BUDGET YEAR 2000
Budget Address by The Hon. Dr. Katele Kalumba, MP Minister of Finance and Economic Development
Delivered to the National Assembly on Friday 28th January 2000
1. Mr Speaker, Sir, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Revenue and Expenditure for the year 1st January 2000 to 31st December 2000, presented to the National Assembly in January 2000.
2. Mr Speaker, Sir, I am the bearer of a message from the President recommending favourable consideration of the motion I now lay on the Table.
3. Mr Speaker, Sir, the message I bring before the House comes in the wake of very challenging developments that I shall speak about in more detail later. However, despite these challenging developments, our economy has shown remarkable resilience in shouldering the shocks occasioned on it. This resilience has not developed by accident. It is the result of years of determined leadership and resolve to defeat the shackles of underdevelopment. For this, I pay tribute to all my predecessors, my colleagues in the Government leadership and to the Republican President, Mr. F.J.T. Chiluba. I also pay tribute to you, Mr Speaker, Sir, and the distinguished members of this august House for spearheading the legislative measures that have enabled us to pursue a world class programme of economic and political reform.
4. Mr Speaker, Sir, I would also like to emphatically recognise the silent but vital contribution of the Zambian people at large, on whose shoulders the cost of reform has rested for all these years. It is to them that any success we have achieved is owed, and to them that we have an onerous responsibility to liberate our country from its present economic difficulties.
5.
Mr Speaker, Sir, in recognition of this responsibility, it is our bounded
duty to demonstrate that the reforms we are undertaking deliver tangible and
lasting improvement in the lives of ordinary Zambians. The thrust of my message
today is rooted in this recognition, and in the firm belief that we must break
out of the cycle of negative dynamics, that not only wastes the time and
energies of our people, but deprives them of the opportunity to reap tangible
benefits from the opportunities we are creating for them. I will elaborate this
principle later on in my address.
6. Mr Speaker, Sir, I start my message in Part One by briefly reviewing the performance of the global economy last year. Next, in Part Two, I review our economic performance in 1999. In Part Three, I outline Government’s macroeconomic policies for 2000. Thereafter, in Parts Four and Five, I present details of our expenditure and revenue measures for the year and then conclude my message for this afternoon in Part Six.
7.
Mr Speaker, Sir, in this era of increasing globalisation, international
economic trends have considerable influence on our economy. There are at least
three compelling reasons why international economic developments have a bearing
on our economy and the way we manage it. The first of these is that the extent
of global demand has a direct influence on the levels of our exports, both in
terms of metals and non-traditional commodities.
8.
The second influence is on the flow of direct investment into our
economy. This is vital for the successful implementation of our privatisation
programme, which in turn can generate the necessary investor confidence in the
economy for accelerated growth and employment creation. Finally, developments in
the global economy are important indicators through which we can monitor our own
performance, and refine our tools of economic management.
9.
Mr Speaker, Sir, the world economy showed signs of recovery in 1999 with
global output increasing by an estimated 3 percent. This follows the slowdown in
growth to 2.5 percent in 1998 from the 4.2 percent recorded in 1997. The
increase in the 1999 growth rate is evidence that the contagion triggered by the
financial crises in South East Asia, Russia and Brazil has subsided, and that
confidence in the affected countries has been restored. However, global trade
remained subdued at 3.7 percent in 1999, from the 3.6 percent recorded in 1998,
after having been 9.9 percent in 1997.
10.
Mr Speaker, Sir, output in developing countries is estimated to have
increased by 3.5 percent in 1999. This is a slight improvement on the increase
of 3.2 percent recorded in 1998. For Africa, growth in output slowed down from
3.4 percent in 1998 to 3.1 percent in 1999. I attribute this slowdown to
persistent weaknesses in prices of non-oil commodities in international markets,
and disruptions in economic activity brought about by the civil strife that has
continued to plague the continent.
11.
Mr Speaker, Sir, while inflation in the major industrial countries
increased marginally from 1.3 percent in 1998 to 1.4 percent in 1999, in
developing countries inflation decelerated to 6.7 percent from 10.3 percent in
1998.
12.
Mr Speaker, Sir, in 2000 the world economy is projected to grow by 3.5
percent. Compared to this projection, the outlook for Africa is more optimistic,
where output is projected to grow by 5 percent. However, achievement of this
level of growth will require astute economic management, persistent
implementation of economic reform measures and avoidance of needless disruptions
to economic activity through civil strife.
13.
Mr Speaker, Sir, the general global economic performance I have just
outlined shows that confidence in the international economy is returning, and
that this trend holds out favourable prospects for the year ahead. However,
these prospects will only materialise if we position ourselves to take full
advantage of the opportunities that will arise.
14.
With this in mind, I now review the performance of the domestic economy
in 1999.
15. Mr Speaker, Sir, our macroeconomic targets in 1999 were to achieve a real growth in gross domestic product (GDP) of 4 percent, a year-end inflation rate of 15 percent and to rebuild our international reserves by US $120 million.
16.
Mr Speaker, Sir, the delay in the privatisation of ZCCM presented
considerable challenges for our economy in 1999, and acted as a major drag on
economic performance. There were two major implications of the delay on our
economy. The first was that it generated uncertainty and financial drain that
resulted in operational problems for the mining industry. These operational
problems translated into lower output and thus reduced export earnings for the
country. The difficulties also meant that ZCCM could not meet its tax
obligations, nor could it pay its suppliers, who were in turn unable for the
most part to meet their tax obligations. As a result, our mobilisation of
domestic revenue was considerably constrained.
