Zambia Budget Speech

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2012 BUDGET ADDRESS BY HON. ALEXANDER B. CHIKWANDA, MP

HONOURABLE MINISTER OF FINANCE, DELIVERED TO THE NATIONAL

ASSEMBLY ON FRIDAY 11TH NOVEMBER, 2011

1. Mr. Speaker, I beg to move that theHouse do now resolve into Committee of Supply on the Estimates of Revenue andExpenditure for the year 1st January 2012to 31st December, 2012 presented to theNational Assembly in November 2011.

2. Sir, I am the bearer of a messagefrom His Excellency the Presidentrecommending favourable consideration of the motion that I now lay on the Table.

3. Mr. Speaker, as I begin this budgetaddress, I wish to acknowledge the macro-economic achievements that the countryhas attained when the economy was underthe stewardship of my predecessor, Hon.Dr. Situmbeko Musokotwane, MP. I wouldlike to pay tribute to him and the previousadministrations for laying a strongfoundation upon which this Government

will build.

4. Mr. Speaker, 2011 is a landmark year. In September, we held successfulelections and had a peaceful transition of power, a rare feat on the African continent.As Zambians, we should be justly proud of this achievement. In October, wecelebrated 47 years of independence,regrettably amidst persistently high andunacceptable poverty levels.

5. Sir, in his address to Parliament,His Excellency, the President outlined anambitious programme of action to beginhis administration’s vigorous and

unrelenting fight against poverty. As weembark on the path to transform ournation, hard work is required and difficultchoices will have to be made. But, as anation, we have collectively chosen thispath. With this unity of purpose, we are

confident that the challenges before us may

be intractable but certainly not

insurmountable. It is our

duty to ensure that the benefits of ourrecent economic success are felt by everyZambian. Thus, the theme of the 2012budget is “Making Zambia a better place

for all.”

6. Sir, my speech this afternoon is infour parts. In Part I, I review the global anddomestic economy. Part II outlines the

macro-economic objectives, policies andstrategies for the 2012 budget. In Part III, Ipresent the 2012 budget and I conclude inPart IV.

PART I

GLOBAL AND DOMESTIC

ECONOMIC REVIEW

GLOBAL ECONOMY

7. Mr. Speaker, in 2011, the globaleconomy continued its recovery. Annualgrowth is projected at 4.0 percent slightlylower than the 5.1 percent recorded in2010. Economic growth was strong in theemerging and developing economies, withgrowth in Sub-Saharan Africa of 5.2percent in 2011. In contrast, growth in theadvanced economies, at 1.6 percent,

continued to be sluggish largely on accountof unsustainable sovereign debts in someEuro zone countries and weak demand inthe United States of America.

8. Mr. Speaker, strong growth inemerging economies and political unrest inNorth Africa and the Middle East havekept international commodity prices high.The average price of copper in the first tenmonths of 2011 was US $8,704 per tonne,

compared to US $7,538 per tonne in 2010.The price of oil has averaged US $109.9



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per barrel in the first ten months of 2011,higher than the US $79.0 in 2010.International food prices have also beengenerally high in 2011 mainly on accountof supply constraints.

9. Sir, high commodity prices presentboth opportunities and risks to thedomestic economy. High copper prices canboost export earnings, facilitate investmentand support the fiscal position. Similarly,high food prices present an opportunity forthe country to enhance agriculturalproduction, and diversify the export base.In contrast, high oil prices could increasethe cost of production thereby increasing

inflationary pressures in the domesticeconomy.

DOMESTIC ECONOMY

Growth and Inflation

10. Mr. Speaker, preliminary estimatesindicate that the economy will grow by 6.5percent in 2011. This is in line with theinitial projection of 6.4 percent.Agriculture, manufacturing, construction,and transport and communications are themain drivers of this growth. Growth couldhave been significantly higher had themining sector performed according toprojection. I am concerned that the miningsector data do not fully reflect actualproduction.

11. Sir, annual inflation has remained

in single digits and was 8.7 percent inOctober, 2011 compared to 7.9 percent inDecember 2010. The increase in inflationreflected the slight rise in annual foodinflation despite a high maize harvest.However, non-food inflation has beenfairly unchanged at low double digit levels.The recent reduction in fuel prices,effected by the PF Government, shouldreduce inflation by the end of the year.

Monetary and Financial Sector

Developments

12. Mr. Speaker, economic activities in

2011 have continued to drive growth inmoney supply. The annual growth inmoney supply was 26.8 percent up toSeptember 2011 compared with 23.6percent during the corresponding period of 2010. This was mainly driven by increasedlending to private enterprises, reflectinghigh confidence and opportunities in theeconomy.

13. Sir, with regard to interest rates,

returns on Government securities rosemainly on account of higher Governmentborrowing. Interest rates on Treasury billsincreased to 14.2 percent in October 2011from 8.2 percent in December 2010.Similarly, interest rates on Governmentbonds edged upwards to 16.2 percent from11.3 percent. Sir, lending rates incommercial banks have remained high andare not in line with low inflation andrelative macroeconomic stability. At thecurrent level, commercial bank interestrates are 300 percent the inflation rate.

