Maravi

Bizarre prospects for 2009 budget

Bizarre prospects for 2009 budget
Written by Editor

The channels through which the global financial turmoil affects developing countries include financial channels and other existent channels. Financial channels include effects through: stock markets, banking sector (borrowing from advanced economies, foreign ownership of banks, exposure to sub-prime market and other toxic debts), and foreign direct investment. The other existent channels include effects through remittances, exports, imports, terms of trade, and aid.

Zambia is experiencing capital outflows as a result of the global downturn and encountering significant fiscal pressures as revenue sources dry up, and expenditures rise to meet the most elementary levels of service provision as government battles to retain expenditure levels in the face of significantly reduced GDP growth.

We are witnessing that the export markets, are being restricted to imports, as a result of falling consumer demand and increased protectionism. The Lusaka Stock Exchange is in a downward spiral. Trade finance is drying up, budget revenue is more difficult to rise and some investments are being scrapped, resulting in job losses.

The current economic pressures are not of short duration, and will last a number of years. All major developed countries are in recession, and growth is slowing in emerging economies as commodity prices fall and capital inflows decrease.

Access to trade finance, which tends to be in dollars or other hard currency, is difficult to obtain and interest rates are high. Much-needed investment is also at risk, and aid flows are expected to fall. The rest of the world governments are putting together fiscal stimulus and tax reduction packages to help revive their economies and increase consumer and infrastructure spending.

Once again, since Zambia’s independence, the question of value addition to our minerals and diversification has come home to roost. The question also arises as to what is to be done about Private Sector Development Initiative, which for all intent and purpose - is stalled. Against the backdrop of extraordinary global uncertainty and the clear absence of policy responses to date, the prospect of the 2009 budget is bizarre amid the global financial crisis. There are number of issues.

The mining companies who had signed legal binding agreements with the government saw these agreements thrown out in the dustbins. Now the government is asking mining houses to adhere to “agreements” reached - how can one trust the government now?

Rupiah Banda in his campaign speeches and his inaugural speech talked of empowering all Zambians. Yet, he and his ministers are only too happy to see the Chinese own all the businesses in the Chambishi Economic Zone, as if they don’t know that the MMD government has also legislated the Citizens Economic Empowerment Act.

Providing for loans under Citizens Empowerment is but one small component of empowerment. This has simply replaced the previous Tourism Fund, Youth Fund in another name.

The issue of Citizens Empowerment is also critically about Zambians having an equity stake in all sectors of the economy. There is something seriously amiss the way they are going about empowering Zambians through only job creation and loans and not equity holdings for Zambians.

Only recently, Investrust Bank managing director Friday Ndhlovu advised the government that Zambians should have equity in banks. But it’s all falling on deaf ears.

When laying the foundation stone for the new Pepsi beverage factory owned by an Indian firm, Rupiah said that he was happy with the investment where the foreign company can take their profits as long as they created jobs for Zambians.

What bizarre thinking! He also said at another occasion, “I want to move from handouts to hand ups”.

Even before taking a considered view of the fiscal projections for 2009 and beyond, Rupiah authorised the reduction in fuel costs. And the first thing he did during his election campaign was to increase the fertiliser subsidy and broaden the range of people who could benefit from such subsidy and further drain the fragile resource base. From his very recent statement, it appears that he now intends to reduce the numbers of eligible participants in the Fertiliser Support Programme. It was obviously an election gimmick. It is not difficult to understand the complacency of this administration. And we hear that this year’s budget is the first budget in which Cabinet has had only a cursory debate.

The budget speech is only an indicator; the devil is in the detail – the Yellow Book. So what can we expect from the government in the absence of any serious policy responses? Is this the type of economic management we can expect?

Almost all governments have made or begun some sort of fiscal stimulus packages. In Zambia, it’s business as usual. The silence is deafening.

There is a need of calling on the developed countries and the IMF and World Bank to do things differently in Africa. Our government seems quite happy with the possibility of further loans from them or the ever-ready Chinese.

We need enlightened leadership and not acquiesce to the “Washington Consensus” which has now been shown to have failed miserably.

We would suggest that the Minister of Finance and Rupiah read the Oxfam policy brief, which deals with policy alternatives for poor countries, entitled “If not now, when?” (November 2008). Donald Kaberuka, the president of the African Development Bank, recently at the Cape Town conference of the ten African finance ministers and Central Bank governors, said:

“The impact of the global financial crisis on the African continent has been seriously underestimated. The fear now is that the numbers we are hearing is that almost all the benefits of the two decades of growth could be compromised”.

In Zambia, there is need for urgency in resolving our electricity problems and efficient manner of fuel procurement. The major concern will also be the expected three per cent or more of GDP lower fiscal revenues in 2009 and the rapidly increasing current account deficit expected to be about 10 per cent in 2009.

With this background, finance minister Situmbeko Musokotwane will present his first budget. We wonder who will be asked to tighten their belts this time. We hope it’s the government and not the people of Zambia.

Let us now wait and see what the 2009 budget may offer.

Labels: 2009 BUDGET, ADB, GREAT DEPRESSION II, SITUMBEKO MUSOKOTWANE

posted by MrK @ 3:39 AM