Medium Term Expenditure Framework (2015-2017) Review
and 2015 Budget Projections
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1.1.
Introduction
The 2015 –
2017 Medium Term Expenditure Framework (MTEF) has been formulated with the overall
objective of enhancing the benefits to citizens from the positive economic
growth that has been achieved over the past few years. This is in line with the
spirit of the Revised Sixth National Development Plan (R-SNDP) which is “people-centered
economic growth and development”.
Government
will focus on ensuring that growth is inclusive and propoor so that the
benefits of a stable macroeconomic environment, positive economic growth and
single digit inflation bring about improved standards of living for the Zambian
people. This will be done by stepping up both human effort and financial
resources in areas that have a direct impact on the improvement of individuals’
quality of life, such as education and skills development, health care,
agricultural support, citizen empowerment, employment creation, provision of public
infrastructure and social amenities. With these interventions the Government is
confident that inroads will be made in creating jobs, raising incomes and
reducing poverty
1.2.
MACROECONOMIC OVERVIEW
1.2.1.
Developments in the Global
Economy
Global
economic growth is projected to strengthen to 3.6 percent in 2014, from 3.0
percent in 2013, led by the advanced economies. The United States is projected
to record growth of around 2.0 percent, due to a pick-up in domestic demand. In
the euro zone, a turnaround from minus 0.4 percent in 2013 to 1.0 percent is
projected in 2014, driven by Germany and the recovery in Spain and Italy.
Growth in
Sub-Saharan Africa is expected to strengthen to 5.4 percent in 2014. Growth in
South Africa is projected to improve modestly as the result of stronger
external demand, which will be dampened by the effects of labour strife
especially in the mining sector. Commodity-related projectselsewhere in the
region are expected to support higher growth.
1.3.
1.4.
Developments in the Domestic
Economy
In the
domestic economy, real GDP growth is projected at 6.5 percent in 2014, down by
0.2 percentage points compared to 2013. This growth is expected to be driven by
the, mining, construction, and energy sectors and the favourable performance
recorded in the agricultural sector in the 2013/2014 farming season. The
overall budget deficit in 2014 is projected at 5.1 percent of GDP, lower than
the 5.5 percent factored in the 2014 Budget. It is projected that total
revenues and grants will reach 19.0 as a percent of GDP while expenditures are
projected to reach 24.1 percent of GDP. Despite the increase in the inflation
rate, maintenance of single digit inflation rate remains feasible, premised on
measures taken to limit the slide of the Kwacha and a reduction in food prices
as the 2013/2014 season’s harvest comes on market.
In the
foreign exchange market, the Kwacha depreciated by 13.6 percent in the first
half of 2014 to close at K6.2601/US$ as compared to a depreciation of 5.3
percent in the first half of 2013 when it closed at K5.4172/US$. The
depreciation of the Kwacha was attributed to a combination of international and
domestic factors. The continued relatively lower copper prices in 2014 compared
to 2013 on the international market, and their consequent impact on the
country’s Balance of Payment (BOP) position resulted in negative investor
perceptions of the Kwacha. Domestically, liquidity levels and the comparatively
high Rand purchases on the inter-currency segment of the market using the US
dollar, contributed to the dollar being scarce.
1.5.
Macroeconomic Framework,
2015-2017
Government
policies will continue to focus on creating jobs and reducing poverty and
inequality on a sustainable basis. This will be achieved by investing in
sectors that have been identified to best promote employment, significantly
increase productivity in the economy, contribute to higher and inclusive
economic growth, and develop the rural areas. These include the agriculture,
tourism, manufacturing and construction sectors. Additionally, for inclusive
growth, emphasis will be placed on investing in the social sectors.
The
specific broad socio-economic policy intentions during the MTEF period will be
to:
1) Achieve an
average annual real GDP growth rate of above 7 percent;
2) Maintain
single digit inflation;
3) Increase
international reserves to 4 months of import cover by end 2017;
4) Raise
domestic revenue collections to over 18 percent of GDP;
5) Contain
domestic borrowing to less than 2 percent of GDP by 2017
6) Accelerate
the diversification of the economy;
7) Continue
to promote Zambia as an investor friendly destination and continue with
structural reforms aimed at reducing the cost of doing business; and
8)
Accelerate the implementation of interventions in the health, education and
water and sanitation sectors.
1.6.
Medium Term Expenditure
Forecasts
·
Total
expenditures (excluding amortization) are expected to increase from K44.3
billion in 2015 to K54.1 billion in 2017 which will translate to an average of
22.8 percent of GDP over the period.