14. Mr. Speaker, high interest rates area serious constraint to lowering the cost of doing business, increasing access to creditand accelerating private sector growth.This is particularly true for the small andmedium scale enterprises which accountfor the bulk of employment opportunities

and growth. In addition, small and mediumscale enterprises offer the most powerfulweapon to reduce poverty and create a justand equitable society.

15. Sir, Government’s legitimate

expectation is that interest rates willcontinue the downward trend that startedwithin the first 30 days of the PF assumingGovernment. The Bank of Zambia hastaken steps to enhance the liquidity

available to banks by lowering the reserve



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ratios. This can only be justified with alower interest rate regime.16. Mr. Speaker, the financial sector’s

overall performance has been favourable.In the banking sector, asset quality

improved due to a reduction in gross non-performing loans. With respect to the non-bank financial institutions, performanceand financial condition was rated fair as atend-September 2011. The sector hascontinued to record growth with thenumber of institutions increasing to 95 asat end-September 2011 from 87 at end-September 2010.

17. Sir, with regard to developments

under the Financial Sector DevelopmentPlan, access to financial services hasincreased through the promotion of microfinance services, mobile banking,money transfer services, and ruralbanking for the financially excludeddistricts. The number of mobile moneyservice providers increased to 57 as atAugust 2011 from 29 in December 2010.In addition, the number of districtswithout banking services declined to 7 asat end-September, 2011 from 14 inDecember 2010.

18. Mr. Speaker, in line with thepositive economic performance, theLusaka Stock Exchange is poised toregister another year of impressive growth.In the first nine months, the share priceindex increased by 9.3 percent to 3,823.1,while market capitalization rose by 44.9

percent to K44,802.1 billion. This outturnwas partly due to an improvement in netportfolio inflows of foreign capitalamounting to US $13.0 million, comparedto a net portfolio outflow of US $8.2million over the same period in 2010.

External Sector Developments

19. Mr. Speaker, the external sectorremained strong. The current account

surplus is projected to rise by 54.7 percentto US $951.0 million in 2011 from US

$614.7 million in 2010. This is mainly onaccount of high copper export earnings of US $8.4 billion, up from US $5.8 billion in2010. Non-Traditional Exports are againexpected to register robust growth and are

projected at US $1.5 billion in 2011 fromUS $1.2 billion last year. Consequently,gross international reserves rose to US$2.6 billion as at end-September 2011,representing 4.3 months of import cover.

20. Sir, the exchange rate of theKwacha against major currencies exhibitedresilience. It depreciated marginally by 4.5percent to K4,949.8 per US dollar at end-October, 2011 from K4,735.7 per dollar as

at end-December 2010. This was despiteuncertainties prior to the elections and thestrengthening of the US dollar.

BUDGET PERFORMANCE IN 2011

21. Mr. Speaker, the performance of the budget in 2011 has generally beensatisfactory with end year revenuesexpected to be above target. However,there have been large pressures onexpenditure arising from the need to fundthe general elections, increased maizepurchases and procurement of fertilizer,among others. Consequently, the overalldeficit is expected to be 3.1 percent of GDP, compared to the projection of 2.9percent.

22. Sir, preliminary figures as at end-September indicate that domestic revenues

at K14,580.2 billion have over performed.This trend is expected to continue and willresult in an over performance of 23.2percent by the end of the year. Thisperformance is mainly attributed topayment of mining tax arrears andimproved tax administration.

23. Sir, general budget support receiptsfrom cooperating partners were projectedat K586.5 billion in 2011. As at end-

September, K298.8 billion was received



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and the balance is expected to be receivedin full by the end of the year.



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24. Mr. Speaker, total expenditure bythe end of 2011 is expected to beK24,041.2 billion, 18.8 percent higher thanbudgeted. This is against the total expectedrevenues and grants of K20,657.1 billion.

The difference will be financed throughborrowing.

Domestic and External Debt

25. Mr. Speaker, as at end-September2011, Government contracted externalloans of US $504.8 million to finance theimplementation of infrastructure projectsin the roads, energy and agriculturalsectors. A net amount of about US $200.0

million was disbursed on new and existingloans. Consequently, external debt rose toUS $1.6 billion as at end-September, 2011from US $1.4 billion in 2010. At this level,the external debt stock is 8.2 percent of GDP, well within sustainable levels.

26. Sir, as at end-September, 2011,total domestic debt amounted to K13,876.8billion or 16.1 percent of GDP. Of thisamount, K12,820.9 billion is accounted forby government securities while the balanceof K1,055.9 billion is accounted for byother public liabilities such as pensionarrears, awards and compensation, andarrears to suppliers of goods and services.

PART II

MACROECONOMIC OBJECTIVES,

POLICIES

AND STRATEGIES IN 2012

Macroeconomic Objectives

27. Mr. Speaker, macroeconomicpolicy under the new administration willbe geared towards maintaining a stablemacroeconomic environment conducive toinvestment, inclusive growth andemployment creation.

28. Sir, the specific macroeconomicobjectives in 2012 will be to:

a) achieve real Gross Domestic Productgrowth of above 7.0 percent;

b) attain end-year inflation of no morethan 7.0 percent;

c) limit overall fiscal deficit to 4.3

percent of GDP and domesticborrowing to 1.3 percent of GDP;and

d) maintain gross international reservesof at least four months of importcover.