17.
The second implication of the delay in concluding the transaction for the
sale of ZCCM was that donors could not disburse all of the pledged balance of
payments support. Out of the pledged amount of US $307 million, only US $175
million, representing 57 percent, was disbursed. Combined with the reduction in
export earnings, this had adverse effects on our external sector, and presented
serious difficulties in meeting our objective of building our international
reserves.
18.
Mr Speaker, Sir, despite these setbacks, there were positive movements in
all the major economic variables. Whereas in 1998 our gross domestic product
shrank by 2 percent, in 1999 it grew by 2 percent. Similarly, inflation fell
from 30.6 percent at the end of 1998 to 20.6 percent at the end of 1999. Our
international reserves also rose by 5 percent.
19.
Mr Speaker, Sir, these achievements bear testimony to our steadfastness
in pursuing our economic programme. I do not doubt for one moment that, with all
the difficulties we have been through, our economic performance would have been
a lot worse.
20.
I will now review the major developments in our economy in a little more
detail.
21.
Mr
Speaker, Sir, the agriculture sector performed well in 1999. Agricultural output
increased by 13.8 percent compared to an increase of only 1.8 percent in 1998.
Significant increases were recorded in the production of major crops such as
maize, rice, mixed beans, seed cotton and soya beans. These increases expanded
the contribution of agriculture to GDP from 16.4 percent in 1998 to 18.3 percent
in 1999.
22.
The positive performance of the sector was tempered by the unsatisfactory
performance of livestock production, which was adversely affected by disease
outbreaks of East Coast Fever and Contagious Bovine Pleural Pneumonia in cattle
and Newcastle Disease in poultry.
23. Mr Speaker, Sir, in 1999 the mining sector impacted negatively on national output for the second year running. Preliminary data shows that output in the sector fell by about 25 percent, having declined by a similar margin in the previous year. Copper production is estimated to have declined from about 298,900 tonnes in 1998 to 260,300 tonnes in 1999. Similarly, cobalt production fell from about 5,000 tonnes in 1998 to 3,300 tonnes last year.
24.
Mr Speaker, Sir, I attribute this negative performance to the continued
difficulties with the privatisation of the remaining major assets of ZCCM that
resulted in no capital investment being undertaken. This, and the operational
difficulties referred to earlier, contributed to the lower than targeted
production and the liquidity problems faced by the company.
25.
Mr Speaker, Sir, Honourable Members of the House may recall that on 15th
December last year, Government signed a legally binding agreement with Zambia
Copper Investments (ZCI), a subsidiary of Anglo American Corporation, for the
sale of Nchanga, Konkola and Nampundwe mines. Similarly, Heads of Agreement were
signed on 7th January this year with First Quantum Minerals and Glencore AG
International for the sale of Nkana mine and Mufulira Division.
26.
With the conclusion of the privatisation of ZCCM, I am confident that the
uncertainty and pessimism that has characterised the mining industry in
particular, and the economy as a whole, will be over. I am also confident that
the new owners of the mining industry will bring in much needed investment that
will revitalise the mining industry and create new opportunities for employment
in the country.
27.
Despite
the disappointing output performance of large-scale mining, interest continues
to be shown in prospecting and exploration for base metals. Most of the
prospecting areas are being worked by major reputable mining houses. The most
significant and completed works were on the Kansanshi Mine and the Konkola North
area.
28.
Mr
Speaker, Sir, the tourism sector performed well in 1999. Preliminary estimates
indicate that tourist arrivals increased by 23 percent during the year, while
revenue receipts from tourism increased by 14 percent. These indications are
evidence that the measures we have been instituting in the sector are beginning
to pay off, and we are seeing the emergence of tourism as a major income earner
for the country.
29.
There were two other encouraging developments in the tourism sector
during the year. The first was the conclusion of lease agreements for Chichele
and Rainbow lodges that brought the total of signed lease agreements to 28. The
second, and perhaps more important development was the commencement of the
construction of the Sun International Hotel at the Victoria Falls. This project,
with an investment outlay of US $55.8 million over the next two years, will
result in a major transformation of the tourism industry and buttress the status
of Livingstone as our tourist capital. As components of this transformation, the
Livingstone airport will be upgraded to international status, and infrastructure
within the municipality will be rehabilitated.
30.
With these developments, I foresee a rapid expansion of the tourism
sector within the next few years that will increase its contribution to our
national income, and establish it as a major source of employment in the
country.
31.
Mr
Speaker, Sir, growth in the manufacturing sector increased to 2.8 percent in
1999 from 1.8 percent in 1998. The sources of growth were mainly in food,
beverages and tobacco, textile and leather products, and paper and paper
products sub-sectors. The support given to the sector through the reduction of
duty on certain imports continued to be a significant booster to output growth.
Further, with the completion of the privatisation of ZCCM, there is renewed
optimism for accelerating growth in the manufacturing sector.
32.
Mr Speaker, Sir, in 1999 the construction sector
grew by 11.2 percent from a decline of 10.1 percent the previous year. This
positive development is attributed to continued expansion in the Government's
road maintenance and construction activities, development of prime new
commercial real estate such as Manda Hill and housing construction under schemes
such as the Presidential Housing Initiative (PHI).
