National Budget Address by Honourable Ng’andu P. Magande, MP,

Minister of Finance and National Planning

Budget Address by Honourable Ng’andu P. Magande, MP,
Minister of Finance and National Planning
Delivered to the National Assembly
on Friday, 3rd February, 2006

 
1. Mr. Speaker, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Revenue and Expenditure for the year 1st January 2006 to 31st December, 2006 presented to the National Assembly in February 2006.

2. Sir, I am the bearer of a message from His Excellency the President recommending favourable consideration of the motion that I now lay on the Table.
 
3. Mr. Speaker, I wish to remind Honourable Members that the policies and programmes of the New Deal Administration were made clear in the opening address to this House by His Excellency President Levy Patrick Mwanawasa, State Counsel on Friday 13th January 2006. What I intend to do this afternoon is to present to the Honourable Members the details of the measures, programmes and projects we intend to implement in order to attain the targets of these noble policies. I will therefore put numbers to the many programmes set out by His Excellency the President.

4. Mr. Speaker, as has become the custom, the budget, which I am presenting today benefited from broad-based consultations with various stakeholders. During the consultations, the stakeholders put forward many proposals. These proposals reflected optimism and a sigh of relief at having achieved one of the landmarks in the history of Zambia. This was the qualification for debt relief after reaching the Completion Point under the Heavily Indebted Poor Countries (HIPC) Initiative in April 2005.

5.  Mr. Speaker, over the past four years under the New Deal Government, the country has continually experienced positive changes in the economy. The remarkable results have been the sustained economic growth and macroeconomic stability. Zambians have witnessed a positive change of behavior in the management of public resources by the Government. The country has also won increasing recognition and respect in the international community due to good governance and strict control of public finances. Sir, all these developments have not happened by accident. They are a result of the resolute political will of the New Deal Government to consistently observe best practices and implement sound economic policies and programmes.

6. Mr. Speaker, let me seize this opportunity to sincerely thank all the patriotic Zambians for having supported President Levy Patrick Mwanawasa SC in his quest to get the country out of the wilderness. The visible successes achieved during the past four years, and clearly manifested during the past few months, are due to their tenacity, resilience and willingness to follow a visionary leader who can clearly see Zambia as a country of prosperous citizens. 

7. Mr. Speaker, the goal of the Government in 2006 is to continue with the viable economic policies that will promote broad-based participation in economic activities and equitable wealth creation and consolidate economic stability. The Government is, therefore, determined to remain consistent in order to consolidate even further the gains attained in the past few years. It is in this context that the theme for the 2006 Budget is, “From Sacrifice to Equitable Wealth Creation.”

8. Mr. Speaker, as we celebrate our recent economic achievements, we must remember that our work will only be complete when the majority of our people will have been emancipated from the yoke of poverty. It is our strong belief that the sacrifices that the Zambian people continue to make will not be in vain but sooner than later, the benefits will reach the majority of them.

9. Sir, in our crusade to uplift the living standards of our people, we will intensify our efforts through progressive advances in access to education, health care and other economic opportunities. As a Government that cares for its people, and committed to social delivery, we shall, in the 2006 Budget, focus on economically empowering Zambians, especially the youth, as this is a sustainable way of fighting poverty and ensuring the country’s future prosperity.

10.  Mr. Speaker, my address this afternoon contains five parts. In Part I, I give an overview of the performance of the global economy during the past year. In Part II, I discuss the developments in the Zambian economy during the same period and this is followed, in Part III, by an outline of the Government’s economic policies for 2006. In Part IV, I present the details of the 2006 Budget and the supporting Expenditure and Revenue measures. Finally, in Part V, I conclude my address.

PART I
PERFORMANCE OF THE GLOBAL ECONOMY IN 2005

11.  Mr. Speaker, the global economy in 2005 continued to expand led by the United States of America and the People’s Republic of China.  However, partly as a result of the adverse effects of high oil prices, global real Gross Domestic Product (GDP) growth slowed down to 4.3 percent compared to 5.1 percent in 2004.

12. Sir, the growth in 2005 was highest in developing Asia, where output increased by 7.8 percent, with the People’s Republic of China and India recording growth rates of 9.0 percent and 7.1 percent, respectively. In the advanced economies, real GDP growth was estimated at 2.5 percent.

