Quest for Growth and Resilience in the Face of Mounting Economic Headwinds: Analysis

The Minister of Finance unveiled a K119.6 billion 2021 Budget on Friday, 25th September, 2020. The Budget was themed; “Stimulate Economic Recovery and Build Resilience to Safeguard Livelihoods and Protect the Vulnerable.” It is worth noting that the 2021 Budget was delivered in an environment beset with a spate of anxieties. Firstly, the economy is plunged into a recession, the first since 1998, with a projection to shrink by 4.2% in 2020. This contraction comes after a streak of positive, but declining growth over 2010-2019. Compounding the scenario are, inter alia, rising inflation, a weakened kwacha, a mounting debt overhang and rising debt service costs, and dwindling international reserves. Secondly, the unsustainable external debt position with rising debt servicing obligations is attenuating the fiscal space to support investment and social spending. The debt amortization and servicing obligations have leapt from K23.6 billion in 2019, to K33.7 billion in 2020 and now to K46.1 billion in 2021. Further borrowing could place Government’s chances of getting on a financing programme with the IMF in jeopardy. Thirdly, the misadventure of the COVID-19 pandemic threatened to paralyse the entire economy through supply chain disruptions, loss of incomes and lives, and a mounting disease burden. Clearly, the pandemic has significantly contributed to the negative growth of the economy and it still remains uncertain how long the pandemic will stick around. The Government has thus relaxed restrictions on nearly all business and social activities but with caution. Fourthly, and perhaps the most important anxiety, is that the 2021 Budget for an election year, faces the usual risks of fiscal slippages. Against this backdrop, this Budget analysis echoes previous analyses where ZIPAR has given policy advice for taking the road less travelled, staying the course of fiscal fitness, and nurturing the seeds of growth. In relation to the 2020 Budget, ZIPAR enunciated the need for Government to realign the macroeconomic targets that had fallen off the Economic Stabilisation and Growth Programme and the Medium-Term Expenditure Framework among other things. In this paper, we generally give insights on the macroeconomic imperatives, debt management and fiscal and sectoral policy options to stimulate the recovery of the economy and effectively protect the poor and vulnerable. We offer suggestions for strengthening the effectiveness of budget execution and avoiding key risks and pitfalls given the economic headwinds Zambia is expected to face in 2021.