33.
Mr Speaker, Sir, as the President noted in his Opening Speech last week,
the privatisation programme as a whole has made significant progress. In 1999,
the Government privatised 4 companies. In addition, a 20 percent share and
management rights in the Zambia Telecommunications Company (ZAMTEL) was offered
for sale. The Zambia Privatisation Agency was also instructed to study options
for the privatisation of the Zambia Electricity Supply Corporation (ZESCO), the
Zambia National Oil Company (ZNOC), INDENI oil refinery, TAZAMA Pipeline, the
Zambia Postal Services Corporation (ZAMPOST) and the Zambia National Commercial
Bank (ZANACO).
34.
Mr Speaker,
Sir, Government continued with the implementation of the Public Service Reform
Programme in 1999. A total of K51
billion was spent on separation packages and a number of institutions were
hived-off for commercialisation as at end-December 1999. In particular, the
Government hived-off the National Institute of Public Administration (NIPA), the
National Parks and Wildlife Department (now transformed into the Zambia Wildlife
Authority - ZAWA) and the Department of Technical Education and Vocational
Training, (DTEVT) which is now renamed the Technical Education and Vocational
Education and Training Authority (TEVETA).
35. During 1999, the Government with support from co-operating partners initiated a study aimed at integrating the payroll and establishment register of the civil service. The decentralisation of the payroll aimed at enabling Controlling Officers of ministries and provinces to be able to effectively manage their payrolls and establishments was completed.
Monetary and Financial Sector Developments
36.
Mr
Speaker, Sir, the major objectives of monetary policy in 1999 were to reduce
inflation, achieve stability in the exchange rate and to enhance the stability
of the financial system.
37.
In 1999, we had significant inflationary pressure induced by upward
adjustments in the prices of petroleum products and electricity tariffs.
However, we persisted with the implementation of tight monetary and fiscal
policies. This, and the improved supply of foodstuffs arising from good
performance of the agriculture sector, led to a deceleration in inflation by 10
percentage points from 30.6 percent at the end of 1998 to 20.6 percent at the
end of 1999.
38.
Sir, in 1999, the exchange rate was relatively stable compared to 1998.
Whereas in 1998 the commercial banks' average selling rate of the Kwacha against
the United States dollar depreciated
by 64.5 percent, in 1999 it only depreciated by 14.7 percent, in nominal terms.
The maintenance of appropriately tight monetary and fiscal policies and the
resumption of balance of payments support, as reflected in the net official and
private capital inflows during the year, contributed to exchange rate stability.
39.
Mr Speaker, Sir, the overall performance of the banking sector in 1999
improved as reflected in capitalisation, asset quality, and liquidity. Total shareholders equity stood at an estimated K218.9 billion from
K161.0 billion at end-1998. The total assets of the banking sector increased to
K1,830 billion in 1999 from K1,483 billion at end-December 1998. The quality of
loans improved as reflected in the drop in non-performing loans to K84.3 billion
from K109.7 billion. The ratio of liquid assets to total deposits was 17 percent
above the minimum recommended prudential ratio of 50 percent.
40.
These indicators all point to a very robust and stable financial system.
Given the critical importance of the financial sector to the development of the
private sector, it is our intention to ensure that the banking industry remains
strong. In this regard, Government
will not hesitate to deal decisively with any bank that fails to comply with
prudential and regulatory requirements aimed at upholding the stability of the
financial sector.
41.
Mr Speaker, Sir, during the year, the Government continued to take
measures to develop capital markets. Market capitalisation of the Lusaka Stock
Exchange (LuSE) increased to K767.2 billion at end-1999 from K705.1 billion at
end-1998. There was also an
increase in the number of public companies quoted on the second tier of the
market. Furthermore, numbers of issues and secondary trades in government bonds,
on LuSE increased. There were 13
and 12 issues of the 12-month and 18-month GRZ bonds, respectively. The number
of secondary trades in government bonds increased by 388 percent with a
resultant 233 percent increase in the volumes traded to 10.0 billion in 1999
from 4.3 billion in 1998.
42.
During
1999, we also witnessed the issuance of the first ever rights issue on LuSE by
Zambian Breweries plc. amounting to K22.9 billion, and an issuance of corporate
bonds by the PTA Bank. The harmonisation of stock exchange listings by capital
markets in SADC was also completed in 1999. This harmonisation enabled LuSE to
upgrade its listing requirements to international standards which allows it to
promote dual listings and cross-border investment.
43.
Clearly, these developments are evidence that our capital market is
emerging, not only as a vital arm of our financial sector, but as an essential
vehicle through which our economy will plug into the international economy and
thus attract the necessary inward investment from international markets.
44.
Mr Speaker, Sir, preliminary indications are that
there was an improvement in our external sector in 1999. The current account
improved from minus US $516 million in 1998 to minus US $500 million in 1999,
while the overall balance improved from minus US
$275 million in 1998 to minus US $185 million in 1999. This improvement
was due to increased net inflows of current transfers following the resumption
of external support by some of our cooperating partners as well as net capital
inflows which outweighed the deterioration in the trade balance.
45.