Monetary and Financial Sector Policies

29. Mr Speaker, monetary policy in2012 will remain focused on the

maintenance of single-digit inflation. Inline with this objective, the Bank of Zambia will continue to use market-basedinstruments to limit money supply growth.The Central Bank will also continue towork towards enhancing the effectivenessof the monetary policy. In this regard, theoption of adopting an interest rate-basedframework will be explored further.

30. Sir, a flexible exchange rate regimehas worked well for Zambia by absorbingexternal shocks that could have beenharmful to trade, employment andinflation. In this regard, the Governmentwill ensure that determination of theexchange rate remains market based whilesupporting the competitiveness of ourexports. To minimize the impact of rapidmovements in the exchange rate, the Bank of Zambia will maintain its policy of

intervention to smoothen volatility.

31. Mr. Speaker, maintaining a soundfinancial system is essential to investmentand economic growth. To this effect, theBank of Zambia will continue to promotestability of the financial sector throughstrong supervision of financial institutionsand by ensuring compliance withregulations.



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Fiscal Policy

32. Mr. Speaker, the objective of theGovernment in 2012 is to continue witheffective fiscal management and

supportive fiscal policies so as to attainhigh and inclusive economic growth. Thisfiscal stance entails increasing domesticand external resource mobilisation tosupport our development agenda anddeliver on our commitment to “MakeZambia a better place for all.”

33. Sir, our fiscal policy objectives in2012 will be to:

a) increase domestic revenues to 19percent of GDP;

b) limit domestic borrowing to 1.3percent of GDP and net externalborrowing to 3.0 percent of GDP;and

c) commit at least 50 percent of thebudget to social sectors andinfrastructure development

Debt Policy

34. Mr. Speaker, the Government isaware that even as we spend more onsocio-economic infrastructure, our abilityto meet our debt obligations should not beignored. In this regard, the Governmentwill target concessional borrowing as thefirst option. In order to meet the hugeinfrastructure financing needs, theGovernment will also consider non-

concessional borrowing for projects withhigh economic and social returns.

35. Sir, this Government will ensuretransparent and accountable use of loansby strengthening parliamentary oversight.Further, the capacity to appraise projects inthe Ministry of Finance and otherministries implementing major projectswill be strengthened. The Government willalso review the existing legal framework in

order to strengthen debt management.

36. Mr. Speaker, early this year,Zambia was assigned a B+ rating by tworeputable international rating agencies.This has opened up the opportunity forZambia to diversify its external financing

sources to support our commitment toimprove infrastructure, particularly in theroad and energy sectors. To this end, theGovernment plans to proceed with theissuance of a ten-year sovereign bondworth US $500 million in 2012.

37. Sir, the issuance of this bond willestablish a pricing benchmark for futurebond issuance by both the private andpublic sectors. Furthermore, it will enhance

the visibility of the country as a favourabledestination for investment. This will“crowd-in” private sector investment andease competition for domestic savings.

KEY STRATEGIES AND

INTERVENTIONS

38. Mr. Speaker, the PF Governmentrecognizes the efforts of previousadministrations in establishing stronggrowth. However, indicators of humandevelopment in Zambia are dismal, withpoverty remaining consistently above 60percent. In rural areas, the situation is evenworse at 77.9 percent. Unemploymentlevels have remained unacceptably highespecially among our youths. According tothe 2011 Human Development Report,Zambia is still ranked among the poorest at164th position out of 189 countries.

39. Sir, this tells us that we must neverfocus exclusively on macroeconomicstability. A mother in Gwembe is notinterested in lower inflation if she can’t

take her child to school; an unemployedyouth in Kaputa is not empowered bysongs of praise about stability of theexchange rate but by being provided withskills and job opportunities; our hardworking farmers across the country have

no interest in real GDP growth if their farmproduce lies uncollected, they are not paid



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on time and they do not receive areasonable and fair recompense for theirlabour.

40. Mr. Speaker, to address these

concerns, the PF Government will focus onsocial justice and equity while sustainingmacroeconomic stability. This will beachieved through diversifying theeconomy, enhancing productivity,promoting employment opportunities andpursuing sound financial managementwhile investing in supportiveinfrastructure.

41. Sir, let me now provide brief

details on each of these strategies.

Diversification and Productivity

42. Mr. Speaker, for far too long, oureconomy has continued to be over relianton copper which has delivered limitedbenefits for the majority of our people.This Government recognises recent effortsmade towards diversifying our economy.We are determined to accelerate theseefforts by promoting growth in theagriculture, tourism and manufacturingsectors.

43. Sir, in the agricultural sector, wewill extend support to crops beyond maize,strengthen research and extension services,invest in irrigation, develop andrehabilitate livestock infrastructure andpromote disease free zones. In addition, the

Government will reform the agriculturalmarketing system, promote agro-processing and forward linkages includingthrough the development of farm blocks.Other strategies will include technologicaltransfer and land development.

