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PMRC 2019 BUDGET THE 2019 NATIONAL BUDGET PRESENTATION TO PARLIAMENT THE BUDGET COMMITTEE K86.8 BILLION Policy Monitoring and Research Centre (PMRC) Plot No. 36C Sable Road, Kabulonga, Lusaka, Zambia Private Bag KL 10 Tel: +260 211 269 717
THE 2019 K86.8 BILLION NATIONAL BUDGET
PRESENTATION TO PARLIAMENT THE BUDGET COMMITTEE
Policy Monitoring and Research Centre (PMRC) Plot No. 36C Sable Road, Kabulonga, Lusaka, Zambia Private Bag KL 10 Tel: +260 211 269 717 | +260 979 015 660
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ABOUT PMRC
The Policy Monitoring Research Centre (PMRC) is a public policy research Think-Tank, whose vision is unlocking Zambia’s potential through evidence-based policy research, analysis and reform proposals to complement Governments efgorts across sectors. Within its core analytical work areas, PMRC’s stated aims are to: ■ Promote public understanding through research and education ■ Encourage debate on social and economic policy issues critical to national development ■ Disseminate research based reform proposals; and ■ Support government machinery in recommending policy and procedure to ensure efgective delivery of the national development agenda. PMRC was established to complement the Government of the Republic
ministries and monitor coherence and implementation through collaborations with Government ministries, Government Agencies, Non Governmental Organisations (NGOs), Civil Society Organisations (CSOs). www.pmrczambia.com PMRC’S ROLE IN THE BUDGET PROCESS ■ Pre Budget submissions to the Ministry of Finance and Ministry of National Planning ■ We have had input into several policies and legislation (technical view) ■ Working with the Ministry of Finance on the Citizens Budget ■ Producing Inforgraphic for easy understanding of the Budget ■ Simplified analysis for the public ■ Public lectures ■ Appearance before the Budget Committee What is the linkage between the budget and 7NDP? ■ We are closely monitoring to assess the extend to which this Budget compliments the implementation of the 7NDP
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BUDGET OVERVIEW ■ Government proposes to spend K86.8 billion or 28.9 percent of GDP in 2019 compared to K71.66 billion or 25.9% of GDP in 2018 ■ Theme: “Delivering Fiscal Consolidation for Sustainable and Inclusive Growth”
About Fiscal Consolidation ■ Fiscal consolidation is a process where government’s fiscal health is getting improved and is indicated by reduced fiscal deficit. Improved tax revenue realization and better-aligned expenditure are the components of fiscal consolidation as the fiscal deficit reaches at a manageable level.
■ The link between fiscal discipline, economic growth on one hand and poverty/inequality reduction, on the other, needs strengthening. ■ The Debt status of the country remains a concern and thus this budget theme is timely but the reality will be in the actions that government takes towards realisation of this theme. ■ The reality of this debt is further depicted by the fact that debt repayments amount to 27.2% which is above the combined allocations to 3 key social sectors of health, education and social protection. The specific macroeconomic objectives for 2019 i. Attain annual GDP growth rate of at least 4 percent;
THE 2019 K86.8 BILLION NATIONAL BUDGET
4 | PMRC 2019 BUDGET PRESENTATION TO PARLIAMENT
© 2018 KPMG Zambia Limited, a Zambian member fjrm of the KPMG network of independent member fjrms affjliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.Budget Outlook 2019 Macroecono mic Targets 2018 -2021