13. Sir, in Africa, economic performance remained favourable, although real GDP growth slowed down to 4.5 percent from 5.3 percent in 2004. For Sub-Saharan Africa, growth was projected at 4.8 percent in 2005 compared to 5.4 percent in 2004. This was partly due to a moderation of growth in some oil importing countries.

14. Mr. Speaker, a notable feature of the global economy has been the escalating prices of the key commodities. For instance, the average spot crude oil price rose by 43.6 percent to US $54.23 per barrel from US $ 37.76 per barrel in 2004.  This steep rise in crude oil prices is mainly attributed to the increased global demand for fuel, especially emanating from the People’s Republic of China. Supply side shocks and the on-going hostilities in the Middle East also contributed to rising oil prices.

15. Sir, the prices of non-fuel commodities, especially metals, also continued to rise on account of strong demand mainly from the People’s Republic of China. The price of copper in 2005 rose by 33 percent to an average of US 161 cents per pound compared to US 121 cents per pound in 2004. 

16. Sir, as I will explain later, the developments in the global economy, especially with regard to commodity price movements, had both positive and negative impacts on our economy during the year.

PART II

PERFORMANCE OF THE DOMESTIC ECONOMY IN 2005

Macroeconomic Performance

17. Mr. Speaker, the Government’s macroeconomic objectives in 2005 were to: (i) achieve a real GDP growth of at least 6.0 percent; (ii) contain inflation to no more than 15.0 percent; (iii) limit the Government domestic borrowing to 1.6 percent of GDP; (iv) increase gross international reserves to no less than 1.3 months of import cover; and (v) increase spending on poverty reducing programmes to 13.0 percent of GDP. 

18. Sir, implementation of economic policies in 2005 was challenging due to several factors. These included the sustained oil price increases on the international market and the disruptions in fuel supply following the extended shutdown of the INDENI Oil Refinery in October. The country also experienced reduced food supply emanating from the partial drought, which led to increases in food prices.

19. Mr. Speaker, real GDP is estimated to have grown by 5.1 percent compared to 5.4 percent in 2004. The sources of this growth were construction, manufacturing, wholesale and retail trade, and the services sectors. The rate of inflation declined to 15.9 percent in 2005.. Although this was above the year’s target by 0.9 percentage points, it was the lowest inflation rate during the past 10 years. The relatively strong Kwacha also assisted in dampening inflationary pressures.

20. Sir, due to the strong external sector, which resulted in increased foreign exchange inflows, we built-up our Gross International Reserves (GIR) to an equivalent of 1.8 months of import cover.  This was higher than the target of 1.3 months of import cover.

21. Mr. Speaker, the Government domestic borrowing at 1.9 percent of GDP was slightly above the budget target of 1.6 percent of GDP. The target was exceeded in order to allow the Government to settle domestic arrears to road contractors, which have been outstanding for a long time. The release of these resources to the private sector will rejuvenate their economic activities.

22. Mr. Speaker, as alluded to earlier, the country reached the HIPC Initiative Completion Point in April 2005 after struggling to meet a number of conditionalities agreed to at the HIPC Initiative Decision Point in December 2000. Immediately after reaching the Completion Point, most of the Paris Club creditors wrote off 100 percent of Zambia’s public and publicly guaranteed debt. In addition, Zambia qualified for write-off of 100 percent of its debt to the African Development Bank (ADB), International Monetary Fund (IMF) and World Bank under the Multilateral Debt Relief Initiative (MDRI), which is a new initiative borne out of the G-8 proposal at the Gleneagles Summit held in Scotland in July 2005.

23. Sir, the HIPC Initiative is an international test for governments on integrity, and prudent financial management. Full and timely implementation of the stringent conditionalities of the initiative has created the confidence and trust of the international community. The New Deal Government has therefore passed the test and now wishes to pass the benefits to all Zambians through prudent use and focused investment of public resources. This will clearly be evident from the allocations made in this year's Budget.

Sectoral Performance

24. Mr. Speaker, all the sectors of the economy registered growth in 2005. In the sections that follow, I highlight the performance of the key sectors of the economy.