Zambian Watchdog

UPND reacts to second PF managed budget, says it’s useless

October 20
06:07 2012

 The UPND says the 2013 National Budget presented by the PF Government has fallen short of people’s expectations.  In its preliminary response to the budget, the UPND says, ‘being the second budget by the PF government, it should have addressed the major issues confronting the people of Zambia’.

The party says some of the issues ‘issues are no money in our pockets or unemployment, hunger, rampant load shedding, low incomes for people in rural areas mainly in the agriculture sector, lack of benefits from the mining sector for the Zambian people and general poverty affecting the majority of Zambians of about 65%.
The budget has fallen short of their own theme of delivering Inclusive development and social justice.

See the full response as issued by party president Hakainde Hichilema below:

19TH OCTOBER, 2012


No job, no accommodation: An 18-yr old Zambia girl makes herself a house

1.0 General Overview

1.1 The UPND recognizes that the Patriotic Front Government is responsible for the 2013 Zambian budget framing and implementation. Irrespective of the party in government, the budget, as an important tool for generating public revenue and directing expenditure priorities, affects in many ways citizens, residents and others who do business in or relate with Zambia.
1.2 Our summary comments on the 2013 budget are presented below.
1.3 Many people were looking forward to the second national budget presented by the PF Government. The PF made a lot of election promises which many people expected would be fulfilled through the 2013 national budget. The overall picture emerging from the budget presented by Finance Minister, Mr. Alexander Chikwanda is that the budget did not address a number of key concerns of the Zambian people and has to a large extent failed to depart from the past in approach, content and value add to the quality of Zambian lives.
2.0 Key Economic Policies
2.1 Many people were looking forward to a significant change in economic policies. An examination of the fiscal and monetary policies outlined in the budget indicate that there is no real departure from the past. Gross Domestic Product (GDP), inflation, exchange rate, debt, taxation and interest rate policies and targets have largely remained similar to those of the past Movement for Multi Party Democracy (MMD) Government with a few exceptions.
2.2 GDP Growth Rate – The PF’s projected GDP growth rate of 7% per annum is too low and inadequate to provide meaningful impact needed to create more employment, reduce poverty and improve people’s overall standard of living. For us in the UPND we believe that in a country with high unemployment and poverty levels, what is needed is a GDP growth target of 10% or more. This project is real and achievable given Zambia’s substantial resource endowment and geoposition. The missing link currently is the PF’s inability to provide clear political leadership to achieve visionary economic and social gains that are possible which the UPND team is better placed to provide.
2.3 Interest Rates
Although some commercial banks have reduced their lending rates actual credit to small/medium scale enterprises and individuals has largely remained high, around 23% depending on the bank’s risk perception of the borrower. To this end nothing much has changed under the PF as this high level of cost of funds is what was obtaining under the MMD. It is the UPND’s considered view that more measures are necessary to lower the cost of loanable funds to interest rates below 12% in kwacha for an average business/individual. This is what will trigger increased economic activity and job creation. The budget lacked additional measures required to make lending accessible and affordable to those who need credit the most.
2.4 Exchange Rates
From September 2011 when the PF took over government, the Kwacha has continued being volatile and has depreciated by over 12% from a rate of exchange of about K4700/US $ to todays rate of around K5270/US $ .
In our view and according to some commentators, against a background of improved copper prices and other developments the depreciation of the Kwacha reflects the glaring uncertainties in the PF policy direction including the return of nationalization being effected quietly. This is clearly one of the indicators of the loss of confidence in the economy. The developments in the foreign exchange market are also linked to the statutory instrument banning transactions in forex in Zambia. To be specific, despite the PF government’s praise songs about Statutory Instrument No.33 of 2012 (SI 33), the Statutory instrument amounts to a silent reintroduction of exchange controls with immediate, medium and long term damage to stability in the forex market and disruption to the business operating environment in general.
2.5 Eurobond and total debts
Through the 2013 budget, the PF Government has demonstrated its appetite for irresponsible borrowing as opposed to raising revenue through available prudent fiscal measures. Foreign debt and grant financing amounts to K5.6 trillion while local borrowing is K1.8 trillion. This Eurobond is clearly another rushed project which the PF has exaggerated the over subscription to mean confidence in their government when the opposite is the case. The capitalistic investor are looking for higher returns which are not available in the traditional markets which are experiencing low yields due to struggling economies in Europe and America. Currently LIBOR is around 1.5% and the Eurobond was pegged at over 5% which is still high. It is clear that if parliamentary oversight and other controls on borrowing are not effected immediately, the PF government’s approach to balancing the budget through borrowing will undoubtedly lead Zambia into another debt trap which the country can ill afford after the last painful experience the Country went through prior to debt write-off for which, Zambians paid a heavy price. The US $ 750 Million Eurobond was unnecessary if the government had listened to people’s cry to reintroduce the windfall tax which at conservative levels is projected at US$600 million per year. Worse still, the full terms and conditions for the Eurobond such as arrangement, legal, disbursement and other fees have not been disclosed by the Finance Minister.
3.0 Taxation of the Mining Sector
3.1 Many people are demanding that the Zambian people should benefit from the country’s mineral wealth. The 2013 budget indicates that direct mining tax will only contribute about 6% of total revenue for a sector accounting for over 60 % of the economy. People were expecting the PF Government to adequately tax the Mining Sector to generate financial resources in order to provide better roads, schools, hospitals and other infrastructure. As indicated above the people were calling for the re-introduction of windfall tax on mineral revenue. With copper prices remaining above US$7,500 per tonne, the mines are still gaining unexpected income which is above the planned threshold of US$2,500 to US$3,000 per tonne to make profit. The PF campaigned on the platform of re-introducing the windfall tax. What has changed?
Over the PF’s five year term, Zambians will experience a lost revenue opportunity through windfall tax of around US$ 3 billion (K15 trillion) which funds could be applied to job creation, reduction in poverty ,load shedding, better roads and social amenities.
3.2 The people of Zambia deserve to derive benefits from the mineral wealth of Zambia through windfall tax and share with owners of the mines the supper normal profits. If the PF Government have been deceived into believing that they will tax profits of the mining companies to generate more treasury revenue, they are in for a rude shock as the mines would continue to declare minimal profits or losses for a long time to come due to various practices such as international transfer pricing, sophisticated tax planning mechanisms and higher than normal production and operational costs which this PF Government has no capacity to monitor and control.
3.3 While the mineral royalty at 6% is noted, it is insufficient to raise the amount of revenue expected from the mining sector. Mineral royalty itself is treated as an expense rather than a tax. It will still be deducted from total mining revenue for tax purposes. The net revenue gain by the government will be minimal. We would like the income tax act amended to reflect mineral royalty as non deductable for tax purposes.
3.4 To illustrate the missed opportunity, only K1.9 trillion revenue is expected from the mineral royalty in the 2013 budget. In comparison, if the PF Government had introduced windfall tax the additional treasury revenue would have been in the region of K3 trillion. In simple language, the PF Government has lost the people of Zambia K3 trillion by failing to introduce windfall tax in the 2013 budget.