Government Expenditure ZMW 86.8 billion Government Revenue ZMW 56.1 billion Financing from corporate partners ZMW 1.9 billion Financing from domestic and foreign sources ZMW 28.8 billion TARGET 2018 2019 2020 2021 Real GDP Growth 4.0% 4.3% 4.5% 4.6% CPI Inflation (end of period) 6% to 8% Budget Deficit (% of GDP) 7 .4% 6.5% 5.5% 5.1% Copper Price (US$/MT) 6,454 6,477 6,490 6,490 Copper production (MT) 891,203 924,510 961,822 999,302
Source: Ministry of Finance, 2019 National Budget
Source: Ministry of Finance, Green Paper.2019 -2021 Medium Term Expenditure Framework and 2019 National Budget
billion at December 2017 . © 2018 KPMG Zambia Limited, a Zambian member fjrm of the KPMG network of independent member fjrms affjliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
l l l
2019 Revenue and Financing 31% 54% 11% 5 %
Total Tax Revenue NonTax Revenues Domestic Borrowing Total Foreign Grants and Loans
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BUDGET BY FUNCTION
© 2018 KPMG Zambia Limited, a Zambian member fjrm of the KPMG network of independent member fjrms affjliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.2019 Expenditure by Function Function 2019 Budget 2018 Budget 2017 Budget ZMW ‘million Percentage
ZMW ‘million Percentage
ZMW ‘million Percentage
General Public Services 31,277 .06 36.03% 25,898.03 36.10% 17 ,970.34 27 .90% Defence 5,072.43 5.84% 3,498,22 4.90% 3,204.45 5.00% Public Order and Safety 2,865.51 3.30% 2,144.57 3.00% 2,342.97 3.60% Economic Affairs 20,651.09 23.79% 17 ,258.33 24.10% 20,132.60 31.10% Environmental Protection 875.10 1.01% 951.35 1.30% 616.47 1.00% Housing and Community Amenities 2,238.70 2.58% 816.26 1.10% 822.81 1.30% Health 8,069.13 9.30% 6,781.56 9.50% 5,762.03 8.90% Recreation, Culture and Religion 297 .27 0.34% 451.16 0.60% 323.5 0.50% Education 13,274.55 15.29% 11,561.64 16.10% 10,641.93 16.50% Social Protection 2,187 .06 2.52% 2,301.26 3.20% 2,693.21 4.20% Grand Total 86,807 .89 100.00% 71,662.39 100.00% 64,510.30 100%
Major observations: ■ Education allocations in the 2019 budget is 15.2 % which is less than 20% global threshold e.g the Cairo Declaration. ■ Health allocation at 9.30% falls short of the Abuja Declaration, which stipulates an allocation of about 15% - 20%. ■ Agriculture allocation also falls short of the Maputo declaration of between 10% - 15%
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GENERAL COMMENTS
PILLAR ONE: ECONOMIC DIVERSIFICATION AND JOB CREATION Economic diversification still remains unattained. We have been submitting that Agriculture, Tourism, Energy and Manufacturing present major opportunities for diversification reform and we shall provide comments herein. AGRICULTURE Agriculture productivity (especially among small scale farmers) has been low and is attributed to over dependence on rain fed agriculture, poor agricultural practices and limited mechanization.
■ We acknowledge that one of the ways to promote all year round production as well as climate smart agricultural practices is to continue developing irrigation
weather partners in the 2018/2019 season. We need contingency and mitigation measures to protect our crop sub sector.
E-VOUCHER Over 716,000 farmers accessed inputs under the e-voucher system. Further, around 5,800 agro-dealers throughout the country were involved in the supply of agro- inputs. Challenges ■ Limitations of telecommunication connectivity, ■ Financial services provision challenges and ■ Limited information technology. We also acknowledge that Government will procure and distribute inputs to the afgected parts of the country. The afgected districts will be re-introduced on the e-voucher system in 2019, once the challenges have been resolved.
