DAILY PARLIAMENTARY DEBATES FOR THE FIRST SESSION OF THE NINTH ASSEMBLY

Friday, 1st March, 2002

The House met at 1415 hours

[MR SPEAKER in the Chair]

NATIONAL ANTHEM

PRAYER

BUSINESS OF THE HOUSE

The Vice-President (Mr Kavindele): Mr Speaker, I rise to give the House some idea of the business it will consider next week.

On Tuesday, 5th March, 2002, the business of the House will commence with Questions, if there will any, then the House will consider the Motion of Supply on this year’s Budget.

On Wednesday, 6th March, 2002, the business of the House will commence with Questions, if there will be any. This will be followed by private Members’ motions, if there will be any. The House will then continue with the debate on the Motion of Supply.

Sir, on Thursday, 7th March, 2002, the business of the House will begin with Questions, if there will be any. Thereafter, the House will wind up debate on the Motion of Supply and then resolve into Committee of Supply on the Estimates of Revenue and Expenditure.

On Friday, 8th March, 2002, the business of House will begin with Questions, if there will be any. The House will then go into Committee of Supply on the Estimates of Revenue and Expenditure to consider some Votes.

I thank you, Sir.

MOTION

BUDGET ADDRESS

The Minister of Finance and National Planning (Mr Kasonde): 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, 2002 to 31st December, 2002, presented to the National Assembly in March, 2002.

Sir, I am a bearer of a message from His Excellency the President recommending favourable consideration of the motion that I now lay on the Table.

Mr Speaker, this Government continues to believe that broad-based and sustainable development lies in empowering the people. With this belief, this Budget provides an opportunity for all of us to take stock of what the Government has achieved over the past ten years, to recognise the shortcomings and, with courage, humility and willingness to change, rededicate ourselves to realising the potential of our people. This is the essence of the “New Deal”. In this regard, the theme of this year’s Budget is “Food Security through Production and Job Creation”.

Mr Speaker, before I proceed, allow me to place on record my profound gratitude to my predecessor, Dr Katele Kalumba, for laying a firm foundation from which I can build. May I also express my deep gratitude to the many organisations in the country and individuals for valuable contributions towards the preparation of this Budget. Above all, I wish to thank the people of Zambia for the patience they have shown in the face of the inevitable difficulties that have arisen in the process of restructuring our economy.

Mr Speaker, my address this afternoon consists of six parts. In Part One, I give an overview of the performance of the global economy during the past year. In Part Two, I discuss developments in the Zambian economy during the same period and this is followed, in Part Three, by an outline of the Government’s economic policies for the year 2002. In Parts Four and Five, I present details of 2002 Budget and the supporting revenue measures, respectively. Finally, in Part Six, I give my concluding remarks.

PART I

PERFORMANCE OF THE GLOBAL ECONOMY IN 2001

Mr Speaker, in 2001 the world economy registered slower growth, with real growth falling to 2.4 per cent compared to 4.7 per cent in the year 2000. The deterioration in growth was driven by low consumer and investor confidence and weaker global demand that was compounded by the tragic events of September 11th in the United States of America (USA). This slowdown in the world economy was accompanied by a precipitous decline in the volume of trade to a growth of merely 1.0 per cent in 2001 from 12.4 per cent in 2000. However, inflationary pressures remained subdued in both advanced and developing countries.

Mr Speaker, the sluggish growth in the world economy emanated, largely, from advanced economies where output slowed to 1.1 per cent compared to 3.9 per cent the previous year. In the USA, growth in output slowed to 1.0 per cent compared to 4.1 per cent in 2000, while in the European Union and Canada growth slowed to 1.7 and 1.4 per cent compared to 3.4 and 4.4 per cent, respectively. In the case of Japan, Mr Speaker, economic growth declined by 0.4 per cent compared to the growth of 2.2 per cent recorded in the year 2000. Inflation in advanced economies remained unchanged from its 2000 level of 2.3 per cent, while movements in the major exchange rates remained moderate, with the US dollar appreciating moderately against the Euro and the Yen.