·
Expenses
are projected at an average of 16.5 percent of GDP. The other major spending
allocations will be on assets at an average of 6.1 percent of GDP. Liabilities
are expected to decline to an average of 0.2 percent of GDP as a result of
Government’s efforts to control expenditure commitments.
·
In
view of the gap between expected revenues and expenditures, Government expects
to incur an overall fiscal deficit of 4.4 percent of GDP in 2015, 4.1 percent
of GDP in 2016 and 3.2 percent in 2017
1.7.
1.8.
Revenue
The
Government plans to enhance domestic revenues by implementing, among others,
the following policy and administrative measures:
·
Stiffen
sanctions for tax evasion. This measure is intended to enhance the disincentive
for tax evasion and ensure that all economic actors recognize the negative
effects of tax evasion and are compelled to fully meet their tax obligations.
·
Set
up a multidisciplinary task force consisting of security wings and the Ministry
of Finance to undertake spontaneous tax inspections to curb smuggling, illicit
trade, under-declarations and corruption, particularly at border points, and
related tax malpractices. The current investigative mechanisms for tax fraud
have proved to be ineffective and therefore this raises the need for more
robust ways to curb these vices. The creation of this structure will complement
the efforts of the Mobile Compliance Unit.
·
Introduce
measures to promote the production and consumption of goods which can be
produced locally by Zambian companies.
Following
the liberalization of the economy and the signing of trade protocols, Zambia’s
external competitiveness has not been favourable resulting in the closure of
many companies, loss of employment and the country becoming a net importer of
almost all products.
2015 Budget Projection
|
2016 Budget Projection
|
2017 Budget Projection
|
||||
Projected
|
% of
GDP
|
Projected
|
% of
GDP
|
Projected
|
% of
GDP
|
|
I Revenue and Grants
|
35,874,923.60
|
18.9%
|
40,879,958.90
|
18.9%
|
46,280,275.00
|
18.9%
|
II Revenue and Budget Support
|
34,294,923.60
|
18.1%
|
39,299,958.90
|
18.1%
|
44,700,275.00
|
18.3%
|
III Revenue less mining
|
28,260,715.50
|
14.9%
|
32,010,629.80
|
14.8%
|
36,050,542.80
|
14.7%
|
IV Domestic Revenue
|
34,294,923.60
|
18.1%
|
39,299,958.90
|
18.1%
|
44,700,275.00
|
18.3%
|
Tax Revenue
|
25,227,605.60
|
13.3%
|
28,869,383.60
|
13.3%
|
32,795,522.70
|
13.4%
|
a. Income Tax
|
11,731,377.40
|
6.2%
|
13,464,276.80
|
6.2%
|
15,298,127.60
|
6.3%
|
Company Tax
|
2,395,602.20
|
1.3%
|
2,734,776.30
|
1.3%
|
3,086,731.10
|
1.3%
|
Pay As You Earn (PAYE)
|
7,408,869.50
|
3.9%
|
8,529,779.60
|
3.9%
|
9,728,580.50
|
4.0%
|
Other Income tax
|
1,926,905.60
|
1.0%
|
2,199,720.80
|
1.0%
|
2,482,816.10
|
1.0%
|
c. Value Added Tax (VAT)
|
6,576,733.30
|
3.5%
|
7,601,498.30
|
3.5%
|
8,760,346.10
|
3.6%
|
d. Customs and Excise Duty
|
6,858,906.40
|
3.6%
|
7,732,570.20
|
3.6%
|
8,655,161.30
|
3.5%
|
Customs (Import Tariffs)
|
3,260,288.10
|
1.7%
|
3,624,452.40
|
1.7%
|
4,018,345.10
|
1.6%
|
Excise Duties
|
3,598,618.30
|
1.9%
|
4,108,117.90
|
1.9%
|
4,636,816.20
|
1.9%
|
Export Duty
|
60,588.50
|
0.0%
|
71,038.30
|
0.0%
|
81,887.70
|
0.0%
|
Non Tax Revenue
|
9,067,318.00
|
4.8%
|
10,430,575.30
|
4.8%
|
11,904,752.30
|
4.9%
|
IV Grants
|
1,580,000.00
|
0.8%
|
1,580,000.00
|
0.7%
|
1,580,000.00
|
0.6%
|
Direct Budget Support
|
-
|
0.8%
|
1,580,000.00
|
0.0%
|
1,580,000.00
|
0.0%
|
Project Support
|
1,580,000.00
|
0.7%
|
0.6%
|
|||
1.9.