The total value of exports fell from US $858 million in 1998 to US $753
million in 1999. Of this amount, US $481 million were metal exports, and US $272
million were non-traditional exports. Metal exports were 14.4 percent lower as a
result of the difficulties experienced in the mining sector, while
non-traditional exports were 8 percent lower largely as a result of depressed
prices, slow recovery in demand in the global economy and civil strife in the
Democratic Republic of Congo and the Great Lakes Region. This development
justifies why our President, Mr. F.J.T. Chiluba's efforts to bring peace to the
Democratic Republic of Congo must be applauded and supported.
46.
Sir, in 1999, imports also fell from US $1,017 million in 1998 to US $939
million. The decline in imports is largely attributable to a significant
reduction in mining sector imports, which declined by 51.2 percent during the
year. On the other hand, there was an increase of 91.3 percent in the value of
petroleum imports on account of the need to import finished petroleum products
after the fire at INDENI refinery during the year.
47.
Mr Speaker, Sir, our external debt stock at the end of 1999 was estimated
at US $6.5 billion. This is lower than the stock of US $6.98 billion at the end
of 1998. The decline in our debt stock is attributed to our continued repayments
of loans and clearance of external arrears. We were also able to reschedule US
$443 million of our external debt with bilateral creditors during the year.
48.
The large external debt overhang debilitates our efforts to develop,
dissipates a considerable amount of our energies, and absorbs vital resources
that could best be used to support the development of our country. In this
regard, it is essential for us to continue to diligently pursue our economic
programme, as it is the only option for us to become eligible for debt relief
under the Enhanced Heavily Indebted Poor Countries (HIPC) initiative by the end
of this year.
49.
Mr Speaker, Sir, the Budget performed well in 1999 despite the many
difficulties we experienced. Honourable Members may recall that we aimed to
raise K1,460 billion as domestic revenue and spend K1,353 billion thereby
achieving budget savings of K107 billion. Despite a 9.4 percent shortfall in
revenue, amounting to K137.8 billion, we were able to achieve a surplus of K70.9
billion.
50.
During the year, our domestic revenue mobilisation was hampered by the
difficulties experienced in the mining sector, particularly by ZCCM. As a result
of the liquidity problems the company experienced, ZCCM defaulted on payments to
a large number of suppliers, and was unable to keep up payments of taxes.
Additionally, the suppliers to whom ZCCM defaulted could equally not fully
discharge their tax liabilities. Non-tax revenue also performed poorly, and
Government was only able to collect 55 percent of projected revenue from this
source.
51. Mr Speaker, Sir, these shortfalls of revenue severely undermined our capacity to finance domestic expenditure. In 1999, domestically financed expenditure was 7.5 percent, or K101.9 billion below the budgeted amount of K1,353 billion. This situation was worsened by expenditure overruns on domestic arrears and domestic interest payments, and would have been much more severe had it not been for the cushioning effect of the contingency reserve.
Part III
Macroeconomic Policies For 2000
Macroeconomic Policy Objectives
52.
Mr Speaker, Sir, I would like to echo the optimism expressed about the
economy by the President in his Opening Speech to Parliament last Friday. The
optimism we all share requires a genuine desire by those charged with
responsibility, to effectively take advantage of the opportunities we have to
improve the lives of the ordinary Zambian. As the President rightly said in his
Opening Speech, it is the duty of everyone that has been entrusted with this
task to ensure that we develop. Development is not about figures and statistics,
but about people and their needs, and about people and their lives. It is true
however, that beyond the need to measure our progress through numbers, our
people need to see the rewards of reform, for it is in their name and for their
benefit that we carry it out.
53. Our broad macroeconomic objectives are guided by our commitment to accelerate and sustain economic growth and reduce poverty. For 2000, this will mean consolidating the gains that were made in 1999 and enhance economic stability and growth. In particular, we are targeting 4 percent real growth in GDP, 14 percent end of year consumer price inflation, and a reserve build up of at least US $100 million. To achieve these targets we will need to limit the domestic deficit to 1.3 percent of GDP.
54.
Mr Speaker, Sir, this year's budget, coupled with appropriately tight
monetary policy, will support the
continuation of the downward trend in inflation started in 1999 and maintain a
stable exchange rate - both of
which are prerequisites for sustaining positive economic growth. The budget will
also enhance our efforts to combat poverty by promoting economic growth and
protecting spending on social services and welfare programmes.
55.
Sir, the imminent conclusion of the sale of the remaining major assets of
ZCCM, the payment of ZCCM suppliers and the granting of tax incentives to
various sectors of the economy, will lead to a restoration of investor and
general business confidence. I am confident that employment opportunities will
be created and a vibrant and dynamic economy, with opportunities for all
Zambians will once again become a reality.
56. Mr Speaker, Sir, this year's
budget will form the bedrock of a prudent and aggressive programme of economic
and financial management that will target tangible economic growth and enhance
our efforts to combat poverty and improve the delivery of social services.
Although we have broken the back of inflation and stabilised our exchange rate,
there is still need for more concerted action to ensure that the gains we have
made so far are consolidated.
57.
Mr Speaker, Sir, prudent macroeconomic policies are not the be all and
end all of economic management. They must
be complemented by effective structural reforms in order to promote positive per
capita growth and reduce poverty. Specifically, we must continue with our Public
Service Reform Programme - but implemented in its widest sense - without
focusing entirely on the retrenchment aspects of the programme. We must exercise
public sector wage restraint to ensure that resources are available for
development and social service delivery.
58.