Mr Speaker, developing countries and countries in transition also registered lower economic growth. Growth in the transition economies declined to 4.9 per cent in 2001 from 6.3 per cent in the year 2000, while growth in developing countries declined to 4.0 per cent from 5.8 per cent. Consistent with this slowdown in economic growth, the volume of trade also declined. For countries in transition, export growth declined to 7.8 per cent from 16.3 per cent, while import growth declined marginally. In the case of developing countries, export growth declined to 3.4 per cent from 15 per cent, with import growth falling to 5.0 per cent from 16.1 per cent in year 2000.

Mr Speaker, Africa’s economic performance was, however, more positive. Economic growth rose to 3.5 per cent in 2001 from 2.8 per cent in 2000, whilst average annual inflation improved to 12.8 percent from 13.5 per cent. Unfortunately, the global economic slowdown, especially in Africa’s key trading partners, namely, the European Union and Japan, not only dampened the growth potential of the region, but also contributed to the fall in the volume of exports from Africa, from 7.3 per cent in the year 2000 to 1.5 per cent in year 2001.

Mr Kasonde drank some water.

Hon. Members: Hear, hear!

Mr Kasonde: Mr Speaker, the decline in world trade, precipitated by the world economic slowdown, significantly lowered commodity prices for developing countries, with agricultural raw materials and base metals being the most adversely affected. As an illustration, the decline in global industrial production resulted in average copper prices declining by 6.1 per cent to US 77 cents per pound from US 82 cents per pound in 2000.

Mr Speaker, prospects for recovery in the global economy remain subdued following the September 11th events in the USA and their aftermath. Given these prospects, policy makers and other stakeholders will need to make concerted efforts, not only to manage unfolding risks, but also to create the necessary opportunities for economic recovery and growth.

Mr Speaker, with the foregoing, I now turn to review the performance of the Zambian economy in 2001.

PART II

PERFORMANCE OF THE DOMESTIC ECONOMY IN 2001

Overview

Mr Speaker, the Government’s macroeconomic policy objectives in 2001 were to achieve a 5 per cent in real Gross Domestic Product (GDP); reduce end-year inflation to 17.5 per cent; limit the domestic fiscal deficit to 0.75 per cent of GDP; and increase official gross international reserves by US $150 million. We also aimed to increase core social sector spending to over 37 per cent of discretionary financed capital expenditure to 15 per cent to revenue. Reflecting higher than programmed wage adjustment to public sector workers, the target for the domestic fiscal deficit was revised upwards to 3.3 per cent of GDP during the year.

Sir, these objectives were predicated upon increased investment in the mining and tourism sectors, a stable exchange rate, stable energy and food prices, and appropriately tight fiscal and monetary policies.

Mr Speaker, higher than anticipated expenditures on food imports and wage adjustments to public service workers, in the latter part of the year, resulted in us not being able to meet our targeted domestic fiscal deficit of 3.3 per cent of GDP. Other contributing factors were expenditure overruns on the elections, hosting of the OAU Heads of State and Government Summit, …

Hon. Opposition Members: Shame!

Mr Kasonde: … and higher interest payments on domestic debt.

Hon. Opposition Members: Shame!

Mr Kasonde: Further, the shortfall in pledged balance of payments support put additional pressure on the economy. Out of the pledged amount of US$207 million in balance of payments support, only US $75 million was received, which resulted in us not being able to meet our gross international reserves target.

Mr Speaker, our macroeconomic performance was commendable despite the domestic expenditure pressures, the slowdown in the growth of global output that generated lower demand and lower prices for copper and other primary commodities, significant shortfalls in external support, and high staple food prices. For the second consecutive year, real GDP growth was positive, with preliminary data indicating growth of 5.2 per cent in 2001, exceeding the target by 0.2 per cent per point.

Interruptions. {mospagebreak}

Mr Kasonde: Wait! In addition, the end-year inflation rate declined to 18.7 per cent from 30.1 per cent, broadly in line with our target of 17.5 per cent. Relative stability was also restored in the foreign exchange market, with the end-year Bank of Zambia Kwacha mid-rate appreciating by 8 per cent against a depreciation of 58 per cent in the year 2000, reflecting tight financial policies.

