Friday, November 11, 2011

(REUTERS) (LUSAKATIMES) PF Government unveils budget with big social spending and farming subsidies, doubles minerals royalties

PF Government unveils budget with big social spending and farming subsidies, doubles minerals royalties
TIME PUBLISHED - Friday, November 11, 2011, 3:57 pm

Government has unveiled an expansive 2012 budget on today, with big increases in social spending and farming subsidies to be paid for by a rise in mineral royalties and a debut $500 million Eurobond.

In the first budget since September’s election upset, Finance Minister Alexander Chikwanda put flesh on the bones of new President Michael Sata’s promises to spread the benefits of strong growth in Africa’s biggest copper producer.

Overall spending would rise to 27.7 trillion kwacha ($5.5 billion), or 26.5 percent of gross domestic product (GDP), from 21 percent in 2011, Chikwanda said.

Domestic borrowing for the year would amount to 1.3 percent of GDP and foreign financing would be 3.0 percent, giving an overall deficit of 4.3 percent of GDP, Chikwanda said. Foreign grant aid would amount to less than 2 percent of GDP.

Analysts said the budget certainly qualified as “pro-poor”, although the extra spending did not mean the southern African nation was loading up on debt.

“Even though the budget outlined slightly more spending than had been anticipated, it’s still taking place against a backdrop of increased revenue collection, and an effort to raise more meaningful receipts from previously undertaxed sectors,” said Razia Khan, head of Africa research at Standard Chartered in London.

Most of the extra spending would go on 45 percent and 27 percent increases for health and education respectively, and a 38 percent boost for a farming subsidy programme that has underpinned nearly a decade of 6 percent-plus annual growth.

“The Patriotic Front (PF) won the 2011 election because it listened to the needs of the people at all levels,” Chikwanda said in his budget speech. “Now that we are in government, we have not and will never distance ourselves from the people.”

PF leader Sata, a gruff populist who spent 10 years as opposition leader, has caused slight nervousness among foreign investors, not least for his vitriolic criticism of Chinese mining firms.

However, he toned down his rhetoric in the latter stages of campaigning, and since coming to office has been at pains to build a working relationship with a sector that accounts for more than 70 percent of all foreign exchange earnings.

However, Chikwanda put some pressure on the mining firms, raising minerals royalties to 6 percent from 3 percent for base metals such as copper, and to 6 percent from 5 percent for precious metals.

He also said Lusaka would resurrect the previous administration’s plans to tap international capital markets to raise infrastructure funds, with the launch of a debut $500 million 10-year Eurobond during the year.

However, he made clear that Zambia, a nation of 13 million people, would not get sucked into unsustainable debt.

“As we spend more on our socio-economic infrastructure, our ability to meet our debt obligations should not be ignored,” he said. “In this regard, the government will target concessional borrowing as the first option.”

He also assuaged fears of looser monetary policy, saying the Bank of Zambia would continue to target single-digit inflation through its control of money-supply growth, a move that should support the kwacha currency.

“Investors will be encouraged by this, and we expect the kwacha, impacted by global volatility in recent days

[Reuters]

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