Action Aid’s Reflection on the National Budget

By Nalucha Nganga Ziba, Country Director, ActionAid Zambia

2021 NATIONAL BUDGET REFLECTIONS

ActionAid Zambia has observed that the 2021 is not realistic and lacks bold measures to
stimulate economic recovery and build resilience to safeguard livelihoods. To begin with,
some of the macroeconomic objectives are not realistic, for instance, there is a target
pertaining to achieving domestic revenue collections of not less than 18.0 percent of GDP,
however the budget has no comprehensive revenue compensating measures. In this
regard, many stakeholders have called for bold tax revenue measures such as cancellation of unbalanced tax agreements that facilitate tax avoidance and lead to loss of
revenue. In the same vein, it seems there is proposal to remove discount on some fees as
a way of raising revenues. For instance, removing discounts on fees paid for online
company registration and filling of returns. However, with the current economic hardships
which has affected companies’ little revenues will be raised.

ActionAid Reflects on the 2021 budget as follows:

Revenue Estimates and Financing

The government envisions to spend 7 percent more than what was projected to be spent
in 2020. This is in the backdrop of a reduction in both tax and non-tax revenue at 1 percent and 31 percent respectively. It is also worth noting that the 2021 national budget tax revenue projection is unrealistic in the wake of COVID-19 without rigorous progressive
fiscal reform to enhance domestic revenue mobilization. We do not see how the
government is likely to maintain the tax revenue in 2021 less 1 percent of what was
projected in the 2020 national budget when we have already projected a reduction in the
same.

ActionAid welcomes the commitment to undertake a thorough review of existing tax
incentives to make them more effective in reinvigorating economic activity. We, however,
wish to remind the government that this should not only be about reinvigorating economic
activity but also about assuring tax revenues to finance public service provision. All
detrimental incentives and tax treaties such as the recently cancelled Mauritius tax treaty
must be suspended.

On the other hand, once again as observed in our submission, the Minister of Finance observed that despite the negative growth in most sectors during the COVID-19 pandemic, sectors like information and communications technology were expected to register positive growth. The 2021 national budget could have introduced a variable Profit Taxes or an excess profit taxes or solidarity tax for such sectors.

Debt Sustainability

The government has already committed to finance more than 40 percent of the 2021 national budget by borrowing. We observe that this is likely to worsen without a realistic revenue projection and fiscal reforms to enhance domestic revenue mobilization. We risk sliding into a debt trap and likely to see a situation where more than 70 percent of the 2021 national budget will be financed through borrowing. We wish to remind the government that, apart from the recent advent of COVID-19 we are in this economic malaise largely due to huge and unsustainable public debt levels. It is, therefore, unfortunate that we do not only want to continue on the same trajectory, but we also want to increase our commitment to financing our national budget by borrowing in the 2021 national budget. Prioritizing fiscal fitness should have not only been pronounced but it should have been demonstrated in 2021 national budget.

Social Sectors

As we indicated in our budget expectations, with our current public debt induced fiscal
challenge, the 2021 national budget was supposed to prioritize expenditure on key and
strategic sectors while demonstrating sustainable spending and/or financing of the same.
Financing our national budget through borrowing is not sustainable and will never be a
sustainable solution. Covid-19 did not only expose the weakness in both the health and
education systems.

The Health sector budget share remains below the 15 percent Abuja declaration
commitment and it has decreased from 8.84 percent in the 2020 national budget to 8.07
percent in the 2021 national budget. The Health Sector budget share has continued to
decrease since 2018. This is disappointing in the wake of COVID-19 battle, which seems
far from over. Likewise, the education sector budget share has not only continued to
remain below the recommended 20 percent but has also been decreasing since 2014. In
the 2021 national budget the sector’s budget share has decreased to 11.5 percent from
12.38 percent in 2020. The development is shocking and questionable especially that
defense, public order management and roads have continued to receive significant share
of the national budget. Therefore, ActionAid wishes to implore parliament to solicit for
upward adjustment of budget allocation towards the health and education sectors.

Additionally, while we note that there is an increase in the Agriculture sector budget share from 3.7 percent in 2020 to 6 percent in 2021. We, however, note that government
continues to prioritize FISP and FRA which have lower productive returns and are less of
agricultural activities. More resources of the Agriculture budget go towards FISP at the
expense of investing in key areas such as extension and research services which have
shown to have return rates. These areas should be prioritized.

Climate Change

Likewise, though we have seen an increase in Environmental Protection budget share
from 0.58 percent in 2020 to 0.8 percent in 2021, however an allocation of 0.8 percent
does not reflect the urgent need to address Climate Change holistically. Climate Change
poses challenges to Zambia’s ongoing efforts to combat poverty, reduce food insecurity
and sustainably manage natural resources. We have witnessed an increase in the effects
of Climate Change in the last two decades that have adversely impacted food and water
security, energy generation and livelihoods. Agriculture, which is key in economic
diversification, is highly sensitive to changes in climate, as demonstrated in the past few
years. Extreme climate events also pose a risk to other sectors such as health and
infrastructure and to biodiversity conservation. Parliament, should therefore, reconsider the budgetary allocation towards environmental protection which houses climate change
mitigation measures.

All in all, we are of the considered view that the 2021 national budget is short on
progressive fiscal reform to enhance domestic revenue mobilization, hence, risks plugging
the country in more debt. The budget did not also demonstrate the prioritization of both
education and health sectors which have been adversely exposed by the COVID-19
pandemic as well as the agriculture sector which is key in much talked about economic
recovery post the COVID-19 pandemic.