Mr Speaker, the high growth in GDP was driven by the mining, tourism, construction, and wholesale and retail trade sectors. Other sectors that contributed to real GDP growth were manufacturing, and electricity, gas and water.

Agriculture

Mr Speaker, while all the other sectors of the economy performed well, the performance of the agriculture sector was disappointing. Value added in the agriculture, forestry and fishing sector declined by 2.6 per cent in 2001 compared to a growth of 1.6 per cent in 2000.

As a result, its share of total GDP declined to 15.9 per cent from17.2 per cent in 2000. The reduction in value-added in the agriculture sector was mainly attributed to poor input availability and excessive rainfall experienced in some parts of the country. Consequently, the country’s food security position deteriorated and this necessitated the importation of maize and maize meal.

Mining and Quarrying

Mr Speaker, the mining and quarrying sector grew by 14.0 per cent in 2001,up from 0.1 per cent in the year 2000. As a result, its share of overall GDP increased to 6.9 per cent from 6.4 per cent in the year 2000. The continued recovery in the production of copper and cobalt, arising from re-capitalisation in the mines, accounted for this growth. This recovery in mining sector output was recorded against a background of cessation of operations at Roan Antelope Mining Corporation of Zambia (RAMCOZ), a major accident at Nchanga Open Pit of Konkola Copper Mines (KCM) in April 2001, and a drop in the average world prices of copper and cobalt of 6.1 percent and 31.3 per cent, respectively.

Tourism

Mr Speaker, in the tourism sector, value added increased by 24.2 per cent compared to 12.1 per cent in 2000. This was largely attributed to a 16.9 per cent increase in the number of tourist arrivals, 13.1 per cent increase in employment as well as 39.2 per cent and 61.4 per cent increases in room and bed occupancy rates, respectively. This impressive performance was largely attributable to the total eclipse of the Sun and the and the Heads of State and Government Summit.

Hon. Government Hon. Members: Hear, hear!

Mr. Kasonde: So do not complain.

Laughter.

Interruptions.

Mr Kasonde: Additionally , Mr Speaker, Government policy to zero-rate hotel accommodation under VAT in Livingstone District Area, and the development of infrastructure, including the rehabilitation of the Livingstone International Airport, contributed to increased value-added in the tourism sector. Furthermore, international flight frequencies increased to 67 from 51 flights per week in the year 2000. Direct revenue earnings from services offered by enterprises in the sector, such as, accommodation, travel, tours and car hire rose to US $117.1 million from US $111.0 million in 2000.

Manufacturing

Mr Speaker, the manufacturing sector posted a growth of 5.8 per cent compared to 3.5 per cent in 2000. 

Hon. Opposition Member: Interjected.

Hon. Government Members: Hear, hear!

Mr Kasonde: I will explain. Growth in the sector was mainly driven by increased value added in the wood and wood products sub-sector by 9.0 per cent, …

Hon. Government Members: Hear, hear!

Mr Kasonde: … textile and leather industries sub-sector by 6.8 per cent and food, beverages and tobacco sub-sector by 5.1 per cent. 

Hon. Government Members: Hear, hear!

Mr Kasonde: Very good evidence! The increase in the food, beverages and tobacco sub-sector was largely driven by increased sugar production to meet export demand, following the launch of the COMESA Free Trade Area (FTA).

Hon. Government Members: Hear, hear!

Construction

Mr Speaker, value added in the construction sector grew by 11.5 per cent in the year 2001 compared to 6.5 per cent in 2000. The increase in value added was mainly on account of increased activity in the area of infrastructure development, such as housing, buildings, major road works, feeder roads and on-going construction works at Chirundu Border Post.

Wholesale and Retail Trade

Mr Speaker, the wholesale and retail trade sector continued to flourish by 6.0 per cent from 2.3 per cent in 2000. Growth in the sector arose from increased domestic consumer demand and increased activities in the manufacturing and mining sectors.