44. Sir, in the tourism sector, we willpromote and expand tourism products anddevelop key infrastructure. TheGovernment will also open up areas for

private sector investment including thenorthern circuit. Further, with His

Excellency’s bold decision to relocate theprovincial capital to Choma, Livingstonewill now be able to devote all its energiesto enhancing its status as the tourist capitalof Zambia.

45. Mr. Speaker, in the manufacturingsector, the Government will facilitateprivate sector development, promote thegrowth of Micro Small and MediumEnterprises and develop rural basedenterprises. In this regard, the Governmentwill continue with the development of theMulti-Facility Economic Zones.

46. Sir, to enhance private sectorproductivity, the Government has, within

50 days of taking office, lowered the costof credit. The Bank of Zambia willcontinue to engage the financial sector toensure that innovative ways of providingaffordable financing are identified andimplemented. In addition, the Governmentwill accelerate business licensing andregulatory reforms to further reduce thecost of doing business in Zambia. We willalso invest in vocational and technicaleducation in order to equip the labour forcewith the appropriate skills that meet thedemand of the private sector.

Public Financial Management

47. Mr. Speaker, Government’s ability

to effectively promote pro-poor growththrough the budget is dependent on theefficacy of its public financial management(PFM) practices. Consultation,

transparency and accountability arecardinal principles upon which thisAdministration will manage publicfinances. Adherence to these principleswill reduce the space in which misuse andabuse of public resources can thrive,thereby enhancing the developmentorientation and service delivery impact of public expenditure.

48. Sir, to this effect, in 2012, the

Government will finalize and begin toimplement a revitalized PFM strategy that



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practically integrates these core principlesinto its PFM practices. Further,Government will bring to this House aPlanning and Budgeting bill and anamendment to the Public Finance Act to

place these cardinal PFM principles on alegal footing.

Public Private Partnership

49. Mr. Speaker, the Public PrivatePartnership (PPP) framework provides amechanism to employ private financingand expertise for delivering public goodsand social services that would ordinarily befunded from the budget. The PF

Government will collaborate with andencourage the private sector to participatein financing key public sector projects forthe benefit of our people. The experiencefrom the already implemented PPPprojects will be used to strengthen projectidentification, development andimplementation. We will also ensure thatthe implementation of PPP projects doesnot give rise to unsustainable contingentliabilities. There is a compelling need toguard against fraudulent schemes.

Provision of Statistics

50. Mr. Speaker, effective formulationand evaluation of public policies dependson the availability of good quality andtimely provision of statistics. In the past,inadequacies in the statistics havehampered well informed decision making.

It has come to my attention that a numberof organizations that are obliged to providestatistics have often not complied with thelaw.

51. Sir, we cannot allow this tocontinue and every organization operatingin this country must avail Governmentwith relevant information and statisticsfrom time to time. Currently the CentralStatistical Office is conducting an

economic census. I implore the businesscommunity to cooperate with Government

agencies collecting statistics as we allstand to benefit.

PART III

THE 2012 BUDGET

52. Mr. Speaker, I now present thebudget for 2012 which focuses onpromoting economic and socialdevelopment through an appropriatebalance between government expenditure,taxation and borrowing.

53. Mr. Speaker, the Governmentproposes to spend K27,698.3 billion or

26.5 percent of GDP projected atK104,462 billion in 2012. Of this amount,K19,976.0 billion or 72.1 percent will befinanced from domestic revenues.K1,894.4 billion or 6.8 percent will befinanced by grants from Co-operatingPartners. The balance of K5,827.9 billionor 21.1 percent of total expenditure will befinanced through domestic borrowing of K1,324.3 billion or 1.3 percent of GDP andgross external financing of K4,503.6billion or 4.3 percent of GDP.

54. Sir, in line with the PF manifesto,the 2012 budget prioritises expenditures inthe four core development areas of agriculture; education and skillsdevelopment; health services; and localgovernment and housing. In this regard,the budget allocations to these coreprogramme areas have significantly been

increased compared with the 2011 levels.

55. Mr. Speaker, let me now discusspolicies and budget allocations.

Agriculture Development

56. Mr. Speaker, over the past threeyears, there has been an increase inagricultural output. However, the sectorcontinues to face constraints such as low

productivity, dependence on rain-fedagriculture, lack of appropriate and



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affordable breeding stock, low valueaddition, poor marketing and lowinvestment. In addition, thecompetitiveness of the sector has beenadversely affected by poor transport

infrastructure, inadequate storage facilitiesand limited access to electricity. Further,Government policy has encouraged thegrowing of maize to the detriment of othercrops.

57. Sir, these constraints mean that thebenefits of improved agricultural outputhave often not reached the poorest ruralhouseholds. As a result, the sector’s

potential to significantly reduce poverty

has not been tapped.

58. Mr. Speaker, in order to addressthese constraints, the Government willredesign the Farmer Input SupportProgramme, refocus market guarantees anddifferentiate extension service provision tosupport the production of crops which areappropriate to each agro-ecological zone.

59. Sir, alongside these reforms, actionwill be taken to improve crop productivityand production as well as soil and watermanagement. The input provision and cropmarketing systems will be streamlined andthe sector’s competitiveness will beenhanced through infrastructuredevelopment and enhanced extensionservices.

