MBITA CHITALA SAYS THE 2022 NATIONAL BUDGET DEPENDS ON AN IMF BAIL-OUT PACKAGE.

MBITA CHITALA SAYS THE 2022 NATIONAL BUDGET DEPENDS ON AN IMF BAIL-OUT PACKAGE.

THIS BUDGET DEPENDS ON AN IMF BAIL-OUT, THERE-IN LIES THE TRAGEDY-DR. MBITA CHITALA

Veteran politician and Economist, Dr. Mbita Chitala has slammed the 2022 Budget presented by Dr. Situmbeko Musokotwane saying it was a consumption budget, unambiguous and incapable of driving desired economic growth.

In his analysis titled; “A Political Economy Appraisal of the UPND 2022 National Budget” Dr. Chitala has stated that the reliance on foreign debt and IMF bail-out to finance the Budget, will yoke Zambia to instability of the 90s or like it was occurring in Sudan.

He said IMF basic conditionionalities such as employment freeze and lifting of electricity, fuel and food subsidies were detrimental to African countries.

He expressed concern that the Budget will invest huge resources in social Affairs but paltry amounts to economic and productive sectors that would trigger growth of the economy.

He said the 3.5% projected economic growth was an expression of poor ambitions as the country needs to grow at a minimum of 8% per annum to impact meaningfully against high poverty levels.

He said Zambia should not be fooled by populist announcements but should demand fundamental policies that would were long-term and could achieve meaningful development for the country.

Below is the full article.

A POLITICAL ECONOMY APPRAISAL OF THE UPND ADMINISTRATION 2022 NATIONAL BUDGET

BY MBITA CHITALA PhD

The macroeconomic indicators that the UPND want to attain in their 2022 budget estimates presented by Hon. Situmbeko Musokotwane in his budget speech does not remove Zambia from continued dependency that our country has been subjected to since 1964.

Projected Growth
The projected GDP growth of 3.5% for 2022 as compared to the PF Administration GDP growth of 3.3% for 2021 fiscal year cannot enable Zambia to grow her economy.

This challenge is exacerbated by Zambia’s population growth which over 3.3% annually. A more reasonable approach is to grow the economy at rates above 8% of GDP per annum as is happening in Rwanda and other more serious countries like China.

This is the only way a poor country such as Zambia can deal with poverty eradication challenges successfully in 10-20 years. Without Plans to advance our country to those figures, our country will be forever be poor and budgets like this will forever condemn us to be running in circles like yoyos.

Inflation

The UPND budget estimates targets the 2022 inflation to be between 6-8%. This is exactly the ambition of the PF Administration in 2021 but which could not be achieved and was explained by the dawn of devastating COVID 19 pandemic.

This projection is general good but it will depend on many factors including the war against the Covid 19 pandemic and the capacity of the UPND administration to manage money supply to smoothly track the GDP as the old Monetarist Milton Friedman asserted that Money Supply times velocity equals price level times transactions.

Public Debt

The Hon. Minister Musokotwane informed the nation that Zambia’s external public debt was US$14.71 billion of which the Central Government share was US$12.99 billion. The country also had US$1.2 billion principal arrears and US$600.4 million interest arrears.
Furthermore, the country had K189.7 billion government securities and domestic arrears of K46.9 billion which included the US$477.9 million fuel arrears.
To resolve these challenges, the Hon Minister informed the nation that he was negotiating for an IMF bailout of at least US$1.3 billion to help Zambia service the external debt component and use any savings that may arise from the K51.3 billion he had budgeted as external debt service to channel to other needy social services.

Many observers have advised that turning to the IMF for a rescue program will be injurious to the national security of Zambia as we are currently witnessing the events in Sudan. Sudan also asked for a US$2.5 billion IMF facility which was conditioned on the same old demands of freezing public wages and employment, cutting on subsidies to vulnerable citizens and devaluing the local currency among others. The result of this has been the emergence of instability in Sudan which compares to what happened here in Zambia in 1990.

Our country can avoid this route and this has been said many times by many patriots and scholars. The Hon Minister informed the nation that copper exports during the first half of 2021 were US$4.0 billion from the total export earnings of US$5.1 billion. This of course was the under reported figure as Zambians do not have exact statistics of copper and other metal exports. Granted that we take the Hon Minister at face value, the Minister could not tell the nation what the country benefited from this because he was aware that Zambia hardly benefited from these exports. The UPND 2022 budget projects that Zambia will benefit K12.8 billion as mineral royalty. There will be hardly be any corporate tax from the MTCs because the Hon Minister has even made it worse for Zambia by making mineral royalty deductible for corporate income tax assessment purposes. The MTCs will continue cheating on Zambia by transfer pricing even as he lamely has made some superficial amendments to the Transfer Pricing Regulations as reported by the Zambia Revenue Authority in their Budget Brief.

