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.

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.

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.    

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.