Electricity, Gas and Water

Sir, the electricity, gas and water sector grew by 12.5 per cent from 1.1 percent in 2000. The major source of this growth was the increased generation of electricity arising from higher demand from the mining sector and export of electricity to countries in the region, notably, South Africa and the Democratic Republic of Congo.

Privatisation and Parastatal Reforms

Mr Speaker, a total of eight units were privatised in 2001. Notable among these were Kagem …

Mr Patel: Question!

Mr Kasonde: … Dunlop Zambia Limited, Lublend Zambia Limited, Lunsemfwa and Mulungushi Hydropower Stations, from Government to private. In addition, significant progress was made towards the concessioning of the Zambia Railways. Four bids were received and negotiations are proceeding with the preferred bidder. The remaining companies, under the ZPA portfolio, were at various stages of preparation for privatisation.

External Sector Developments

Mr Speaker, the external sector environment was less favourable than expected, with our terms of trade deteriorating by 3.8 per cent compared to an improvement of 3.9 per cent in the year 2000. Preliminary data indicate that the current account deficit worsened to US $743 million in the year 2001 from US $608 million in 2000. This was mainly due to the increase in the value of merchandise imports, particularly in the mining sector, which outpaced the increase in the value of merchandise exports. The value of merchandise import increased by 28.1 per cent to US $1,253 million, while merchandise exports increased by 16.8 per cent to US $871 million.

Mr Speaker, as alluded to earlier, the slowdown in the global economy, which was exacerbated by the September 11 tragedy in the USA, had a dampening effect on the growth of export earnings through the drop in the prices of primary commodities. The average realised prices of copper and cobalt fell by 6.1 per cent and 31.3 per cent to US 77 cents per pound and US $11 per pound, respectively, during the year.

Sir, notwithstanding the drop in the prices of both copper and cobalt, the volume of exports of these commodities increased. The volume of copper and cobalt exports increased by 26.7 per cent and 37.8 per cent to 296,926 metric tons and 4,721 metric tons, respectively.

Mr Speaker, preliminary figures indicate that non-traditional exports registered strong growth in 2001, with earnings increasing by 13 per cent to US $282 million during the year. Accounting for this strong performance were horticulture, gemstone, cotton and sugar exports.

Mr Speaker, one important source of financing the current account deficit was the increased net private capital inflows, which grew by 29.5 per cent to US $281 million in 2001. The overall balance of payments, though widening by 14.7 per cent to US $428 million, was consistent with our projections.

External Debt

Mr Speaker, total stock at the end of 2001 stood at an estimated US $7.3 billion from US $6.3 billion at the end of 2000. The increase of about US $1billion in the stock of debt was mainly due to Paris Club creditors not granting Zambia the expected debt relief totaling over US $770 million under Naples and Cologne Terms. I will explain later. The balance of US $230 million was due to increased external borrowing by the private sector, mainly in the mining sector. Had the Paris Club relief been extended, Zambia’s total external debt stock would have been reduced to US $5.9 billion.

Mr Speaker, in 2001 my predecessor informed this august House that Zambia reached Decision Point under the Enhanced HIPC Initiative in December 2000. Following this, it was our expectation that all creditors, particularly bilateral and multilateral creditors, would immediately thereafter extend interim debt relief. As it turned out, many of the creditors, especially Paris Club creditors, are yet to deliver their expected interim debt relief.

Mr Speaker, under HIPC Initiative, Zambia should have signed the Eight Agreed Minute in 2001 with her Paris Club creditors which should have triggered debt relief of approximately US $770 million mentioned earlier. Unfortunately, this was not done due to the creditors having not responded to our request for deeper relief.

Mr Speaker, allow me to pay tribute to those creditors, including the International Monetary Fund (IMF), the World Bank, the African Development Bank, Canada, France and the United Kingdom, which have actually delivered interim debt relief. I think people will remember that last week I signed another debt relief with Japan, but that will appear this year and not 2002. We are now reviewing 2001. I am appealing to those creditors who are yet to extend debt relief to Zambia to do so as soon as possible. In this regard, allow me to register our appreciation for the recent debt rescheduling in fact signed with Japan.

