Reduce investment in national airline, It has no guaranteed return – CTPD

Zambia Airways DC -10 TBT at Heathrow International Airport. Zambian dreams of reviving a national airline are still alive.

The Centre for Trade Policy and Development (CTPD) says it is of the considered view that the 2019 National budget will not deliver on fiscal consolidation as fiscal consolidation is achieved when government increases resource mobilization while reducing on expenditure. CTPD would like to caution against increased government spending on investments with no guaranteed returns such as under way plans of setting up of a national airline.

“Some of these investment may pose a serious risk which may in turn push the country to accelerate into debt distress. In looking through the numbers in the budget and how Zambia plans to mobilize resources bother domestically as well as through external support, CTPD sees the agenda towards fiscal consolidation remaining an illusion”.

“We remain quite concerned that this may impact negatively in the long run our ability to achieve targets set out both in the seventh National Development Plan and Vision 2030,” Mwaipopo has cautioned.

CPTD Executive Director Isaac Mwaipopo said that “in the 2019 Budget, the total budget allocation was set at K86.8 billion against a target of K75.3 billion in the 2019-2021 Medium Term Expenditure Framework – MTEF. This means expenditure is expected to be above the projected MTEF target by over 15%”.

“This raises questions on commitment towards fiscal consolidation on the expenditure side. Secondly, the fiscal deficit is expected to widen since the macroeconomic target has been relaxed from 6.1% of GDP in the 2018 budget to 7.4% of GDP in the 2019 Budget. A widening fiscal deficit means that fiscal consolidation will remain an illusion,” he said.

In the budget analysis dubbed “The writing on the wall: the illusion of fiscal consolidation in the presence of huge Public debt.” Mwaipopo added that government plans to increase total borrowing by 43% while reducing domestic borrowing and increasing external borrowing.

He narrated that interest payments are likely to be higher in 2019, thus making it more challenging to achieve fiscal consolidation on the expenditure side as domestic resource mobilization has already been excessive with more taxes levied on the struggling working population.

“In light of these, CTPD recommends that government should consider reducing its allocation towards Defense, and Public order and safety in order to increase allocations towards critical social sectors such as Health and Education. Furthermore, there is need to re-allocate resources to social protection since expenditure in this regard impacts the living standards of the poorest in the society.

With regards to policy changes in the budget, CTPD recommends that government should promptly reduce the stock of Public debt in order to mitigate the risk of debt distress. Furthermore, government should implement measures aimed at reducing debt payments, such as refinancing,” he stated.

In dealing with the current macroeconomic challenges, Mwaipopo challenged government to take advantage of the opportunity to host the World Bank’s IDA 18 high-level mid-term review meeting and the IMF visit in November to present a convincing debt sustainability framework and economic recovery program which can lead to the fruition of the bail-out package.

“It is common knowledge that the IMF package has the potential to stabilize Zambia’s macroeconomic situation through boosting investor confidence and introducing sound macroeconomic policies under IMF oversight. The IMF provides balance of payment support and technical support on financial and debt management which Zambia currently needs.

Therefore the coming on-board of the IMF would lead to private sector confidence and pave way for restructuring of the Eurobonds while crowding in other funds from cooperating partners. We strongly urge the Zambian government to take this opportunity to successfully engage the IMF for the benefit of Zambia’s economy and its people,” he highlighted.