4.0 Electricity Blackouts
The persistent power failures are worrying and unacceptable. Clearly, the government has failed to deal with the problems in generation, transmission and distribution of power in Zambia. Everyday, people who are connected to the national grid are being blacked out by Zesco thereby inconveniencing them, destroying their appliances and disrupting normal family life and businesses. For the rural areas which are not on the national grid they are tired of hoping against hope that some day they will be connected to the electricity grid. The PF government expenditure allocation to this area (K0.98 trillion), Zesco’s inefficiency and their suggested measures to alleviate the sufferings of the people are insufficient. Zesco will fail to connect users who need power, and electricity load shedding or power cuts will continue.
5.0 Tourism
The PF government has earmarked tourism as one of the pillars of economic growth. But they are not walking the talk. In the 2013 budget, the government has earmarked a total of K63.8 billion to the sector which represents only 0.2% of the budget. Of this amount, K32 billion has been earmarked for tourism marketing. This is a drop in the ocean. Of this amount (K32billion), half is for hosting the World Tourism Conference in Livingstone. Such low expenditure allocation is a contradiction to the PF’s rating of tourism as priority sector. How can such a low funding allocation to a priority sector create 300,000 jobs over the PF’s 5 year term we ask? This is another of PF’s deception pronouncements. There are so many problems in the tourism sector which the government has not addressed. These include:
• Inability to exempt tourism services from Value Added Tax (VAT) which makes Zambia an expensive tourism destination;
• Inability by the government to fight for the removal of Zambia from the list of Yellow Fever countries;
• The indiscriminate slapping of Visas on tourists.