Many observers have advised successive Zambian governments that the long term solution to stop this capital flight and plunder of Zambia’s minerals by MNCs is for Zambians to own and operate all the mines as happens in all countries such as Chile , Botswana and so on who have made a difference to their economies. This is the only way to end the crime of transfer pricing and allow Zambia to accumulate investable surpluses for expanded reproduction and development.

It is further advised that as we have done with MOPANI Mines, Zambian controlling interest in all other big mines should be effected. This is the only sure way of ending the plunder of our minerals and Zambia would never need a third party such as the IMF to come and start ruling us as a neo-colony.

Controlling the Fiscal Deficit
The UPND Administration would want to reduce the overall fiscal deficit to 6.7% in their 2022 budget estimates from 10.4% of GDP under the 2021 Budget regime and to limit domestic borrowing to no more than 5.2% of GDP.

This is a tall order as the UPND’s major source of revenue in their budget estimates is borrowing. The Hon. Minister announced that they expected to borrow from foreign sources K39.5 billion program loans, K8.5 billion project loans and receive K1.8 billion grants. Altogether, the UPND Administration plan to borrow K49.7 billion from foreign sources which is 29% share of the 2022 budget estimates or 10.7% of GDP.

Furthermore, the UPND Administration plan to borrow from domestic financing another K24.5 billion which will further crowd out the private sector.
Altogether, the UPND plans to borrow K84.2 billion out of the K173 billion budget estimates.
Many observers would shudder at such a situation as the effect of the borrowing will no doubt deepen not only our dependency on international finance capital but also continue making our economy vulnerable and unstable. The borrowing will no doubt be unsustainable and our country will sink into deeper debt overhang.

Unfair Tax Increases

The 2022 budget estimates also plan to raise K77.8 billion from taxes (company tax K16.4 billion, PAYE K17.3 billion, Withholding taxes K8.6 billion, VAT K22.9 billion, Customs and Exercise K12.5 billion, Export duties K133 million) as well as Non-Tax revenue of K20.6 billion and other revenues of K343.7 million. The UPND’s desire is to increase domestic revenue to not less than 21% of GDP. This is a good ambition but they are doing it at the expense of the people who have to bear a heavier tax burden. The right approach is to increase on business investment and net exports which has not been adequately addressed in the 2022 Budget estimates.
Altogether, the UPND 2022 budget estimates of K173 billion representing a 44.4% increase from the PF’s 2021 budget estimates of K119.6 billion appears to be over blown.

The UPND budget estimate is projected to be 37.1% of GDB . This is ambitious and does not appear to be reasonable at all
Gross International Reserves
The Hon. Minister further informed the nation that they wish to have gross international reserves of not less than three months of import cover in 2022. This compared with the 5.5 months of import cover that the PF had in August, 2021thanks to the US$1.33 billion grant that the country received from the IMF in the wake of the Covid 19 pandemic.

Future prospects

What is shocking is that our successive governments since 1991 appear not to appreciate that for any country to develop and eradicate poverty successfully, it must ensure that in its budgets, it places more emphasis on business investment and expand net export earnings. Even as all our Hon. Ministers of Finance know the most famous equation in macroeconomics: GDP=C+I+G+NX, they lamentably fail to apply this basic formula to our plans. The equation represents the components of Gross Domestic Product of consumption, business investment and net exports which are widely accepted measure of economic activity in a given year.

The 2022 UPND budget estimates has allocated more than 70% of budget expenditure to consumption. This includes the General Public Services Expenditure which will take K86.3 billion i.e. 49.9% of the budget and other expenditure items such as Defence K7.6 billion, Public Order and Safety K3.4 billion, Socio Protection K6.2 billion, Education K18.07 billion, Health K13.9 billion, Housing and community services K2.3 billion and others taking over the big chunk of the budget estimates.

It is advisable that those who are governing us reflect on this and start allocating more resources to business investment and the export sector.

Very little is allocated to the growth areas in this budget. In fact even the K33.7 billion allocated to Economic Affairs section, most of the expenditure there too are consumption oriented. This is true for the FISP that will take K5.3 billion, The Constituency Development Fund (CDF) that will take K3.855 billion instead of the K3.2 billion as wrongly reported in the Budget speech and so on.

The Empowerment funds for SMEs is allocated a meagre K350 million and yet this should be the source of growth of the economy and road infrastructure a paltry K4.9 billion.

Yes, indeed the Hon Minister announced some populist and appeasement programs to please the electorate which are largely good for Zambia such as abolishing school fees, employing more teachers and medical staff and increasing the quantum of CDF.

These are progressive initiatives and observers will be interested in whether these laudable initiatives will be managed effectively, efficiently and transparently.
Mbita Chitala PhD.