Center for Trade Policy and Development has cautioned against increased government spending on investments with no guaranteed returns such as under way plans of setting up of a national airline.
The center is of the view that these may pose a serious risk which may in turn push the country to accelerate into debt distress.
CTPD Executive Director Isaac Mwaipopo says Zambia’s macroeconomic performance has been poor for the period 2017 to 2018 as indicated by reduced economic growth prospects from 5% to 4%, widened fiscal deficit from targeted 6.1% of GDP to expected 7.4% of GDP, depletion of international reserves from US$2.1 billion to US$ 1.8 billion and a widened current account deficit from US 340 million to US$ 756.5 million.
“Although inflation has relatively been stable within the 6% to 8% target range and the exchange rate was stable for the most part of 2018, the exchange rate has more recently been depreciating. This poor performance has been attributed to increased public debt from US$ 12.45 billion to US $16 billion and thus requiring more debt payments for servicing,” he indicated.
In a detailed 2019 national budget analysis made available to Money FM News, Mr. Mwaipopo is of the considered view that the 2019 National budget will not deliver on fiscal consolidation as fiscal consolidation is achieved when government increases resource mobilization while reducing government expenditure.
He notes that in the 2019 Budget, the total budget allocation was set at K86.8 billion against a target of K75.3 billion in the 2019-2021 MTEF.
“This means expenditure is expected to be above the projected by over 15%. This raises questions on commitment towards fiscal consolidation on the expenditure side. Secondly, the fiscal deficit is expected to widen since the macroeconomic target has been relaxed from 6.1% of GDP in the 2018 budget to 7.4% of GDP in the 2019 Budget. A widening fiscal deficit means that fiscal consolidation will remain an illusion,” he said.
Mr. Mwaipopo further notes that government plans to increase total borrowing by 43% while reducing domestic borrowing and increasing external borrowing.
He says this means interest payments are likely to be higher in 2019 and thus making it more challenging to achieve fiscal consolidation on the expenditure side.
He further notes that domestic resource mobilization has already been excessive with more taxes levied on the struggling working population.
The CTPD Executive Director has since recommended that government should consider reducing its allocation towards Defense, and Public order and safety in order to increase allocations towards critical social sectors such as Health and Education.