“Accelerating fiscal fitness for sustained inclusive growth, without leaving anyone behind”

Budget Address delivered by the Minister of Finance, Hon. Felix C. Mutati, to the National Assembly on Friday, 29 September, 2017

During the official opening of the second session of the twelfth National Assembly, His Excellency, Mr. Edgar Chagwa Lungu, President of the Republic of Zambia reminded the nation of the need to uphold our national values and principles, which are centred on patriotism and love for one another as enshrined in our national anthem “one land and one nation is our cry”. I wish to reiterate the President’s call, as it is critical if we are to effectively implement our development agenda and meet our aspirations as a nation, without leaving anyone behind.

The people of Zambia deserve peace and stability, decent employment, quality public services and a conducive environment where they can thrive, create their own wealth and prosper. Achieving these outcomes is the task with which the Zambian people have entrusted us.

This we shall attain through the diligent pursuit of the strategic objectives contained in the recently launched Seventh National Development Plan. We aspire to make a reality of the Plan’s theme of “accelerating development efforts towards the Vision 2030, without leaving anyone behind”.

During the nine months of implementing the Economic Stabilisation and Growth Programme, dubbed “Zambia Plus”, a lot has been achieved. The Patriotic Front Government is cognisant of the fact that our people deserve much more. We have made strides, yet challenges still remain. Youth unemployment and poverty levels remain high. To this end, Government is resolved to work tenaciously to uplift the wellbeing of our people and enhance their meaningful participation in the economy.

Inclusive growth is only possible if we are steadfast in collectively implementing bold policy decisions and reforms. This year, Government implemented austerity measures that have started showing positive results in securing a sustainable growth going forward. Through these measures Government significantly reduced the accumulation of arrears. As a result of the reforms, Zambia’s credit rating outlook and investor confidence have improved. Government is mindful that despite this positive outlook, the measures in the short term have not yet favourably impacted on the welfare of the people. The long term benefits will be inclusive growth and prosperity.

By working collectively, we can ensure that our goals and priorities are clearly defined. Our resolve for inclusive development remains unwavering. Our actions remain fiscally prudent. It is in this context that the theme of the 2018 Budget is “Accelerating fiscal fitness for sustained inclusive growth, without leaving anyone behind.”

Part I: Global and domestic economic developments in 2017

The global economy is projected to grow by 3.5 percent in 2017, compared to 3.2 percent in 2016. This is mainly premised on a projected 4.6 percent growth in the large emerging and developing economies, driven by the gradual improvement in commodity prices.

Growth in advanced economies is expected to strengthen to 2.0 percent in 2017 from 1.7 percent in 2016. Sub-Saharan African growth is projected to expand to 2.7 percent in 2017 from 1.3 percent in 2016, driven by increased agricultural and mining output.

As global economic activity gains momentum, commodity prices are expected to continue strengthening in 2017. Copper prices are projected to average US$5,827 per tonne in 2017 compared with an average of US$ 4,868 per tonne in 2016. Similarly, international crude oil prices are expected to surge upwards to an average of US$49.0 per barrel in 2017 from an average of US $42.8 per barrel in 2016.

The Zambian economy in 2017 has continued to rebound. Growth is expected to be above 4.0 percent from 3.8 percent in 2016. Key drivers will be the mining, agriculture and manufacturing sectors supported by improved electricity generation. It is worth noting that the Zambian economy has outpaced the Sub-Saharan African economic growth of 2.7 percent. This is a reflection of the sound economic policies that this Government has put in place.

External Sector Performance

The performance of the external sector has improved relative to 2016. Zambia’s trade balance recorded a surplus of US$388.3 million during the first six months of 2017 compared with a surplus of US$45.8 million during the corresponding period in 2016. This was mainly driven by higher export earnings relative to imports. Total export earnings were 25.8 percent higher at US$3.9 billion compared with US$ 3.1 billion in the corresponding period in 2016.

Copper export earnings were higher by 38.1 percent at US$ 2.9 billion from US$ 2.1 billion in the corresponding period in 2016. This was due to a rise in both export volumes and prices. Non-traditional exports, however, marginally declined to US$ 811.7 million during the first six months of 2017 from US$835.5 million during the same period in 2016.

Gross international reserves as at end-August 2017 were estimated at US$2.3 billion, relatively unchanged from the end-2016 level. This translates into 3.2 months of import cover.

Part II: Macroeconomic objectives, policies and strategies for 2018

Accelerating fiscal fitness is critical for sustained inclusive growth, diversification and job creation. These outcomes are in conformity with the strategic objectives of the Seventh National Development Plan. In this regard, the macroeconomic objectives and policies for 2018 will be to:

1. achieve real GDP growth of at least 5.0 percent;

2. maintain single digit inflation in the range of 6.0 to 8.0 percent;

3. maintain international reserves of at least 3 months of import cover;

4. attain domestic revenue mobilisation of at least 17.7 percent of GDP;

5. limit the fiscal deficit, on a cash basis, to 6.1 percent of GDP;

6. limit domestic financing to no more than 4.0 percent of GDP;

7. accelerate implementation of measures towards diversification of the economy;

8. reduce the stock of arrears and curtail the accumulation of new arrears; and

9. Slow down the contraction of new debt to ensure debt sustainability.

Key Integrated Multi-Sectoral Policies and Interventions

The Seventh National Development Plan has adopted an integrated multisectoral approach to development. This entails that sectors have to work together in clusters to achieve the objectives of the Plan. In this vein, the policy and structural interventions to be undertaken in 2018 will be aligned to the following five pillars of the Plan:

1. economic diversification and job creation;

2. poverty and vulnerability reduction;

3. reducing development inequalities;

4. enhancing human development; and

5. Creating a conducive governance environment for a diversified and inclusive economy.

There is need to create a supportive environment for effective implementation of the Plan. This will be done by creating a stable macroeconomic environment and fiscal space, while consolidating policy and structural reforms as outlined in the Economic Stabilisation and Growth Programme.