PMRC has been working with Smart Zambia and was the first institution to produce a statement clearly stating how the new e voucher system will work. )
Smart Zambia Institute has indicated that three (3) modes of administering the Farmer Input Support Programme (FISP) will be
engaged bank
THE 2019 K86.8 BILLION NATIONAL BUDGET
PMRC 2019 BUDGET PRESENTATION TO PARLIAMENT | 7
Thursday 30st August, 2018
PRESS STATEMENT
THE E VOUCHER RESTRUCTURING: TOWARDS A SMART 2018/19 FARMING SEASON
FOR IMMEDIATE RELEASE
The agriculture sector is the fourth largest contributor to GDP (8.7 percent) and the largest contributor to
K1,785,000,000 in the national budget (Farmer Input Support Programme – FISP budget line). The e-voucher system has had its challenges and with the intervention of the Smart Zambia, there could be light at the end of the tunnel. The Government in June, 2018 did announce that some farmers would this farming season of 2018/19, be reverted to the conventional FISP to enable Government resolve challenges associated with e-voucher administration. About 55 districts are earmarked to be captured translating to about four hundred thousand farmers of the one million targeted farmer beneficiaries. Some of the challenges faced last farming season in the administration of e-Voucher especially in rural parts of the country included among others: poor network connectivity, delayed card activation, lack of capacity by agro-dealers to stock enough inputs to meet demand and long distances covered by farmers to the nearest agro-dealer. The 2018/ 2019 farming season commences on 1st of September 2018. In partnership with Smart Zambia, it is therefore prudent that we analyze and give an update on how the e-voucher will be rolled out. Smart Zambia Institute has indicated that three (3) modes of administering the Farmer Input Support Programme (FISP) will be used. These are;
It is important to note that all the 3 modes are still electronic and difger slightly from the old conventional FISP which involves the use of paper in addition to farmers being required to append signatures on hardcopy registers.
Government through the Zambia Integrated Agriculture Information Management System (ZIAMIS) hosted by Smart Zambia has developed a new module, which will enable farmers to access inputs without use of the electronic voucher (e-voucher) cards. This measure mostly targets FISP beneficiary farmers in areas that had network problems and were afgected by lack of input availability and long distances to the nearest agro-dealer. Government has specifically procured fertilizer which has been stored in sheds across the targeted 55 districts where this program will be implemented. To access the fertilizer, farmers will first need to collect the Authority to Deposit (ATD) codes from the ofgice of the District Agriculture Ofgicers (DACOs) afuer which farmers will then be required to deposit their K 400 contribution at any bank engaged by Government to roll out the program. Once the deposited money reflects in the Government account, DACOs will then issue farmers with the Authority to Collect (ATC) codes which enables these farmers to collect fertilizer at any of the Government sheds nearby in the districts under consideration. Government fertilizer sheds are using a Biometric system to verify farmer records through ATC Codes. The Biometric system has an advantage of being operational even in areas without internet connectivity because it relies on satellite signals.
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We have noted that the ZIAMIS system has now been upgraded and will only take a maximum of four hours for deposited money to reflect. However, farmers are still being encouraged to collect their inputs a day afuer collection of ATC codes to allow the system to fully synchronize and update the records. By the use of electronic cards, Government intends to capture 60% of the targeted one million farmers on FISP. The two modes of input delivery through the use of electronic cards are highlighted below;
Under this mode, a FISP beneficiary is expected to first deposit K 400 mandatory farmer’s own contribution with a Government engaged bank; money which reflects immediately afuer depositing in the e-card. A day or two later the bank will then upload K1, 600 [FISP amount per farmer beneficiary] onto the farmer’s e-card as soon as authorization is granted by Government. The farmer is then free to go and collect inputs at any agro-dealers
Farmers in areas without presence of Government engaged banks can still make deposits with a proxy bank in the areas and get their inputs almost immediately. Under this mode, a FISP beneficiary is expected to first deposit K 400 with a proxy bank. The proxy bank is then expected to forward the money to a Government engaged bank. The moment such a bank to bank transaction is afgected, ZIAMIS system will receive a notification and an ATC code is then issued to the farmer immediately through a mobile text message or can be accessed from the DACO. With an ATC code a farmer can now collect inputs of preference from any agro-dealer of choice. CONCLUSION PMRC remains hopeful that these new e-voucher administrative measures put in place by Government will continue to reinforce the initial reasons that led Government to move away from the conventional FISP. We hope the new FISP measures will be cost efgective to administer, promote crop diversification, improve timeliness in inputs distribution, improve the quality of inputs, build private sector capacity in inputs marketing and distribution, provide means to easily introduce farm risk mitigation measures and ultimately improve household and national food security as well as farm incomes for smallholder farmers. One of the several problems faced in the last farming season with this e-voucher administration system, was that banks were not uploading money as soon as Government released funds. Consequently, farmers received inputs late and this contributed to poor crop yields. However it is important to note that some banks performed exceptionally well last season regarding e-card activations. Banks have now been engaged on the need to promptly upload e-cards as soon as Government gives authorization. Our hope is that the 2018/19 farming season will be devoid of avoidable hiccups of late card activation. Banks are implored to continue
grow agriculture in the country. PMRC therefore advises all farmers that have made deposits to redeem their inputs efgective 1st September 2018. We wish Zambia a productive 2018/19 farming season.
