FOREWORD
On Friday, 27 September 2024, the Minister of Finance and National Planning, Dr Situmbeko Musokotwane, presented to the nation a ZMW217.1 billion National Budget for the 2025 fiscal year. This is an increase of 22.6% from the ZMW177.9 billion budget presented for 2024. This is amidst challenges of reduced global economic growth, continued monetary policy tightening in advanced economies, adverse effects of climate change, as well as the geopolitical tensions.
It is worth noting that the Zambian Government is working to address economic challenges, including the impact of drought and external debt payments, with the goal of stimulating economic growth. It is on the back of this that the theme for the 2025 budget is "Building Resilience for inclusive growth and Improved Livelihoods". The Budget focuses on four key areas as follows:
Economic Transformation and Job Creation:
- Mining: Revival of Konkola and Mopani Copper Mines with a target of 3 million tonnes of copper production. Efforts include attracting new investments and formalizing gold trading.
- Agriculture: Implementation of the Comprehensive Agriculture Transformation Support Programme to strengthen irrigation, mechanization, and farm block development. The Farmer Input Support Programme will fully transition to an e-voucher system.
- Energy: Plans to reduce dependency on hydropower by promoting diverse energy solutions, including thermal and solar power, and implementing cost-reflective tariffs.
- Transport and Logistics: Investment in roads, rail, and aviation infrastructure, including significant road projects and the upgrading of provincial aerodromes.
- SMEs: Support for SMEs through affordable financing initiatives and development of industrial infrastructure.
Human and Social Development:
- Education: Focus on free education with teacher recruitment, school construction, and improved classroom resources.
- Health: Commitment to improving healthcare by recruiting personnel, providing medical supplies, and enhancing infrastructure to reduce medical evacuations abroad.
Environmental Sustainability
The government is enhancing climate resilience by upgrading and maintaining meteorological equipment in all 116 districts, digitizing climate data, and expanding the use of this information across aviation, agriculture, water, energy, and disaster risk management sectors.
Good Governance:
- Fiscal Policy: Creation of a stabilization fund using excess mineral royalty revenue to respond to disasters.
- Debt Management: Significant progress in restructuring external debt, including Eurobonds, with ongoing negotiations with commercial creditors.
- Decentralization: Further devolution of functions to local authorities, including livestock, agriculture, and social services, with matching resources.
Global economy
Economic growth is expected to slow down to 3.2% in 2024 compared to 3.3% recorded in 2023. This has been attributed to lower growth in advanced economies despite higher growth in emerging and developing economies, geopolitical tensions and climate change events.
Zambian economy
- The Zambian economy is projected to grow by 2.3 % in 2024 compared to 5.4% growth achieved in 2023; this has been attributed to the effects of the drought which has negatively affected crop production and electricity generation.
- Inflation as of September 2024 rose to 15.6% compared to 13.1% in December 2023, driven by El-Nino induced drought and increased food prices.
- The 2024 revenues and grants are projected to close at ZMW 148.1 billion, which is 2.5% above the target of ZMW 144.5 billion.
- The 2024 total expenditure is projected at ZMW 198.6 billion, which is 11.6% above budget.
- The 2024 budget deficit is projected at 6.4% of GDP compared to a budget of 4.8%.
- External debt, excluding publicly guaranteed debt, grew by 4.1% from USD 14.57 billion as of December 2023 to USD 15.2 billion as of June 2024.
- Publicly guaranteed external debt reduced by 1.3% from USD 1.41 billion as of December 2023 to USD 1.39 billion as of June 2024.
- Government treasury bills and bonds stock reduced by 3.1% from ZMW 232.6 billion as of 31 December 2023 to ZMW 225.5 billion as of June 2024.
- Domestic arrears stood at ZMW 79.8 billion as of June 2024, indicating a decline of 18.3% from ZMW 97.7 billion as of December 2023.
- Imports amounted to USD 4.5 billion in the first half of 2024, 2.7% lower than for the corresponding period in 2023, a reflection of reduced economic activity mainly due to the drought. Exports remained relatively stable at USD 5.3 billion during the same period and were majorly attributed to higher copper exports revenue.
- The Zambian Kwacha against the US dollar depreciated by 2.8% in the first 9 months of 2024.