We must finalise the privatisation of the remaining major assets of ZCCM
and expedite the privatisation of the non-ZCCM parastatals. We must continue our
efforts to strengthen the banking sector so that it can become an effective
springboard of our economic development. We must provide growth-enabling
infrastructure and maintain - indeed where resources allow, endeavour to
increase - the share of the social
sectors in the Budget.
59.
These structural reforms are essential in order to remove the bottlenecks
that hamper the development of the private sector and our ability to improve the
quality of social and other services provided by Government. The expenditure
measures for 2000 have been planned in the context of these objectives
60.
Mr Speaker, Sir, I wish to stress that underpinning our economic policies
is the firm belief that to create a dynamic and successful economy we must
ensure that our workers are productive, we must improve the efficiency of
capital investment, and safeguard our natural resources.
61.
Mr Speaker, Sir, I will now
address our specific macroeconomic policies for the year ahead.
62.
Mr Speaker, Sir, consistent with the inflation and growth targets,
monetary policy in 2000 will aim at restraining monetary expansion to 18.6
percent. This will involve keeping monetary policy relatively tight complemented
by tight fiscal policy.
63.
Sir, the conduct of a strong anti-inflationary monetary policy, in the
context of a liberalised economic environment, requires judicious application of
market-based monetary instruments, which in our case include open market
operations and trading in Government securities. For these instruments to be
fully effective, development and stability of the financial system as well as a
stable exchange rate are essential.
64.
Mr Speaker, Sir, to consolidate the gains made in this area and to
strengthen the capacity of the Bank of Zambia to supervise and monitor banks and
non-bank financial institutions, I will this year be seeking the support of the
Honourable Members to expeditiously pass the Bill on the amendments to the
Banking and Financial Services Act. The amended Act will equip the Bank of
Zambia with the powers needed to deal decisively with any bank or financial
institution that fails to comply with prudential and regulatory requirements
whose observance is necessary for financial sector stability.
65.
Sir, with regard to the stability of the exchange rate, I wish to stress
that liquidity restraint through tight monetary policy is not and cannot by
itself ensure stability of the exchange rate. Increased supply of foreign
exchange is a more lasting and assured way by which this can be achieved. In
this regard, completion of the privatisation of ZCCM and the entrance of Sun
International in the tourism sector will serve as important stimuli to the
growth of our export sector. Another important avenue by which our foreign
exchange reserves will be augmented will be through increased balance of
payments support and foreign investments, attracted by our liberal environment,
which, with the privatization of ZCCM, will have been made even more attractive.
66. Mr Speaker, Sir, Members of the
House will agree that money laundering and associated vices are a dangerous
threat to the integrity of our economy, the development of a vibrant private
sector, the viability and stability of the financial system, and the well being
of our citizens. I therefore appeal to this august House to lend its full
support to the enactment of the Anti-Money Laundering Bill. I trust that the
enactment of this important piece of legislation will be expedited for the sake
of a stable financial system and the well being of all law-abiding citizens of
this country.
67. Meanwhile,
I have directed the Bank of Zambia to take all necessary measures to ensure that
the bureaux de change, which are more susceptible to money laundering and
rampant externalisation of foreign exchange, focus on their core business of
being simply money changers. Bank of Zambia will review the licensing
requirements and operational guidelines of the bureaux de change and banks to
bring them in line with international practice. In particular, a lower cap must
be placed on the value of over-the-counter cash transactions - in banks
as well as bureaux de change.
68.
Mr Speaker, Sir, to increase production in the economy, Government will
continue to provide the necessary legal, regulatory and stable macroeconomic
environment conducive for investment and development of a vibrant private
sector. It will also work towards strengthening the co-operative movement to
revamp smallholder agriculture. The Government with support from co-operating
partners is providing growth supporting infrastructure and resources through
sector investment programmes such as RoadSIP, ASIP and the Power Rehabilitation
Programme. All these programmes are aimed at addressing specific bottlenecks
that currently hamper private sector investment. In addition to the provision of
infrastructure, the Government also provides tax incentives to identified
sectors of the economy to enhance production.
69.
In addition to maintaining existing incentives given to agriculture and
other sectors, in this year's budget, I have provided specific tax incentives to
the manufacturing, mining and tourism sectors, as well as general tax incentives
provided to all sectors. The tax incentives are intended to reduce costs of
production and improve competitiveness of our industries as we open our borders
through the proposed SADC and COMESA Free Trade Areas.
I am also confident that, with the imminent completion of the ZCCM
privatisation and the progress on the construction of a hotel in Livingstone by
Sun International, the resultant increase in economic activities will have
beneficial effects to all sectors of the economy.
70.
Mr Speaker, Sir, with regard to the agricultural sector, Government remains
committed to the liberalisation policy in the sector. Input procurement and
distribution as well as crop marketing will continue to be performed by the
private sector. Government will only intervene in cases of proven market failure
and in emergencies - to avert starvation and ensure national food security. In
line with this policy, support is being provided to the Food Reserve Agency (FRA)
to facilitate the purchase of produce for the strategic food reserve from
farmers in disadvantaged areas not currently serviced by private traders.
71.
Moreover, to increase production whilst addressing the serious problem of
inadequate financing, which arose after the collapse of the agricultural
financial institutions, the Government with assistance from the World Bank, will
make available resources in the form of concessional loans to small scale
farmers for input procurement. The implementation modalities of this scheme are
being worked out and the scheme will be effected before on-set of the next
agricultural season-2000/2001. This is a practical step to assist small-scale
farmers who are currently unable to borrow from the commercial banking sector.
