JCTR calls upon parliament to make up for SERIOUS inadequacies in proposed 2003 budget

5 February 2003

The ever-rising cost of living, huge external debt burden and challenges of effective poverty reduction have not been adequately addressed in the proposed 2003 national budget, says the Jesuit Centre for Theological Reflection (JCTR).  Parliament must act to remedy this unacceptable situation.

PAYE ADJUSTMENT IS MEANINGLESS

First, a key development issue this country faces is to ensure that people are given incomes that are consistent with the demands of decent living, argues JCTR.  The theme for this year’s budget is “Food Security through Production and Job Creation”.  It is true that one way by which food security can be attained is through production and job creation.  But of course we know that it does not end here.  People starve not only because they have no jobs but also because incomes from these jobs are not enough to meet basic food requirements.  In the Zambian context, it is difficult to guarantee food security only on the basis of having people in employment.

The plain fact is that the majority of Zambian people do not earn incomes adequate enough to meet their daily needs.  The government in the 2002 budget proposed a PAYE (Pay as You Earn) tax exemption threshold of K1,800,000 or K150,000 per month.  At the time when this proposal was made, the JCTR “Basic Needs Basket” indicated that the monthly cost of basic food only for a family of six in Lusaka was approximately K325,000.  In this year’s budget, the tax exemption threshold of PAYE has been adjusted to K1,920,000 or K160,000 per month – an adjustment of only K10,000 a month.  But according to the latest JCTR Basic Needs Basket for January, the average cost of food only is approximately K400,000 – an increase of K75,000 per month!  Adding other essential non-food items such as housing, utilities, transport, education and health services the total monthly cost is much more.  Obviously, the proposed PAYE adjustment is simply meaningless in the real situation of today.

DEBT SERVICING IS UNACCEPTABLE

A second reality inadequately addressed in the Budget is that fact that external debt servicing continues to overshadow social sector spending.  According to the Minister of Finance and National Planning, at the end of the year 2002 national debt stock stood at US$6.5 billion, down from US$7.2 billion at the end of 2001 (representing a marginal decrease of 9.7%).  While it is encouraging to note that there has been some modest reduction in Zambia’s external debt, the debt stock is still far too high, with extremely negative effects on social sector spending.  It thus will continue to affect the economy adversely.

The government has pledged to continue remitting money to the creditors.  The 2003 Budget sets aside for debt servicing US$108.3 million or K560.4 billion -- 8% of the earmarked total expenditure for the year.  The argument is made that this regular servicing will assure continued debt “relief” to Zambia.  But surely one has to ask: at what cost to the Zambia people is this huge sacrifice being made to the creditors?  Is it morally right to starve one’s children today in the hope that there will be food tomorrow?

POVERTY SPENDING IS UNCERTAIN

Third, the amounts to be paid in debt servicing should be contrasted with the amounts designated for poverty reduction programmes.  This year these programmes have been allocated K420.7 billion or 6.8% of the total expenditures.  This is compared with the 2002 allocation of K450 billion.  But as the Minister acknowledged in his Budget address, less than a quarter of the resources targeted for poverty reduction activities in 2002 was actually spent for this purpose.  While it is true that Zambia faced a number of very serious problems such as the hunger crisis, budgetary allocations to poverty reduction programmes should have been given priority by redirecting resources from those budget lines that have no direct bearing on the poor (e.g., purchase of new vehicles for Cabinet Ministers).  If last year’s trends are anything to go by, we might see a situation where actual spending on poverty activities will even be much less this year.

The priorities for poverty reduction programmes are those identified in the Poverty Reduction Strategy Paper (PRSP) through a national consultative process.  It is critical that commitment should be made by government to assure that these programmes are financed at least 60% from domestic resources.  Recent experience clearly shows that we cannot rely simply on the “good will” of donors.  Only a clear commitment to spend domestic resources will guarantee that poverty reduction programmes are not derailed.

Parliament must act

The Zambian government is a signatory to the Millennium Development Goals (MDGs) designed by the United Nations.  A central and critical goal is that of halving world poverty by 2015.  The JCTR strongly asserts that he quest for poverty eradication in a country where upwards of 80% of the people live below the poverty line is not only an economic issue but is above all a moral issue.  But is this goal reasonable in Zambia in light of a seriously flawed 2003 Budget framework that inadequately addresses the ever-rising cost of living, huge external debt burden and challenges of effective poverty reduction?

To address this question in a straightforward and efficient fashion, the JCTR urges that in the next several weeks of debate and decisions about the 2003 Budget the Parliament should at least adopt the following three measures:

1.      Set a minimum of at least K400,000 per month as the PAYE tax exemption threshold.  To recover needed revenue, look honesty and courageously at other ways of saving such as cancelling the cuts on beer taxes, restricting the allowances given to Cabinet Ministers, and curtailing bi-elections caused by political party manoeuvrings.

2.       Mandate the Minister of Finance and National Planning to renegotiate with the IMF and World Bank the terms of HIPC so that debt servicing does not continue to eat up scarce resources needed for social spending.  The Minister should repeat the clear call he made at the recent AGOA meeting in Mauritius that Zambia demands debt cancellation.

3.       Put statutory requirements on spending for the poverty reduction programmes that will require that the government must spend to the full what has been allocated for these programmes before spending in other areas.  Such statutory requirements are already in place in other areas (e.g., payment of treasury bills) and would mean that poverty programmes will have to be funded before expenditures for items like foreign travel of government officials or purchase of new vehicles. 

The JCTR asks Members of Parliament to respond to this clear call and to act upon it in order to have a 2003 Budget that realistically and morally meets the needs of the people of Zambia.

For more information, contact Charity Musamba at  JCTR, e-mail: jctr@zamnet.zm