur domestic productivity, through strengthening ties and collaborating with external donors and developers.

There are five main pillars to the program. The first targets fiscal policy, aiming to better administrate the collection of taxes to improve revenue inflows. The second seeks to channel more public money into social protection, in particular pension schemes, so as to dampen the effects of austerity for the most financially challenged. The third aims to reduce inefficient public spending, with stricter regulations and more transparency in budgetary decisions, as well as harsher penalties for those caught abusing the system. The fourth focuses on improving budget planning to bolster government creditability. The fifth and final concerns monetary policy: easing access to credit, lowering lending rates, and reducing inflation.

This proposed economic boot camp could not be more timely. At the end of 2016, Zambia's economy was reporting growth of just 3%, considerably down on the rate of 7% ostensibly required to overcome nationwide inequalities and eliminate poverty. Furthermore, Zambia has suffered from a fiscal deficit for the last 10 years, a deficit that has grown from 1.6% of GDP in 2011 to 10% at the end of 2016. It is commonly held that considerable fuel and electricity subsidies were paramount in creating such a shortfall, and in early October 2016 the government made the bold move of discontinuing fuel subventions, increasing pump prices on diesel, petrol and kerosene for the first time since mid-2015.

However, since then, audit reports have revealed that unplanned, unauthorized spending on the part of ministries, provinces, and other governmental bodies accounted for a far larger percent of the deficit than any subsidy. Untouched expenditures, irregular payments, and undelivered materials amounted to USD72 million. These values represented 3.3% and 4% of the overall deficit, while electricity subsidies accounted for just 2.1%.
In light of this, Zambia Plus's third pillar seems all the more significant. As the National Secretary of the Economics Association of Zambia Herryman Moono told TBY, “One of the key elements of the economic recovery program is budget credibility. For the past five years, this has come under question, and our current deficit is the result of a lack of credible budget.” According to Mutati's statements at the Budget Address, Zambia Plus will see the full implementation of the Integrated Financial Management Information System (IFMIS) by the end of 2017. In theory, the obligatory use of the online data entry system for all government budgetary activities will put a stop to financial mismanagement and internal corruption.

The fifth pillar has also sparked some enthusiasm from Zambian businesses. When he introduced Zambia Plus, Mutati stated that “In 2017, monetary policy will remain focused on maintenance of price and financial system stability in order to support restoration of macroeconomic stability and growth.” It is hoped that a consistent monetary policy, as well one that is aligned with fiscal policy, will help ensure economic stability, as well as raise confidence for sustained private-sector investment.

An IMF mission came to Zambia in late 2016, and concluded that there would be no bail-out until certain conditions were met, including reducing the fiscal deficit and limiting the accruing of public debt. The measures implemented prior to and as a result of Zambia Plus will go some way to contributing to these provisos. Elsewhere, the international community has applauded the program, with several EU member states and the UK issuing statements in support of the plans. However, in its eight Zambia Economic Brief, published in 2016, the World Bank expressed concerns regarding the government's commitment to austerity, underscoring the fact that as per the reform public expenditure is due to increase to ZMK61.4 billion from ZMK50.4 billion in 2016.

These views serve as a reminder that there is always a risk of discrepancy between what is put down on paper, and what is carried out in practice. Whether or not this increased governmental spending is an investment that will pay off and whether or not the recovery program will bring a much desired plus to the Zambian economy remains to be seen.