Taking the Road less Travelled: In Pursuit of Fiscal Consolidation- “Delivering Fiscal Consolidation for Sustainable and Inclusive Growth”

For the fourth year in a row, Zambia’s Budget in 2019 will focus on fiscal consolidation. Clearly, the country’s approaches to fiscal management over the past few years did not deliver the desired fiscal outcomes. Most likely, this is because some worthwhile fiscal paths were not sufficiently understood or were not pursued. But, of these fiscal paths, which one should Zambia find and take in 2019? What should the authorities do in order to ensure that the 2019 Budget delivers fiscal consolidation? Taking the road less travelled will be a necessary precondition for eventually re-establishing robust, sustained and inclusive growth – but that road can be bumpy and Zambia is currently travelling over a rough section. Until relatively recently Zambia’s macro-economic fundamentals were reasonably sound. Growth has been slower than expected but most macro-economic targets were being met, inflation - with a blip in August 2018 – has been within the 6-8% target and the kwacha has remained relatively stable. However, over the last few months something’s changed – the fiscal position has worsened and this had fed through into a lack of investor confidence. Out turn growth has been lower than expected and since the beginning of September the kwacha has lost 20% of its value against the dollar. Some of this can be put down to external factors, increases in Western central bank rates, a declining demand for copper and the contagion in emerging market confidence from the run on the Turkish Lira play a part. But, it also certain that high levels of debt, diminishing foreign exchange reserves and growing arrears have all contributed to the worsening macro-economic fundamentals and have left Zambia with less room to respond to external challenges. Given this context if the macro-economic targets in the Budget can be achieved this will be a significant achievement. The key question is: are the right domestic and fiscal policy measures in place to support growth, and put Zambia on the road to recovery.