1.10.
Expenditure
2015 Projection
|
2016 Projection
|
2017 Projection
|
||||
K’000
|
% of GDP
|
K’000
|
% of GDP
|
K’000
|
% of GDP
|
|
Expenses
|
32,183,922
|
17.0
|
36,431,835
|
16.8
|
38,526,774
|
15.8
|
Assets
|
11,720,479
|
6.2
|
12,887,531
|
6.0
|
15,195,685
|
6.2
|
Liabilities
|
382,029
|
0.2
|
354,068
|
0.2
|
354,068
|
0.1
|
Total Expenditure
|
44,286,431
|
23.3
|
49,673,434
|
22.9
|
54,076,527
|
22.1
|
Government
overall expenditure policy for the period 2015 – 2017 will focus on prudent use
of public resources to ensure the effective and efficient delivery of public
services and development and maintenance of vital socioeconomic infrastructure.
Government’s strategy, therefore, will be to constrain expenditure on non –
priority programmes and directing resources towards programmes that will
improve service delivery. This will entail, among other things, reorienting
expenditures towards identified pro-poor growth programmes in areas of
infrastructure development in education, health, agriculture and water supply
and sanitation.
·
Government
will focus on providing sufficient resources towards infrastructure
development, particularly with the aim of completing projects already under
construction
·
Government
will constrain non – priority spending, vis-Ã -vis ublic service delivery, and
focus resources on programmes outlined in the Revised Sixth National
Development Plan (R-SNDP).
·
Efforts
will thus continue with the scaling down of lower priority expenditure items
which include, workshops, public functions, local and foreign travel and
procurement of movable assets such as motor vehicles
·
Government
will dispose of excess utility vehicles to rationalise expenditure on
transport.
·
Government
will also place emphasis on strengthening the egovernance project which is
aimed at integrating and rationalising the information and communication
technology systems in the public service.
1.10.1.
Personal Emoluments
Government’s
objective on personal emoluments is to contain the public service wage bill
within sustainable levels in order to create more fiscal space for
developmental and service delivery expenditures.
In this
regard, Government proposes to reduce expenditure on personal emoluments as a
share of domestic revenues from 52.5 percent in 2014 to 45.8 percent in 2017.
This translates to K16.6 billion or 8.8 percent of GDP in 2015 and K20.5 billion
or 8.4 percent of GDP in 2017
1.11.
Allocations
1.11.1.
2015-2017 MTEF Functions of Government (As Share of
Total Budget)
1.12.
2015-2017 Budget Projections
Function
|
2014 Approved Budget
|
2015 Projection
|
2016 Projection
|
2017 Projection
|
2015-2017 Average
|
General Public Services
|
25.1%
|
24.4%
|
25.4%
|
22.5%
|
24.1%
|
Defence
|
6.4%
|
6.4%
|
6.4%
|
6.3%
|
6.3%
|
Public Order and Safety
|
5.0%
|
4.9%
|
4.9%
|
4.9%
|
4.9%
|
Economic Affairs
|
28.0%
|
28.0%
|
28.4%
|
30.1%
|
28.8%
|
Environmental Protection
|
0.4%
|
0.4%
|
0.4%
|
0.4%
|
0.4%
|
Housing and Community Amenities
|
1.5%
|
1.6%
|
1.6%
|
1.5%
|
1.5%
|
Health
|
9.9%
|
9.7%
|
9.7%
|
9.8%
|
9.7%
|
Recreation, Culture and Religion
|
0.7%
|
0.7%
|
0.7%
|
0.7%
|
0.7%
|
Education
|
20.2%
|
21.2%
|
19.9%
|
19.9%
|
20.3%
|
Social Protection
|
2.8%
|
2.7%
|
2.8%
|
4.0%
|
3.2%
|
Total
|
100.00%
|
100.00%
|
100.00%
|
100.00%
|
100.00%
|
1.13.
2015 Budget Projections
Government
proposes to spend
K11.2 billion in 2015 on General Public
Services,K12.9 billion in 2015 on Economic Affairs,K9.8 billion in 2015 on
Education,K4.4 billion in 2015 on Health,K285 million in 2015 on Housing and Community
Amenities
The
remaining functions of defence, environmental protection, social protection and
recreation, culture and religion will account for an average of10.6 percent of
total expenditure over the medium term.
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