60. Mr. Speaker, to the agriculture core

programme, I have increased the allocationby 37.9 percent to K1,698.0 billion in 2012from K1,231.6 billion in 2011. Of thisamount, K500.0 billion is for the FarmerInput Support Programme and K300.0billion for crop purchases for the strategicfood reserve. The balance will cater forirrigation infrastructure, livestock development, fisheries and aquaculturedevelopment, and other programmes.

Education and Skills Development

61. Mr. Speaker, educating ourchildren is an important prerequisite forlong term growth and reducing inequality.

Currently, there is minimal early childhoodeducation, poor quality primary andsecondary education, dilapidatedinfrastructure and limited access tovocational and tertiary education.

62. Sir, we must, therefore, strivetowards the attainment of high quality,universally accessible and developmentoriented education for all. In particular,greater emphasis will be placed on early

childhood education as it is a criticalrequirement for the social and intellectualgrowth of our children. This will lay a firmfoundation for our children to develop intoproductive and innovative citizens.

63. In this regard Mr. Speaker, Ipropose to increase the sector’s allocationby 26.7 percent to K4,850.5 billion in2012. Out of this amount, K796.4 billionhas been set aside for various infrastructureprojects including construction of morethan 2,000 additional classroom blocks. Ihave also provided K126.0 billion toupgrade Chalimbana and Palabana collegesinto universities and commence works on anew university at Lubwa Mission. Inaddition, the Government will undertake anet recruitment of 5,000 teachers andupdate the curriculum to improve thequality and relevance of education to

bridge the nation’s skills gap.

64. Sir, in the area of skillsdevelopment, the Government will scaleup youth skill development programmesthrough the construction of nine, andrehabilitation of 12 Technical TrainingInstitutes. This is aimed at empowering ouryouths and making them active participantsin the development of the country.



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Health Services

65. Mr. Speaker, many families acrossthe country today are struggling to care fortheir sick. For these families, the hours are

long, the responsibilities daunting, thedemands unrelenting and costs significant.When they visit their nearest health centre,clinic or referral hospital, their anguish isonly minimally diminished, as they face ahealth provision system that struggles toprovide adequate medicines, beds andother basic health requirements.

66. Sir, we cannot allow this situationto continue. Provision of more resources to

the health care system will therefore be animportant starting point. Today, I ammaking a commitment to the Zambianpeople that the budgetary allocation to thehealth sector will progressively increase inline with the Abuja Protocol.

67. Mr. Speaker, in 2012, I haveincreased the allocation to the healthfunction by 45.0 percent to K2,579.9billion. Of this amount, K301.7 billion willbe for drugs and medical supplies. Withthese resources, we will scale up theprovision of essential drugs, andprocurement of equipment and othermedical supplies especially to the under-serviced rural areas.

68. Sir, a provision of K77.9 billion hasbeen made for the net recruitment of 2,500front line medical personnel while K389.3

billion has been provided for infrastructureand medical equipment. Key programmesunder infrastructure development willinclude the completion of 8 districthospitals and the construction of 5 newdistrict hospitals including the requisitehousing for medical personnel.

69. Mr. Speaker, health care provisioncannot only be judged in terms of resourceallocation, but also by improving access

and health outcomes. In order to increaseaccess to health services, the Government

will remove all financial barriers toaccessing health services by abolishing alluser fees for primary care services not onlyin rural but also in urban areas.

Local Government and Housing Development

70. Mr. Speaker, Zambia’s communities, towns and cities are theplaces where our people live and work,raise their children, and want to retire indignity and security. Each council isresponsible for delivering services that arecentral to the everyday lives of our people.However, the functionality of the local

governance system has been severelyeroded thereby compromising local servicedelivery.

71. Sir, it is a priority of thisGovernment to decentralize appropriatefunctions to councils over the mediumterm. The focus in 2012 will be to buildcapacity at local level in preparation for thephased devolution of functions from 2013.The Government will also restructurefinancial relations between the centre andthe local level. This will ensure that theseextra mandates devolved to the councilsare adequately financed, in line with theprinciple of “finance follows function”.

72. Sir, in 2012, I have increased thegrants to councils by more than 100percent to K257.1 billion. This is todemonstrate the PF Government’s

commitment to capacitate councils aheadof devolution.

73. Mr. Speaker, the provision of safe,potable drinking water and sanitationservices in our communities requires ourimmediate attention. This will beaddressed through the rehabilitation of more than 850, and construction of about3,000 boreholes in rural areas. In urbanareas, development and rehabilitation of

water supply and sanitation infrastructuresystems will be undertaken. In addition,



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the Government will facilitate thestrengthening of the capacity of utilitycompanies and other institutions in waterand solid waste management.