BERNADETTE DEKA Executive Director
UNLOCKING ZAMBIA’S POTENTIAL
POLICY MONITORING AND RESEARCH CENTRE
Plot No. 36C Sable Road,Kabulonga, Lusaka, Zambia Tel: +260 211 269 717 | +260 979 015 660 http://pmrczambia.com For more details, interviews or queries about this PMRC Media Statement Please contact;
PMRC 2019 BUDGET PRESENTATION TO PARLIAMENT | 9
It is important to note that all the 3 modes are still electronic and difger slightly from the old conventional FISP. We hope the new FISP measures will be cost efgective to administer, promote crop diversification, improve timeliness in inputs distribution, improve the quality of inputs, build private sector capacity in inputs marketing and distribution, provide means to easily introduce farm risk mitigation measures and ultimately improve household and national food security as well as farm incomes for smallholder farmers. FOOD RESERVE Government also announced plans to revise the Food Reserve Act in 2019 to enhance sustainability and efgicient management of national strategic food reserves. However, it must be noted that
PMRC made submissions regarding revisions to the Food Reserve Act urging the Zambian government to resist the temptation to get involved in maize marketing through the Food Reserve Agency but focus on investments in key drivers of growth in the agriculture sector that include extension services, livestock management, research and development.
LOCAL CONTENT STRATEGY To promote local content, Government is implementing the National Local Content Strategy aimed at fostering business linkages between micro, small, medium and large enterprises. The strategy also aims to promote use of at least 35 % locally available inputs in industrial processes.
As an institution, we have observed that this is not being fully adhered to and thus we call for more efgorts to improve our manufacturing industry and promote the business climate for producers. We must begin a gradual process of promoting and supporting locally produced products and that will call for a gradual shifu of importing items that can be locally accessed or produced
THE 2019 K86.8 BILLION NATIONAL BUDGET
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MINING Government has made significant progress in the implementation
enhancing monitoring of mineral production and exports. Currently, all the large-scale mining companies are on the system with plans to extend this to small and medium mining companies in 2019. ■ PMRC notes with concern the lack of a financial component in this system which would play a significant role in monitoring financial transactions associated mineral production and exports ■ We still maintain our calls for mineral revenue sharing mechanisms to be in place. This way, communities within the mines will benefit much more than they are benefiting currently ENERGY Under the Energy sector, we acknowledge all the various projects that are currently underway, as we strongly believe that energy is the backbone of an economy. We still reafgirm our strong stance for Government to enhance the development of the renewable energy master plan or policy that will provide guidance about the development
PMRC would like to urge the government to focus on attracting private investment (Independent Power Producers) in the electricity sector by setting a conducive governance environment in the sector. This includes efgective planning, competitive procurement and contracting.
PILLAR TWO - REDUCING POVERTY AND VULNERABILITY Pillar II of the 7NDP aims to reduce poverty by 20% between 2017-2021. The government has identified two development outcomes aimed to reduce poverty and vulnerability: enhanced welfare and livelihoods
reduction. We have observed that expenditure towards social protection has reduced from K2.3billion in 2018 to K2.1billion in 2019. For the social cash transfer scheme, Government plans to maintain beneficiaries at about 700,000.
This is a concern, if we want to achieve our theme of sustainable development.
Its commendable to Government to increase the number of learners
program from 956,000 to 1,250,000 in 2019 and 22,000 to 41,000 in 2019 respectively. In view of enhanced human development, these figures should have been increased even further. Nutrition for school going children remains key if we are to have a healthy society.