All these measures constrain increase in tourist in flows, room occupancy and growth of the sector.
The tourism investment incentives in the 2013 budget are inadequate and of a short term duration of one year which will fail to attract long term investment in the sector. As indicated above Government will fail to create the anticipated 300,000 jobs in the sector.
6.0 Agriculture
The PF Government has pronounced that agriculture is one of the critical sectors to create employment. The budget allocation of K1.8 trillion for 2013 is only 5.8% of the total budget, a reduction from 6.1% in 2012. This is way below the minimum target of 10% Zambia is committed to through the SADC Maputo protocol. Such a low allocation is unlikely to meet various challenges in the sector including inputs supply, payment to farmers (many of whom remain unpaid for their 2011/2012 produce), livestock disease control, irrigation support, safe storage, fisheries etc. To allocate only K300billion which is 0.9% to Food reserve Agency (FRA) is a joke when over K1 trillion is required to buy maize from small scale farmers. This means that even in the year 2012/2013 farming season FRA will fail to pay farmers for their crop. This therefore is a missed opportunity to meaningfully contribute to poverty alleviation for the majority of our people. A budget that claims to be pro-poor can ill afford to inject only 5.8% to agriculture. The PF Government should match its words with action. At this low level of funding, it is a pipe dream to expect to create 500,000 jobs in the agriculture sector as envisaged by the Finance Minister in the next five years. UPND believes that agriculture is such a key sector which should have been allocated at least 12% of the budget (which is K3.9 trillion) in order to deal with efficient input supply, marketing and other aspects.
7.0 Education