74. In light of what has been outlinedin the four core programme areas, theoverall functional allocation of expenditures is as follows:

2012 Expenditure by FunctionFunction and Sub-Function Allocation (K' Billion) % of Budget

General Public Services Executive 8,304.8 30.0

Executive 856.1

o/w Grants to Local Authorities 257.1Constituency Development Fund 120.1

Legislation 594.7

General Government Services 7,400.5

O/w Domestic Debt Interest 1,650.1External Debt 1,416.8Compensation and Awards 200.0

Centralised Administrative Services 362.5

Defence 1,648.5 6.0

Public Order and Safety 1,017.4 3.7

Economic Affairs 8,120.0 29.3

General Economic, Commercial and labour 266.1

o/w empowerment funds 40.0Agriculture Forestry and Fishing 1,698.0

o/w Farmer Input Support Programme 500.0Strategic Food Reserve 300.0Food Security Pack 25.0

Fuel and Energy 1,369.7

O/w Kafue Gorge Lower Power Project 864.0Rural Electrification Programme 437.1

Transport 4,658.8o/w Roads 4,481.0Communications 39.0

Tourism 52.6

Environment Protection 31.8 0.1

Housing and Community Amenities 352.9 1.3

o/w Water Supply and Sanitation 150.3

Health 2,579.9 9.3

o/w Infrastructure Development 389.3

Recreation, Culture and Religion 136.9 0.5

Education 4,850.5 17.5

o/w Infrastructure Development 796.4

Social Protection 655.6 2.4

o/w Public Service Pension Fund 474.2Social Cash Transfer 55.0

Grand Total 27,698.2 100.0

75. Mr. Speaker, the detailedexpenditures for 2012, categorised byfunction are as follows:

General Public Services

76. Mr. Speaker, under the General

Public Services function, the Governmenthas made a provision of K8,304.8 billion or

29.9 percent of the budget. Out of thisamount, I have allocated K2, 091.9 billion toservice domestic and external debt andK336.3 billion for payment of arrears tosuppliers of goods and services. In addition,K257.1 billion has been provided for grantsto local authorities, and K120.1 billion for

the Constituency Development Fund.



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77. Sir, other provisions include K200.0billion for compensation and awards forpayment of litigation cases ruled against theGovernment. A further K120.0 billion hasbeen provided for contingency reserve

meant to cater for unforeseen andunavoidable expenditures. The remainder of the resources will go towards regularGovernment operations.

Economic Affairs

78. Mr. Speaker, expenditure on theeconomic affairs function is projected to riseby 54.6 percent to K8,120.0 billion. Notableprogrammes include those in the agricultural

sector, which I have already discussed,together with large investments in theenergy and roads sectors. In the energysector, I have allocated K864.0 billion asGovernment’s contribution to equity in the

construction of the Kafue Gorge Lowerpower project while K437.1 billion is for theRural Electrification Fund.

79. Sir, for the road sector, I haveprovided K4,481.0 billion, the bulk of whichwill go towards ongoing projects. Out of thisamount, K101.0 billion has been allocatedfor feasibility studies and design for newprojects including Leopards Hill to Chiawa,Kasempa-Kaoma, Kawambwa-Mporokosoand Luwingu-Kaputa roads. In addition,K60.0 billion has been provided forpreparatory works on the Lusaka Ring-Roadproject. Other road projects that will beundertaken in 2012 include Mongu-Kalabo,

Nyimba-Sinda, Nakonde-Mbala, Kalulushi-Lufwanyama, Kabompo-Chavuma, Bottomroad and Mumbwa-Landless corner.

80. Mr. Speaker, with regard to thetourism sector, I have provided K21.1billion for tourism marketing and promotionand K15.0 billion to recapitalize ZambiaWildlife Authority.

81. Sir, I have also provided K30 billion

to facilitate the initial works of establishingthe new provincial headquarters for

Muchinga Province and the relocation of theprovincial capital for Southern Province toChoma.

Public Order and Safety

82. Mr. Speaker, the Governmentintends to spend K1,017.4 billion or 3.7percent of the budget on the Public Orderand Safety function. Of this amount, K55.8billion has been set aside for infrastructuredevelopment projects which include policehousing units, police stations and forensiclaboratories. In order to improve policing,K30.0 billion has been provided for theZambia Police modernization programme

and K16.7 billion for the net recruitment of 1,000 police officers. Further, an allocationof K50.0 billion has been made to continuewith the programme of court constructionand rehabilitation.

Housing and Community Amenities

83. Mr. Speaker, I have allocated K352.9billion to this function. Of this amount,K150 billion has been provided asGovernment contribution to the water andsanitation sector, representing an increase of 26.1 percent from the 2011 provision. Thefunds will be used to improve access toclean and safe drinking water in rural andperi-urban areas.

Social Protection

84. Mr. Speaker, a total of K655.6

billion has been allocated for socialprotection programmes. Of this amount,K474.2 billion has been provided for grantsto the Public Service Pension Fund. Inaddition, K90.0 billion has been providedfor various social safety nets which includethe Public Welfare Assistance Scheme, foodsecurity packs and social cash transfers.



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REVENUE ESTIMATES AND

MEASURES

REVENUE ESTIMATES

85. Mr. Speaker, in the economicobjectives and policies that I have justoutlined, it is very clear that the PFGovernment has a very ambitious plan totransform the Zambian economy. To do so,we need to carefully balance the demands of our citizens for lower taxes against thedemands for higher spending, especially onpoverty reducing programmes. This meansthat we must rebalance the burden of taxation, providing tax relief for those who

have borne a disproportionate burden in thepast while at the same time generate moreresources from those areas of the economythat have benefited most from our strongmacroeconomic performance.