Export
and Investment Promotion
72. Mr Speaker, Sir, Government is
committed to the diversification of economic activity, promoting non-traditional
exports and encouraging both domestic and foreign investment in the economy.
To this effect, producers of non-traditional exports have been granted
preferential corporate tax rates and can benefit from other fiscal incentives
like the duty drawback scheme. Government has also established agencies - most
notably the Investment Centre and the Export Board of Zambia - to facilitate
productive private sector investment and encourage exports.
73. Along with our co-operating
partners, Government has initiated several term financing facilities, such as
the European Investment Bank facility and the World Bank Multipurpose Credit
Facility (MCF), to assist entrepreneurs with the finance they require to bring
their business plans to fruition. In addition, as the President announced when
he officially opened this session of Parliament, the Development Bank of Zambia
is being restructured to enable it perform its vital role more effectively.
74. Government's
liberal economic environment, with the transfer of economic assets into private
hands under the privatisation programme, a freely exchangeable currency and the
ability to remit profits, underpins Government's investment and export promotion
policy and will continue to be
consistently maintained and strengthened in the years ahead.
75.
Mr Speaker, Sir, the central objective of the Public Service Reform
Programme is to enhance the performance of the public sector in ways that
directly benefit the ordinary Zambian. From a political perspective, the
programme must be seen, not as a numbers game, or an aimless surgical exercise,
but as a comprehensive exercise aimed at addressing the expectations of our
people from the public service.
76. From a public finance
perspective, the programme must yield two things. Firstly, it must yield better
value-for-money for the resources that taxpayers avail us. It is imperative that
for each Kwacha spent, there is a corresponding, measurable and visible impact
on the ground. We simply cannot afford fragrant misuse of the limited resources
that we have at our disposal. Secondly, the public service reform programme must
yield better targeting of resources to priority areas that will support
development in the country. There is need to free as much of our resources as
possible and direct them towards these critical areas, if the efforts we are
undertaking are to make any meaningful impact on the people.
77. Mr Speaker, Sir, the public
service reform programme is a war against inertia, wastage and bureaucratic
arrogance. It seeks to unlock the self-serving mindsets of institutions and
individuals and shape the public service into a structure that works for the
people and not for itself. The public service must be assisted to resist the
inert temptation of routine folio and monocratic management which undermines the
intentions of public policy. Zambians expect more and better service from all of
us.
78. To achieve the performance
enhancement objective of the PSRP, Government will widen its scope and effect
wide ranging structural reforms. In particular, Government will:
· rigorously apply the principle that if the private sector can do a task at least as well as Government, then the private sector should do it. Therefore operations will be commercialised / privatised wherever possible to relieve pressure on the budget,
· re-examine the cost-effectiveness of, and the conditions of service within, the increasing number of grant-aided-institutions,
· review policy in high cost areas like the financing of tertiary education and housing for civil servants who have not benefited from the civil service house sales scheme,
· exploit the information superhighway to carry out our information dissemination activities effectively and cheaply rather than through costly overseas residence,
· institute stringent cost control measures in areas like telephone and vehicle use, electricity and water consumption, foreign travel and official entertainment, and
·
review procurement procedures to obtain best
value-for-money and control the ability of Government to commit resources far in
excess of our ability to pay.
79. During 2000, the Government will launch the Public Service Capacity Building Project whose objective is to build the capacity of the public service to manage and implement reforms in the delivery of services, allocation of resources and formulation of policy. As part of this programme, we also hope to build on the work began in 1999 aimed at integrating the payroll and establishment register of the civil service. The positive response we have received from our co-operating partners is acknowledged. In the medium term, Government will continue to review and rationalise the operations of ministries/departments so that they focus on core functions, cease non-essential activities and avoid duplication of effort.
80. Mr Speaker, Sir, poverty is an
undesirable reality in our lives in Zambia today. The high incidence of poverty
is a source of grave concern to us in Government.
81.
Mr Speaker, Sir, the Government understands that the long-term solution
to poverty reduction is through broad based economic growth, and the jobs and
self-employment opportunities that are created as a result. It also understands
that it entails the cost effective provision of social services, delivered to
ensure gender equality of access to these services. The Government's National
Poverty Reduction Action Plan is no less than Government's overall programme -
re-examined to ensure that every programme and project it undertakes is
redesigned, where necessary and appropriate, to ensure a pro-poor stance. It entails no less than the mainstreaming of pro-poor
thinking in the planning and implementation of the entire spectrum of Government
programmes.
82. Mr Speaker, Sir, last year ESAF
was replaced by the Poverty Reduction and Growth Facility (PRGF). Under the PRGF,
Zambia would be required to develop a Poverty Reduction Strategy Paper (PRSP)
which would clearly spell out priorities for actions that would have the
greatest impact on reducing poverty.
83. Mr Speaker, Sir, at the beginning
of my address, I mentioned the need for us to deepen the consultative process in
the design of our economic programmes. In this respect, it is Government's
intention to make the PRGF country-owned by encompassing ideas of all
stakeholders including the Government, civil society and relevant international
institutions and donors. It is, therefore, essential that, with your support and
that of the people of Zambia, we do everything possible to ensure that the PRGF
is not derailed and jeopardise our chances of accessing the debt relief.