THE 2019 K86.8 BILLION NATIONAL BUDGET
We also submit that youths constitute the majority of the population and therefore, empowerment initiatives towards young people should be priotised . PMRC is also enquiring on the status of implementation of the National Youth Policy. We want to track how the entrepreneurship and apprenticeship strategies have faired in view
In order to enhance the livelihoods of women in the country, the government has planned to add 19,000 women to the already 22,000
funded by the World Bank. PILLAR THREE: REDUCING DEVELOPMENT INEQUALITIES In the 2019 budget, government has committed to continue with the construction and rehabilitation of feeder roads under the Rural Connectivity Project, and the construction of basic infrastructure in the newly created districts and the rural electrification programme.
This is commendable in reducing the disparity between rural and urban areas.
It is still unclear how the recently announced austerity measures which stated that priority will be given to projects which are 80% complete will afgect the Rural Connectivity Project and construction of basic infrastructure in newly created districts. Under Decentralisation, PMRC intends to conduct a countrywide survey to asses the level of implementation of decentralisation. In view
following as they continue to implement the decentralisation policy. ■ Provide for consistent monitoring, adequate capacity building and civil society participation to ensure efgiciency and efgectiveness in the devolved functions. ■ Continued political commitment and a positive attitude by personnel assigned to devolve functions. ■ Increased citizens participation at the local planning level, to ensure that resource allocation reflects the local needs and national development plans. The role of Ward Development Committees
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THE 2019 K86.8 BILLION NATIONAL BUDGET
PILLAR FOUR : ENHANCING HUMAN DEVELOPMENT Human development remains critical to inclusive growth and shared prosperity. EDUCATION: ■ The 15.3% allocation falls below the 20% benchmark in the Cairo Declaration ■ The sector must be adequately resourced, dealing with teacher – pupil ration among others ■ Infrastructure especially in the rural areas also remains key HEALTH ■ The 9.3% falls below the 15% benchmark of the Abuja Declaration ■ Access to quality health care especially in the rural areas remains a concern ■ Government should expedite the construction of rural health facilities PILLAR FIVE: CONDUCIVE GOVERNANCE ENVIRONMENT FOR A DIVERSIFIED AND INCLUSIVE ECONOMY Policy, Regulatory and Structural Reform On the fiscal policy side, Government through the 2019 budget has recognized that fiscal consolidation requires that the overall budget deficit is reduced in order to anchor macroeconomic stability and create space for private sector growth by cutting expenditure and increasing domestic resource mobilization strategies. The adverse efgects of fiscal deficits on an economy cannot be overemphasized. ■ Budget deficits reduce levels of credit for private sector growth, create higher inflationary pressures and volatility in the exchange rate.
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THE 2019 K86.8 BILLION NATIONAL BUDGET
Measures by the Government: i. Significant reduction in expenditure on administrative parts of the public service so as to prioritise allocations to key service delivery expenditures such as drugs;
to only 3,500 frontline personnel
phasing the completion of existing projects by prioritizing projects that are at least 80 percent complete.
To broaden the tax base and enhancing compliance levels. Key measures to be undertaken include the following: i. Digitalisation of all revenue collection processes for Government services. ii. Enhancing system interface between Zambia Revenue Authority and other institutions to maximise the use of third-party data in taxpayer compliance management;
appropriate taxes and fees can be collected;
land management and titling. This will accord citizen security of land tenure and boost revenue from ground rent; v. Establish a public auction mechanism for timber and lifu the ban on all timber exports; and
exemptions to ensure fulfillment of investment pledges.