86. Sir, under these circumstances, theGovernment expects to raise resources of K27,698.3 billion or 26.5 percent of GDP tosupport the 2012 Budget. Domestic revenueswill constitute 19.1 percent of GDP while

grant receipts from our cooperating partnerswill be 1.8 percent. The balance of 5.6percent of GDP will be total borrowing outof which 1.3 percent of GDP will come fromdomestic borrowing and the balance of 4.3percent of GDP will be external financing.

87. Mr. Speaker, the summary of therevenue estimates and financing to supportthe 2012 expenditures is as follows:

Total Resource Envelope for the 2012 Budget(K’ billion)

Total Tax Revenues 19,267.7

Income Tax 10,271.5 10,271.5

Company Income Tax 3,264.4

PAYE 4,216.2

Withholding & other 909.5

Mineral Royalty 1,881.4

Value Added Tax 4,723.6

Domestic VAT 392.0

Import VAT 4,331.6

Customs and Excise 4,272.6

Customs duty 2,108.6

Excise duty 2,164.0

o/w Fuel Levy 460.6

Non-Tax Revenues 708.3

Fees & Fines 465.0

Exceptional 216.2

Medical Levy 19.2

Dividends & On-lending 7.9Domestic Borrowing 1,324.3

Total Domestic Revenue and Financing 21,300.3

Total Foreign Grants and Financing 6,398.0

Grants 1,894.4

General Budget Support 541.4Sector Budget Support 219.2Project Grants 1,133.7

Foreign Financing 4,503.6

Programme Loans 2,652.0Project Loans 1,851.6

TOTAL REVENUE AND FINANCING 27,698.3



14

REVENUE MEASURES

DIRECT TAXES

88. Mr. Speaker, during the run up to the

election, the PF Government made apromise to the people of Zambia that it willstreamline the tax system, lower tax ratesand promote tax compliance. One of thecommitments we made was to put moremoney in people’s pockets. I wish to assurethis august House that we remain ascommitted to this cause as we were then.

89. Sir, as a first step to honour ourcommitments, I propose to double the

exempt threshold for PAYE from the currentK12 million to K24 million per annum. Thistranslates into tax free income of K2 millionper month and will result in more than80,000 low paid workers moving out of thetaxable brackets. In addition, I haveprovided more relief by adjusting the taxbrackets as follows:

Current PAYE SystemIncome Bands Tax Rate

K1,000,000 and below per month 0 %K1,000,001 – K1,735,000 per month 25 %

K1,735,001 – K4,200,000 per month 30 %

Above K4,200,000 per month 35 %

Proposed PAYE SystemIncome Bands Tax Rate

K 2,000,000 and below per month 0 %

K2,000,001 – K2,800,000 per month 25 %

K2,800,001 – K5,700,000 per month 30 %

Above K5,700,000 per month 35 %

90. Sir, the PAYE restructuringincreases disposable incomes of theworkforce by about K1.0 trillion which canonly be salutary for the economy.

91. Mr. Speaker, the Governmentbelieves that growth should be largelyprivate sector driven. However, the cost of borrowing for investment has inhibited mostof the private sector, particularly our local

entrepreneurs, from engaging in gainfulventures. In order to compliment the efforts

that we have already undertaken to reducethe cost of money, I propose to abolish the40 percent upper corporate tax rate forbanks. With this measure, banks will now berequired to pay the standard corporate tax

rate of 35 percent. This will help to makebanks more liquid, a desirable objective tofacilitate low cost borrowing by enterprises.

92. Sir, this measure will result in arevenue loss of K65.0 billion and I expectthe banks to pass on the benefit of thismeasure to the borrowers by loweringlending rates further.

93. Mr. Speaker, agriculture is at the

centre of our pro-poor development agenda.Sustaining the gains which have beenregistered in this sector over the recent yearsrequires that we continue to increase capitalformation and investment in this sector. I,therefore, propose to reduce the corporateincome tax that is applicable to theagricultural sector from 15 to 10 percent.The proposed reduction is meant to increaseinvestment and thereby raise productivity,output and incomes of our farmers. Thismeasure will make available K10.6 billionfor re-investment into the farming sector.

94. Mr. Speaker, in order to compensatefor the revenue loss arising from the abovemeasures, I propose to increase the mineralroyalty rate to 6 percent from 3 percent and5 percent for base and precious metals,respectively. I also propose to separateincome arising from hedging activities from

core mining activities for income taxpurposes.

95. Sir, I expect to raise K981.0 billionfrom these two measures.

96. Mr. Speaker, in order to align thetreatment of commission payments to non-residents with that of other income streamssuch as royalties, interest and managementor consultancy fees, I propose that

commission payments made to non-residentsbe deemed to have a source in Zambia and



15

therefore taxable at 15 percent. Thismeasure will result in a revenue gain of K24.0 billion.

97. Sir, all the above measures will come

into effect on 1st April, 2012.

