1. Toward Stability & Growth
A Review of Pillar I & II of Zambia’s
Economic Stabilisation and Growth Programme
Mulungushi International Conference Centre
11th July 2019

2. Introduction 2015 economic downturn led to macroeconomic instabilities
Kwacha depreciation, high inflation, load shedding, copper price collapse, subdued growth
In response, Economic Stabilisation & Growth Programme (ESGP) was launched
Zambia Plus meant to help secure external support (e.g. IMF)
Report aims to examine performance in implementing ESGP (Pillar I & II)
Particularly through 2018 National Budget

3. Pillars of the ESGP
Economic Stabilisation & Growth Programme
Restoring Budget credibility
Enhancing domestic resource mobilisation & refocusing public expenditure
Improving economic & fiscal governance
Ensuring greater economic stability, growth and job creation
Scaling up social protection programmes

4. Outline of Report Introduction
Pillar I: Restoring Budget Credibility: The 2018 Budget and Zambia’s Fiscal Trend
Improving Budget Execution
Containing the Government Wage Bill
Reforming FISP and Reducing the Role of FRA
Refocusing Public Expenditure
Improving Accountability and Transparency
Pillar II: Enhancing Domestic Resource Mobilisation
Conclusion and Recommendations

5. Pillar I: Restoring Budget Credibility
The 2018 Budget and Zambia’s Fiscal Trend

6. Improving Budget Execution
Ideally, actual revenue & expenditure should match approved Budget
2018 characterised by overall overspend of 10% - higher than planned debt servicing costs and capital spending
Increased spending directed to debt servicing payments, crowded out social and other spending

7. Improving Budget Execution (cont.)
Improvements in execution targets for revenues recorded in 2018
Collections 4% above target
Improved performance largely attributed to VAT and Mineral Royalties
However, Government was carrying heavy load of arrears
ESGP made dismantling of arrears a priority in 2017
Arrears reduced to K12.7 billion (Dec 2017) from K18.8 billion (2016)
In 2018, arrears had shot back up to K15.1 billion

8. Improving Budget Execution (cont.)
Government anticipated closing deficit gap through domestic borrowing
Domestic financing limited primarily due to undersubscription of treasury bills
Fiscal deficit on commitment basis higher than deficit on cash basis
12.8% of GDP compared to 7.6%

9. Refocusing Public Expenditure
ESGP aimed to implement public expenditure refocusing strategies and measures
Supporting priority and growth areas
support to priority and growth areas of the economy waned
Allocations and expenditures to other priority growth areas also suppressed
Rationalising the creation of new districts
Between , districts increased from 72 to 105
By end 2018, number had increased to at least 115
Meaning more districts created despite pronouncements made in ESGP

10. Refocusing Public Expenditure (cont.)
Effects on the vulnerable
‘ring-fencing’ of social protection expenditure
However, underfunding of social protection expenditures deepened
Social Cash Transfer, Food Security Pack, Empowerment Fund
Activities could have been rationalised/delayed

11. Improving Accountability and Transparency
ESGP specified transparency and accountability as key tenets for good economic governance
However, some proposed legal reforms did not materialise
Revision of outstanding legislation should be expeditated to complete strengthening of overall fiscal legal framework
Legislation
Desired Action
Status
Public Finance Management Act
Review to make laws and underlying regulations more punitive to abusers
Enacted
Planning and Budgeting Bill
Enactment to improve adherence to planned expenditure
Not submitted to Parliament
Public Procurement (Amendment) Act
Urgent review to enhance transparency and accountability
Not tabled in ESGP
Loans and Guarantees (Authorization) Act

12. Containing the Government Wage Bill
Wage bill single largest expenditure item on the annual Budget
ESGP proposed two measures to contain wage bill:
Wage ceiling of 9% of GDP
Employment restricted to priority sectors
Wage ceiling was not breached, reducing to 8% in 2017 and 2018
Employment to priority sectors continued (education and health)
Regardless, personal emoluments as share of recurrent expenditure remained fairly constant at 43-44% (2016 – 2018)

13. Pillar II: Enhancing Domestic Resource Mobilisation
Modernisation and automation of revenue collection
Taxing the informal sector
Enhancing the collection of revenue from property taxes
Increasing revenue collection from road tolls
Stemming illicit financial outflows

14. Enhancing Domestic Resource Mobilisation
Modernisation and automation of revenue collection
Reduced errors, quicker processing, lower admin costs
Improved VAT collections
Taxing the informal sector
Cash economy presents challenge
Only 1% of revenues collected from informal sector
Enhancing the collection of revenue from property taxes
Land titling programme proposed
Rollout has been slow and inefficiencies hinder progress

15. Enhancing Domestic Resource Mobilisation
iv. Increasing revenue collection from road tolls
Road toll collections have overperformed
61.1% above target in 2017 (K1.1 billion)
Over 96% above target in 2018 (K1.66 billion)
Over performance attributed to
Upward revision of tariffs since 2016
Increased number of inland toll points
Strong option for revenue mobilisation

16. Enhancing Domestic Resource Mobilisation
v. Stemming illicit financial flows
ESGP proposed collaboration with cooperating partners
May 2018, the Financial Intelligence Centre (FIC) flagged suspected illicit losses of K4.5 billion
Currently weak preventive and corrective (law enforcement) mechanisms aimed at curbing IFFs
Strengthening institutional oversight, improving transparency/accountability could increase revenues by 1-3% GDP

17. Conclusions Restoring budget credibility not completely achieved
Revenue collections overperformed, but budget deficit remained high
Arrears continued to mount, including VAT refunds
Enhancing domestic resource mobilisation saw some positive gains
Modernisation and automation measures led to improvement in tax collection
Overall, DRM performed well, but work still required in stemming IFFs
Overall, implementation of ESGP (for Pillars I and II) showed insufficient progress in programme implementation by end 2018
Positive outcomes registered: containing wage bill; limiting expenditure on FISP and FRA; and meeting most domestic resource mobilisation targets

18. Recommendations
Government should improve in-year monitoring of budget execution
All public sector institutions should report to Ministry of Finance on quarterly basis
Government should devise a systematic and comprehensive framework for paying off arrears
Develop mid-term arrears payment strategy
Authorities should continue pursuing the domestic resource mobilisation strategy
For example, in curbing IFFs, necessary to strengthen institutional oversight and strengthen and insulate law enforcement wings