Poverty Reduction Strategy Paper

Mr Speaker, an Interim Poverty Reduction Strategy Paper (I-PRSP) was finalised at the end of July 2000. Based on the priorities outlined in the I-PRSP, the 2001 Budget included some specific poverty reduction expenditures amounting to K352 billion, while the PRSP was being developed. The draft PRSP was completed in September 2001. This draft PRSP was prepared through broad-based consultations across the country involving diverse stakeholders, including the civil society, the academia, NGOs and traditional leaders. The draft paper was presented to a national stakeholder summit in mid-October, 2001. Following this summit, further work was undertaken to incorporate the comments from the various stakeholders and the draft is now being finalised for submission Government.

Mr Speaker, our Poverty Reduction Strategy is a careful blend of interventions in the economic, social and cross-cutting areas. The primary goal is to achieve sustained annual economic growth of between five and eight per cent in the medium-term, which will allow increased real spending on poverty reduction programmes. In this regard, four sectors, namely, agriculture, tourism, manufacturing and mining were identified as having potential to reduce poverty on a sustainable basis. Strategies to unlock this potential include investment and export promotion, public spending on infrastructure development and maintenance of a stable macro-economic environment.

Budget Performance in 2001

Mr Speaker, fiscal policy in 2001 was aimed at increasing productivity and promoting economic growth. This was to be achieved by directing resources to growth-supporting infrastructure and poverty reduction programmes. Additionally, the ceiling on the domestic fiscal balance was to be limited to 3.3 per cent of GDP in order to support the year-end inflation target of 17.5 per cent.

Sir, the higher than planned expenditures on the public service wage bill, tripartite elections, hosting of the OAU Heads of State and Government Summit and domestic interest as well as the shortfall in balance of payments support led to a fiscal deficit of 4.7 per cent of GDP. This was higher than the targeted deficit of 3.3 per cent of GDP, despite the good revenue performance that was above target by 5.3 per cent from ZRA. Domestic revenues amounted to K2,509 billion while expenditures were K3,025 billion.

Hon. Member: Drink some water!

Laughter.

Mr Kasonde: I will.

Mr Kasonde drank some water.

Hon. Members: Hear, hear!

Mr Kasonde: Mr Speaker, a total of K186 billion was spent on poverty reduction programmes. These expenditures were concentrated on rural development programmes that included the construction of feeder roads, rural electrification, irrigation and control of livestock diseases. Some of these funds were also directed at increasing the availability of educational materials, vocational skills, primary health care, purchase of drugs, malaria control programmes and water and sanitation facilities. Overall, HIPC Initiative expenditures amounted to 52.8 per cent of budgetary provision, reflecting difficulties in finalising financing arrangements and the need to put in place an appropriate monitoring and accounting mechanism.

Mr Speaker, in line with our commitment to provide adequate revenues, to the social sectors, all budgeted amounts from domestic revenues for education, health, water and sanitation were disbursed. This was to enable Ministries of Education and Health, and their grant-aided institutions to maintain the provision of services to the public. I will ensure that the allocations to the social sectors in this Budget are again disbursed in full to improve service delivery to our people.

Hon. Members: Hear, hear!

Monetary and Financial Sector Development 

Mr Kasonde: Mr Speaker, Sir, monetary policy in 2001 was directed at reducing end-year inflation of 17.5 per cent, restoring stability in the foreign exchange market, and consolidating further gains made in reducing systemic risks in the financial sector. Achieving this objectives required a tightening in monetary policy and limiting the domestic fiscal deficit to 3.3 per cent of GDP. Of particular concern, was the need to arrest the sharp increase in money supply growth and the depreciation in the exchange rate that characterised the fourth quarter of 2000.

Further, reforms in the supervision of the financial sector were also envisaged, particularly those aimed at enhancing the supervision of both the bank and non-bank financial institutions.