Headteacher’s house in one of the schools in Zambia

7.1 Net recruitment of 5,000 Teachers falls short of the requirement of the 14,000 projected by Ministry of Education authorities. This will result in a shortfall of approximately 9,000 Teachers. The Teacher to pupil ratio will still remain unacceptably high. Problems at our public universities still continue. UNZA alone, has a debt of over K400 billion related to retirement and terminal benefits. How will the PF Government solve this problem and that of other retirees and retrenches when only a total of K616 billion has been provided in the 2013 budget?
8.0 Money in People’s Pockets/Unemployment
8.1 Many people were looking forward to the 2013 national budget to fulfill the PF campaign message of putting more money in their pockets and creating employment.
8.2 To put money in the pockets of unemployed people, there is need to provide employment and business opportunities so that they can earn income. The employment levels and targets in the budget are unrealistic because they are not supported by any tangible investments in sectors such as agriculture. The PF Government’s promise to create one million jobs is a fantasy. At a GDP growth rate of 6% per annum in the last five years, formal sector jobs have been stuck at 500,000 in the last ten years. How will PF create an additional one million jobs at 7% GDP growth rate? Clearly, this budget shows lack of understanding on how to create jobs . Pulling out numbers by thumb suck will only add to more broken promises by this “don’t kubeba” government and exacerbate the already high expection gap.
8.3 In order to provide meaningful opportunities to put money in the pockets of street vendors, marketeers, bus conductors and drivers, taxi drivers and others in the informal sector, there is need to provide sufficient facilities for affordable loans and other business services to support start ups and or expansion of businesses. The US$20 million targeted for small and medium enterprises will be difficult to access through Development Bank of Zambia (DBZ). The institutional framework is wrong. How does a marketeer in a rural area where there is no DBZ access the money? Under these circumstances, how are the youth, women and others going to have money in their pockets?
In addition to the lack of investment in priority sectors such as agriculture, employment creation will be hampered by the haphazard manner in which the PF government is implementing the minimum wage. Many employers are down-sizing their labour force, thereby creating unemployment. The projected 200,000 jobs will not be achieved.
Pay As You Earn (PAYE)
8.4 The increment in the Pay As You Earn (PAYE) threshold from K2 million to K2.2 million per month is a mockery to workers. First, this is inadequate because it falls short of the basic needs food basket of over K3 million for a family of six as established by the Jesuit Centre for Theological Reflections (JCTR) surveys. For example Mealie Meal prices and transport charges are beyond the reach of many Zambians.
8.5 Secondly, the tax relief is limited in scope as it provides for employees in the formal sector only who are about 500,000. The over 3,500,000 unemployed youth, women and men continue suffering as they are unlikely to experience meaningful benefits from this measure.
8.6 Thirdly, in order to put money in workers pockets, there is need to increase their salaries. Public service workers such as Teachers, Nurses, Doctors and Policemen are poorly paid. There is need to review their salaries and other conditions of service. The salary increment of 15% this year was nothing and in 2013 the Minister was silent on salary increments.
8.7 Fourthly, given the high levels of unemployment, a reduction in value added tax (VAT) would have been more beneficial to the suffering masses but this did not happen. Such a reduction to VAT from say 16% to 14% would have resulted in a reduction in the cost of goods including Mealie Meal and services with broader benefits to the population.
9.0 New Constitution
9.1 The Zambian people are expecting a new constitution which the PF Government promised to deliver in ninety (90) days. In order to have a new constitution, there is need for a referendum, which is basically a general election for people to vote for their new constitution.
9.2 It is shocking that the 2013 national budget has only K20 billion allocated for constitution making.  The 2011 General Elections cost more than K400 billion.  The Minister was conspicuously quite over the issue of the referendum and money needed to effect it.  If in 2012, the government has already spent K95 billion on the Technical Committee, what makes the government budget only K20 billion for the constitution making process in 2013?  This to us is a clear demonstration that the PF government are not willing to have a people driven constitution.  The current constitution making process lacks a legal framework.  It is operating at the whims of Mr. Sata.  It has also been flawed from the beginning due to lack of inclusiveness in the composition of the Technical Committee.  The constitution making process also lacks a clear timeframe.

10.0    Local Government
A lot of MPs have been calling for an increase in Constituency Development Fund (CDF) as a strategy for devolving power, setting development priorities and capacity to implement projects for the people.  CDF is a key component of government funds that, if well managed, directly impacts positively on the developmental needs of the people, especially in rural areas.  In the 2013 budget, CDF has remained stagnant at K1 billion per constituency per year contrary to the K5 billion MPs were demanding for.  In many constituencies, there are no projects budgeted for by central government.  The only hope for development is CDF.  Why does the PF government want to centralize funding for development projects?  Our suspicion is that the PF government wants to use central government funds and the associated discretionary powers of allocation as a carrot for mobilizing, political support for the PF at the expense of other political parties.  In a democracy like Zambia this is unfair and unacceptable. UPND demands that CDF be increased to K5billion as a way to devolve power and operationalise decentralization
11.0 Continous Voter Registration
The Law provides for continuous voter registration but in the 2013 budget there appears to be no provision. The none provision for continuous voter registration plus the minimal provision for the constitution making process raises concerns with regards  to PF’s willingness to uphold democratic tenets.
12.0    Conclusion
12.1    The 2013 National Budget presented by the PF Government has fallen short of people’s expectations.  Being the second budget by the PF government, it should have addressed the major issues confronting the people of Zambia.  These issues are no money in our pockets or unemployment, hunger, rampant load shedding, low incomes for people in rural areas mainly in the agriculture sector, lack of benefits from the mining sector for the Zambian people and general poverty affecting the majority of Zambians of about 65%.
The budget has fallen short of their own theme of delivering Inclusive development and social justice.

Thank you very much

Hakainde Hichilema

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