84.
Mr Speaker, Sir, the Government has long realised that it is through a
partnership with the private sector that economic growth is best enhanced. Hence
the adoption and implementation of liberalisation policies and the privatisation
of state owned enterprises. The
privatisation of ZCCM is an important milestone in our privatisation programme
which opens the door for full private sector participation in the economy which
has great potential for creating
employment and thereby reducing poverty.
85.
Mr Speaker, Sir, Honourable Members, one of the serious obstacles to
addressing poverty has been the overarching external debt burden. It is
therefore gratifying to note that if this year we successfully implement our
economic reform programme, we will qualify for substantial debt relief under the
Enhanced HIPC Initiative. In subsequent years, the resources released from our
substantially reduced debt service payments will be applied to much larger
growth enhancing and poverty reducing expenditure programmes.
86. Mr Speaker, Sir, I wish to
emphasise that the only vehicle for accessing this debt relief is the
consistent, sustained and successful implementation of our economic programme.
We are on the verge of being considered for this support under the IMF and World
Bank sponsored Enhanced HIPC Initiative. It is, therefore, critical that we do
everything possible to ensure that we do not derail the programme and jeopardise
our chances of accessing this relief.
87.
Mr Speaker, Sir, Honourable Members of the House will recall that at the
last Paris Club meeting held for Zambia in April 1999 we were offered debt
relief of up to 67 percent, in net present value terms, on eligible debt service
falling due between March 1999 and April 2002. We have since ratified the terms
of this relief with most of our bilateral creditors, and we are grateful to all
of them for their support in this regard.
88. However,
despite this relief, our debt burden remains unsustainable and continues to
hinder our development efforts. Although we are exploring all available options
for faster, deeper and broader debt relief, the most practicable and easily
achievable option before us is to gain access to the Enhanced Heavily Indebted
Poor Countries (HIPC) Initiative. This facility provides relief of up to 90
percent of our debt stock in net present value terms. Additionally, unlike Paris
Club provisions, the Initiative covers both bilateral and multilateral debt.
89. Mr Speaker, Sir, Zambia is scheduled to access the Enhanced HIPC Initiative during the course of this year on condition that she successfully completes the current IMF - and World Bank - supported economic programme (or the Enhanced Structural Adjustment Facility - ESAF). This is an imperative not for the Fund or the World Bank, nay, it is Zambia that needs it. Zambia, along with the IMF and World Bank, is conducting a Debt Sustainability Analysis (DSA) which is one of the prerequisites for accessing the Enhanced HIPC Initiative.
90.
Mr Speaker, Sir, Government proposes to spend a total of K2,957 billion
in 2000. Of this amount, K1,952 billion, representing 66 percent, will be
internally financed. The details of the 2000 expenditure estimates are as
follows:-
|
|
|
(K’billion) |
|
|
Personal
Emoluments |
|
500.56 |
|
|
O/w |
Wages & Salaries (inc. other
emoluments) |
426.00 |
|
|
|
PSRP |
74.00 |
|
|
|
Foreign financed PE’s |
0.56 |
|
Recurrent
Departmental Charges
|
|
452.52 |
|
|
O/w |
Contingency Reserve |
164.00 |
|
|
|
Compensations and Awards |
5.00 |
|
|
|
Foreign financed RDC’s |
50.52 |
|
|
|
Other RDC’s |
233.00 |
|
Grants
and Other Payments
(excluding
Pensions and Gratuities) |
|
249.63 |
|
|
O/w |
ZRA District Administrators Grants to Health Boards UNZA and CBU Drought Provision Foreign financed grants Other
Grants and Other Payments |
60.00 12.00 50.63 23.00 5.00 14.63 84.37 |
|
|
Pensions
and Gratuities |
|
26.00 |
|
Capital
|
|
877.52 |
|
|
O/w |
Foreign financed capital Domestic capital O/w FRA |
712.52 165.00 12.00 |
|
Constitutional
& Statutory Expenditure
|
|
850.80 |
|
O/w
|
Domestic
Debt Service
O/w
ZCCM debt
Provision for 1999 Arrears
Domestic Debt – Interest Foreign
Debt Service Constitutional
Posts Wage
Adjustment |
565.00
423.00 44.00 98.00 226.80 1.00 58.00 |
|
TOTAL
EXPENDITURE
|
|
2,956.99 |
|
91. Mr Speaker, Sir, the delays in
the privatisation of ZCCM gravely affected a considerable number of firms whose
operations were constrained by the company’s interlocking debt. Without the
patience and support of these companies, our task of concluding the transaction
would have been much more difficult. These companies deserve our unreserved
gratitude for this mature and understanding disposition. I have therefore
provided K423 billion, equivalent to about 4 percent of GDP, to reduce ZCCM’s
indebtedness. I trust that this cash injection will contribute to rejuvenating
the operations of these companies.
92. Mr Speaker, Sir I mentioned
earlier that we must begin to focus the operations of the public service on
enhancing the quality of service delivery. In effect, this means striking a
healthy balance between personal emoluments and recurrent departmental charges.
It also means an increase in funding to critical areas like domestically funded
capital expenditure. In this budget, I have provided K58 billion to cover an
increase in the civil service pay during the year. This provision will enable us
to keep the payroll at affordable levels and allow equitable distribution of
public resources among the areas I have just mentioned.