- As of June 2024, gross international reserves increased to USD3.9 billion (4.3 months import cover) compared to USD 3.3 billion (3.7 months import cover) as of December 2023, attributed to the USD 570 million disbursement by the International Monetary Fund under the Extended Credit Facility Arrangement.
2025 budget objectives
- Attain a real GDP growth rate of at least 6.6%;
- Reduce inflation to the 6-8% medium-term target band;
- Maintain international reserves above 3 months of import cover;
- Increase domestic revenue to at least 21.3% of GDP;
- Reduce the fiscal deficit to 3.1% of GDP; and
- Limit domestic borrowing to no more than 1.9% of GDP.
Government intends to finance the ZMW 217.1 billion (26.6% of GDP) budget through domestic revenue (ZMW 174.2 billion), grants from Cooperating Partners (ZMW 8.1 billion) and financing (ZMW 34.7 billion). The domestic revenues include the following:
- Tax revenue - ZMW 137.4 billion (representing 63.3% of total revenue)
- Non-tax revenue - ZMW 36.8 billion (representing 16.9% of total revenue)
Budget Out-turn 2024
- The GDP is projected to grow by 2.3% in 2024, a slowdown from 5.4% in 2023. This deceleration is primarily due to the severe drought affecting the country, which has notably impacted agricultural production and reduced the output of hydroelectric power, essential components of the economy.
- Inflation surged to 15.6% in September 2024, up from 13.1% at the end of 2023. This rise is primarily due to increased prices in food items affected by the drought, coupled with the depreciation of the Kwacha.
- The Kwacha depreciated by 2.8% against the US dollar up to mid-2024. This depreciation is largely attributed to increased inflationary pressures.
- In response to rising inflation, the Bank of Zambia increased the monetary policy rate to 13.5% from 11% and raised the statutory reserve ratio to 26.0%. These measures are aimed at curbing inflation and stabilising the currency.
- Total government expenditure for 2024 is anticipated to reach ZMW 198.6 billion, which is 11.6% higher than the approved budget. Key areas of spending include servicing national debt, supporting agricultural inputs through programs like the Farmer Input Support Programme, enhancing social safety nets such as the Social Cash Transfer and Cash for Work, and investing in local development through the Constituency Development Fund.
- Projected revenues and grants amount to ZMW 148.1 billion for the year, exceeding the targeted ZMW 144.5 billion by 2.5%. This increase emphasises the government's efforts to increase domestic resource mobilisation and grant financing, to support Government expenditure.
- The fiscal deficit for 2024 is now projected at 6.4% of GDP, an adjustment from an earlier estimate of 4.8%, demonstrating the government's fiscal response to unforeseen economic pressures arising from the drought.
- The government's external debt stock, excluding publicly guaranteed debt, increased by 4.1% to USD 15.17 billion by mid-2024. This rise is due to new disbursements from multilateral creditors, aimed at supporting Zambia's economic stabilisation efforts. However, publicly guaranteed external debt decreased by 1.3% to USD 1.39 billion. This was due to debt service payments by some guaranteed entities.
- The stock of outstanding government treasury bills and bonds decreased by 3.1% to ZMW 225.5 billion at mid- 2024 from ZMW 232.6 billion at year end in 2023. This is indicative of tight money market conditions which have constrained lending to the government.
- Government domestic arrears reduced by 18.3% to ZMW 79.8 billion from ZMW 97.7 billion as at year end. With the commitment to dismantle fuel arrears, this is expected to significantly reduce by the end of the year.
- The banking sector saw a nominal lending rate increase to 28.7% by August 2024, reflecting tighter monetary policy. Credit to the private sector grew significantly by 36.9%. The significant portion of the credit went to wholesale and retail trade, manufacturing, and agricultural sectors. The banking sector continues to show resilience, backed by adequate capital, liquidity buffers, and strong asset quality. Similarly, the performance of deposit-taking non-bank financial institutions remains satisfactory, with solid capital positions, earnings, liquidity management, and market risk sensitivity.
- For the first half of 2024, imports decreased by 2.7% to USD 4.5 billion due to subdued economic activities from the drought, while exports remained stable at USD 5.3 billion. Export earnings were majorly driven by copper fetching higher prices.
- By July 2024, Gross International Reserves had increased to USD 3.9 billion, equating to 4.3 months of import cover. The increase was mainly due to the USD 570 million disbursement by the International Monetary Fund under the Extended Credit Facility Arrangement.
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The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.