VALUE ADDED TAX

98. Mr. Speaker, in 2009, theGovernment introduced a policy to includecopper and cobalt ores and concentrates onthe VAT deferment scheme. This was doneto promote the utilization of excess smeltingcapacity following the decline in thecountry’s mineral production. However,

with the increase in local production of copper and cobalt ores, it is no longer

justifiable to retain these products on thescheme. I, therefore, propose to removecopper and cobalt ores and concentratesfrom the Import VAT Deferment Scheme.This measure will generate an extra K6.9billion.

99. Sir, this VAT measure will comeinto effect on 1st January, 2012.

CUSTOMS AND EXCISE

100. Mr. Speaker, in 2006, Governmentintroduced an export duty of 15 percent onthe export of copper and cobalt concentratesin order to encourage local value additionand create employment. This policy isdiscriminatory as it does not apply to otherminerals thereby creating an uneven

playing field. In the spirit of making this taxless burdensome and its application non-discriminatory, I propose to reduce exportduty to 10 percent but also extend it to allunprocessed or semi-processed mineral ores.The revenue gain as a result of this measureis K70 billion.

101. Sir, in 2007, the Governmentremoved customs duty on light passengeraircraft to promote tourism. I propose to

extend this concession to cover helicopters

and micro-lites. This measure will have aminimal revenue loss.

102. Mr. Speaker, I propose to increasethe duty rebate threshold on travelers’

effects from US $500 to US $1,000. Thiswill benefit travelers coming withaccompanied personal effects from outsideof the country. This measure will have aminimal revenue impact.

103. Sir, all the above Customs andExcise measures will take effect on 1stJanuary, 2012.

HOUSEKEEPING MEASURES

104. Mr. Speaker, I propose to amend theincome tax Act so as to harmonize the fiscalyear and the charge year. In this regard, theCharge year for 2012 will run for ninemonths from 1st April to 31st December,2012 so that the succeeding charge yearsfrom 2013 will run for a full twelve monthsfrom 1st January to 31st December.

105. Sir, I also propose to amend theCustoms and Excise, Income Tax and theValue Added Tax Acts to update andstrengthen provisions and removeambiguities in certain sections of thesepieces of legislation.

INCENTIVES UNDER THE ZAMBIA

DEVELOPMENT AGENCY ACT

106. Mr. Speaker, the process of granting

additional incentives under Section 58 of theZDA Act provides discretion and lackstransparency, thereby creating opportunitiesfor corruption. I, therefore, propose toremove Section 58 in the ZDA Act in orderto prevent leakages in the tax system andstrengthen the quest for enhanced revenuemobilization.



16

PART IV

CONCLUSION

107. Mr. Speaker, the Patriotic Front won

the 2011 Elections because it listened to theneeds of the People at all levels. Now thatwe are in Government, we have not, and willnever, distance ourselves from our people.His Excellency the President and his entireCabinet have committed themselves to work tirelessly so that Government responds, inpractical ways, to ensure that the economy isput on a path of rapid growth and that itsbenefits are widely shared by everyZambian.

108. Sir, we are not a Government thatbasks in the empty glory of statisticaleuphoria, but one that seeks atransformational shift in society to make itmore just and equitable. In this regard Mr.Speaker, allow me to briefly summarizewhat this first budget of the PF Governmentmeans to ordinary Zambians.

109. Mr. Speaker, to the unemployedyouth who feels this nation has little use forhis energies, it means more opportunities forappropriate skills training and thus greaterprospects for income-earning activitiesthrough which he can positively contributeto the development of his nation.

To the peasant farmer who only seeks tofeed his family through his toil in thefield, it means the provision of extension

services and farm inputs that are tailoredto the agricultural conditions of his areaand to improved access to markets forhis produce.

To the promising pupil who learns in amakeshift classroom with no desk andnot a single text book, it means animproved learning environment whichcan better equip her for a bright andproductive future.

To the grandmother who is looking afterher deceased daughter’s sick orphan, itmeans free access to health care so shecan buy the food they need.

To the enterprising businesswoman wholacks the funds to embark on her greatideas, it means access to cheaper capitalthat can be the catalyst to make herdream a reality.

To the hard pressed resident in acompound whose home and property isthreatened with floods each rainy seasonand whose environment is strewn withrefuse, it means the laying of the

foundation for an empowered localcouncil which can provide the basiclocal services he and his family deserve.

To the hardworking copper miner, thecommitted artisan and the industriousbusinessman, it means more money intheir pockets from which they can raisetheir living standards and those of theirfamilies.

To civil servants, it means anenvironment where professionalism isreinvigorated and improprietyrepudiated.

110. Mr. Speaker, to all taxpayers, the PFGovernment promises to manage publicfinances in a fully accountable andtransparent manner so that all abuse of tax payers’ money is identified and dealt

with and all scope for corrupt practiceseliminated.

111. Finally Mr. Speaker, allow me toenter a passionate plea to all Zambians toresolutely and unequivocally rally behindour President, the custodian of our interest,especially those of the disadvantagedsegments of our great country, to putZambia’s development on a sustainable

trajectory.

112. Mr. Speaker, I beg to move.

Zambia Budget Speech

Documents

Transcript of Zambia Budget Speech