■ Mining activates in the country need to be monitored ■ We commend Government on the introduction of an export duty
additional revenue from the mining sector. LAWS Government enacted the revised Public Finance Management Act earlier in 2018. We need ensure adherence and compliance to this piece of legislation and we as PMRC have been strong proponents of punitive measures in the Public Finance Act. Debt Management Policy The measures undertaken by Government in June2018, aimed at returning the country to a moderate risk of debt distress in the medium-term and to low risk over the long-term are commendable. The Minister during the budget presentation also emphasized that consultations were ongoing on specific measures to reduce planned and existing debt and to reduce debt service obligations over the medium to long-term
We still need a comprehensive strategic plan on how debt will be dismantled going
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THE 2019 K86.8 BILLION NATIONAL BUDGET
Arrears Dismantling Strategy Dismantling of arrears remains key to improving liquidity to the private sector in the domestic economy and to promoting economic activity. This also helps to reduce the risks associated with nonperforming loans in the banking sector. Government has committed itself to continue with the dismantling of arrears and strengthen expenditure commitment control systems in order to curb the accumulation of new arrears. On such expenditure control is the Integrated Financial Management Information system (IFIMIS). Rebasing of the Gross Domestic Product In 2019 Government will undertake an exercise to rebase the Gross Domestic Product, an exercise last conducted in 2012. The rebasing
information on the current size and structure of the national economy. The rebasing will also provide Government with an opportunity to update and develop appropriate social and economic indicators to measure progress in achieving the objectives under the National Development Plans and the Sustainable Development Goals.
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THE 2019 K86.8 BILLION NATIONAL BUDGET
REVENUE MEASURES Highlights: Revenue Measures ■ Abolish the Value Added Tax and replace it with a simpler and non- refundable Sales Tax ■ Increase the penalty for non-compliance with transfer pricing regulations to eighty million penalty units from ten thousand penalty units ■ Increase the withholding tax rate on dividends, interest and branch pro t remittance to 20 percent from 15 percent ■ Abolish the current turnover tax regime and re-introduce a flat rate of 4 percent on business turnover below K800,000 per annum ■ Introduce an excise duty of 30 ngwee per litre on non- alcoholic beverages. ■ Lifu the ban on exports of raw hides and skin and introduce an export duty of 10 percent on these items ■ Increase excise duty on plastic carrier bags to 30 percent from 20 percent ■ Increase the customs duty on used and retreaded tyres from 25 percent or K3.00 per Kg to 40 percent or K5 per Kg ■ Increase the customs duty on powdered milk to 15 percent from 5 percent ■ Increase the period of absence from Zambia required for a
GENERAL COMMENTS AND CONCLUSION ■ As an institution, we are monitoring the Austerity measures that were announced by the ministry of finance in July this year. Government needs to adhere to these commitments. ■ Under economic afgairs, road infrastructure accounts for 6,501, 672, 380 – in view of austerity measures, some non priority roads should be halted and this figure drastically reduced. ■ In view of 54% of the budget anchored on tax revenue, there is urgent need to broaden the tax base (with a clear starergy on informal sector taxing). This will ease the tax burden on the those in formal employment.
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THE 2019 K86.8 BILLION NATIONAL BUDGET
returning resident to qualify for a rebate on duty payable on a motor vehicle per household from 2 years to 4 years ■ Increase mineral royalty rates by 1.5 percentage points at all levels of the sliding scale ■ Introduce a fourth-tier rate at 10 percent on the sliding scale mineral royalty regime which would apply when copper prices rise beyond US$7,500 per metric tonne; ■ Make mineral royalty tax non- deductible for income tax purposes; ■ Introduce an import duty at the rate of 5 percent on copper and cobalt concentrates ■ Introduce an export duty on precious metals including gold, precious stones and For the 2019 Budget implementation to score above 70% success, i. Government must enforce and improve public finance management and curbing the misuse of public resources
management mechanism that would be transparent, accountable and participatory
development to involve the private sector, especially the small and medium actors, for collective development Growth strides should directly translate into improved living standards for the people
stipulated and there should be strict financial management at all levels.
PMRC 2019
Policy Monitoring and Research Centre (PMRC) Plot No. 36C Sable Road, Kabulonga, Lusaka, Zambia Private Bag KL 10 Tel: +260 211 269 717 | +260 979 015 660
PRESENTATION TO PARLIAMENT THE BUDGET COMMITTEE