93. Additionally,
in order to progress further with the public service reform programme, I have
provided K74 billion to meet separation packages for officers in institutions
that have been hived-off. I must sound a timely caution here that we expect
these hived-off institutions to be able to sustain their operations from their
own resources within a maximum period of three years. No Government subventions
will be extended to these institutions after this period. Their future is
therefore well and truly in their hands.
94. Mr Speaker, Sir, a critical
component of the public service reform programme is to achieve effective
decentralisation. Once in place, effective decentralised structures will enable
communities at local level to fully participate in development decisions and
activities. Only recently, the President announced the establishment of the post
of District Administrator to facilitate the evolution of decentralised
structures at district level.
95.
In order for these positions to be operationalised, three critical things
need to be done. Firstly, the post and the functions of the new District
Administrator need to be consolidated. Secondly, the District Development Co-ordinating
Committees, which are the most effective basis for district development, should
be empowered with resources to accomplish their task. Thirdly, there is need to
harmonise structures and curb the abuses that have characterised the
implementation of the Constituency Development Fund.
96. In line with this approach, the
Constituency Development Fund will from this year be administered through the
office of the District Administrator. The District Administrators, with support
from the District Development Co-ordinating Committee, will draw up annual plans
of projects to be supported by the Constituency Development Fund and submit them
to the locally elected representatives, including Honourable Members of
Parliament, for approval.
97.
Mr Speaker, Sir, in the last three years, a prudent approach to budgeting
has led us to establish a contingency reserve to be used to cope with unforeseen
outlays and revenue shortfalls. This served us well in 1999, as revenues were
over K137 billion below budget and we had to spend about K100 billion more than
budgeted on arrears. A similar contingency reserve has been provided for in the
2000 budget. It gives a quarterly contingency of K41 billion which will be used
at the end of each quarter to offset shortfalls in revenue and to cover
unforeseen expenditures and interest payments. Any contingency funds remaining
at the close of each quarter will be used to finance capital projects.
98. Mr Speaker, Sir, I am very
concerned at the rate at which domestic arrears continue to accumulate. During
1999, domestic arrears continued at unacceptably high levels, notwithstanding
substantial budget releases to settle them in excess of K122 billion. The
central pay-out of arrears exercises have shown that for every ten Kwacha
released, total arrears have only fallen by between two and three Kwacha.
Typically, the majority of the finance released for arrears has been used by
Controlling Officers to meet on-going requirements and/or enter into new
commitments.
99.
Mr Speaker, Sir, while I have reluctantly provided K44 billion for the
clearance of arrears in 2000, I do so on the understanding that arrears to local
authorities will be addressed. Moreover I will take disciplinary action against
any Controlling Officer who continues to accumulate unpaid bills. Certain
institutions always overshoot their budget allocations by large amounts. Their
overspending inevitably leads to under-funding of others which both undermines
the operations of under-funded institutions and the credibility of the whole
planning and budgeting system. I will therefore introduce a much stricter cash
management and commitments control regime in 2000 to curtail exceptional
expenditures outside the budget and limit approval of supplementary estimates.
100. In line with our aim to reduce poverty, I
have maintained the share of domestically financed social sector spending at
over 45 percent of supply expenditures and for specific line items which relate
to core functions, the allocations have been increased. For example, the drugs
and school desk line items have been increased to K24.1 billion and K5 billion
respectively. Combined, the ministries and departments in the health and
education & training sectors have been allocated over K401.3 billion from
the domestic budget (37.7 percent of supply spending) from K337.9 billion in
1999 (which was 36.0 percent of 1999 supply spending).
101.
If donor finance is also included, then allocations to the social sectors
account for 51.7 percent of the supply budget - with the education and training
sector alone accounting for 26.5 percent of supply allocations.
102.
Mr Speaker, Sir, to promote our economic growth objective, I have
increased the level of domestically financed capital spending from an expected
out-turn of K122.9 billion in 1999 to K165 billion for 2000. Within this capital
budget, the roads sector has got K66.5 billion ( 40.3 percent) and the water
sector, K12.7 billion, with a further K3.5 billion budgeted as water and
sanitation operation and maintenance grants to district councils. When the donor
financed part of the budget is included in the estimates, the economic sectors'
share of total supply allocations is 25.8 percent. The transport and
communications sector alone accounts for over one eighth of supply allocations -
with most of this amount going to the roads sub-sector.
103. To curb the rise in crime which threatens the
security of life and property and endangers the prospect of attracting new
productive investment, I have raised the allocation going to the law and order
sector from K49.5 billion in 1999 to K88.1 billion.
104.
Mr Speaker, Sir, the commitments I have outlined require substantial
resources if we are to achieve our objectives. These commitments, coupled with
the need to reduce ZCCM debts and so unwind the interlocking debt which has
placed a stranglehold on the economy, necessitate that this year’s budget runs
a domestic deficit of K124 billion - about 1.3 percent of GDP - as domestic
revenues for 2000 are estimated to be K1,828 billion.
105. Mr Speaker, Sir, the details of the revenue estimates to finance the above expenditure is broken down as follows:
|
|
(K'billion) |
||
|
TAX REVENUES |
|
|
1,600.00 |
|
Direct Taxes Company Income Tax Pay As You Earn Other Income Taxes Mineral Royalty Tax |
119.00 400.00 | ||
