Fuel & electricity subsidies driving Zambia’s budget deficit, March treasury numbers reveal

The ministry of Finance public relations head, Chileshe Kandenta’s press release perhaps has laid bare the governments finances worst kept secret, that our national deficits are being driven by subsidies on fuel pump prices and electricity imports. In a statement made available to ZBT, the ministry has stated that “In March, 2016 the Treasury released K8.1 billion to facilitate government operations, to service debt, and finance development projects.

“In the period under review, the Treasury raised K6.87 billion in revenue and grants while expenditure totalled K8.1 billion. However, due to high expenditure requirements, an overall deficit of K1.25 billion was recorded. The deficit was mainly financed from a bridge loan of K1.1 billion” Kandeta stated.

The statement went on further to confirm that an almost equal amount of K1.2 billion was released towards fuel subsidy payments and K285.3 million for electricity subsidy payments. The maths here clearly show that a plugging up of this subsidy would immediately balance the budget and result in further savings for the rest of the year.

But one of the areas that the government may want to revisit to plug up the gap is to jack up the contribution from ZRA. It’s an open secret that tax revenue leakage in Zambia is huge due to soft targets (ZRA is always meeting is set soft targets) as well as corruption allegations that the institution cuts deals with tax payers for lower tax assessments. ZRA should be made to go into overdrive in austerity times like this to collect more taxes to cushion the revenue gap.

Kandeta further stated that the total domestic revenues collected totalled K6.81billion of which tax revenues amounted to only K1.99 billion and non-tax revenues K4.82 billion. Collections under non-tax revenue were above target collection by 0.3 percent due to, among other initiatives, increased collections from road tolling managed by the National Road Fund Agency. This perhaps clearly demonstrates that our Taxes from the mines and other support industries have dwindled, but ZRA needs to immediately come up with plan B to meet the shortfall. This is the very reason why the various commissioners at ZRA are well remunerated at a huge cost to our tax payers, so that they can come on board and solve complex challenges such as these.

The other best practice measures that the ministry can implement is to task all spending agencies or ministries permanent secretary’s to deliver an assigned target cost save of say 10% of their monthly spend. Since our national monthly revenue is K6.8billion and monthly deficit is K1.25billion, this works out to the (1.25/6.81) 18% of their spend. This measure would cut the deficit leaving only 8% to deal with. These are the kind of stretch measures that would make the PS’s think innovatively and result in scrapping off of mostly discretionary expenditure.

An instant dropping of the subsidies would spiral our already turbulent inflation to unimaginable levels but efforts should be made to start easing and cutting back at this budget deficit. Running an 18% deficit is not sustainable and should be arrested immediately by some of the above suggested measures plus others that we know our various experts can further contribute.

Of course this is an election year with a whole lot of complicated permutations to work out before a decision is taken, but if we educate and sell some of these ideas to our people, those working in government , those working in the private sector and the general citizenry, we CAN just be able to escape having our budget taken over by the IMF. The above measures may sound simplistic but with astute leadership, we stand a better chance of succeeding and being respected than handing over our economic sovereignty to foreign interests. It’s better to take the medicine ourselves no matter how bitter, so that we retain our dignity to drive our efforts when we get well.

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