Sir, the overall performance of the monetary and financial sector in the 2001 was broadly in line with the set objectives. Annual inflation, at 18.7 per cent, was 11.4 percentage points lower than the 30.1 per cent recorded in 2000. The inflation outturn was particularly encouraging when one considers that maize prices were more than doubled during the forth quarter of the year, compared to the corresponding period in 2000. Money supply growth decelerated to around 11 per cent compared to a growth rate of 74 per cent in 2000. Relative stability was also restored in the foreign exchange market with the kwacha appreciating by around 8 per cent against the US dollar compared to a depreciation of 58 per cent in 2000.

Mr Speaker, the favourable inflation outturn reflected the implementation of tight monetary policy during the year. Similarly, the relative stability in the exchange rate was due to measures taken to streamline  the auction of foreign exchange.

Hon. Government Members: Hear, hear!

Mr Kasonde: In addition, increased earnings from the newly privatised mines contributed to the stability in the exchange rate. However, both nominal and real interest rates rose during the year, reflecting the higher fiscal deficit and the tightening in monetary conditions.

Mr Speaker, Sir, the performance in both the bank and non-bank sectors in 2001 was mixed. Although overall performance in the banking sector in terms of capital adequacy, asset quality, and earnings was satisfactory, there were some setbacks. During the year, one bank was closed following protracted financial difficulties and the inability of its shareholders to re-capitalise the bank. Another bank had its operating licence suspended for three months but was subsequently re-opened.

Mr Sibetta: Shame!

Mr Kasonde: Mr Speaker, in the non-bank sector, the performance of leasing companies in terms of their capital adequacy, asset quality, and earnings was also satisfactory. However, the performance of other non-bank financial institutions, such as, the building societies, was not satisfactory, and was compounded by an inadequate regulatory framework to closely supervise them. With the enactment of the Banking and Financial Services Act of 2000, most non-governed by the Act. In this regard, the Bank of Zambia established a new department to effectively supervise non-bank financial institutions.

Capital Market Developments

Mr Speaker, in 2001 the Lusaka Stock Exchange (LuSE) continued to focus its activities towards deepening the market and increasing  participation. To this end, LuSE stepped up its awareness campaign among corporate entities and the general public regarding available and potential investment options and instruments for raising capital.

Sir, although the LuSE All Share Index declined by 0.6 per cent due to a drop in some share prices, some encouraging developments occurred in 2001. Turnover increased by 650 per cent to K189.7 billion from K25.3 billion the previous year. Similarly, market capitalisation, although declining by 1.2 per cent in Kwacha terms due to exchange rate appreciation, grew by 5 per cent in US dollar terms, to US $248 million in 2001. Futhermore, net foreign capital inflows increased significantly to US $7.5 million from US $0.9 million in 2000.

PART III

ECONOMIC POLICIES FOR 2002

Macroeconomic Policies

Mr Speaker, built on the foundation of a developing private sector, Zambia has, in recent years, made significant strides in achieving positive economic growth, consolidating macroeconomic stability, and creating a solid base for poverty reduction. However, today, these gains are threatened by three grave challenges.

Sir, firstly, in the mining sector, the decision by the Anglo American Corporation not to provide additional capital required in Konkola Copper Mines, has cast a dark cloud over our economic prospects that seemed so bright just a few months ago. Secondly, in the agriculture sector, our failure to achieve self-sufficiency in food production and enhance food security, on a sustained basis, is an indictment on our inability to harness our abundant water, arable land and human resources. Thirdly, is the HIV/AIDS pandemic and related diseases that threaten to erode the very fabric of our society.

Mr Speaker, the resolution of these challenges demands of us cool heads and resolute hearts, a willingness to work together, and an unwaivering commitment to act in the best interests of all the people of Zambia. Sir, it is imperative that we act judiciously and that we act quickly. In doing so, our actions should be guided by: firstly, the belief that the challenges we face, although grave, are not insurmountable; secondly, that the private sector remains an indispensable partner in meeting these challenges; and thirdly, that our actions must be sustainable and aim at safeguarding and enhancing growth as well as reducing poverty.

Mr Speaker, consistent with the theme for this year’s budget, “Food Security through Production and Job Creation,” and taking into account the above challenges, particularly the developments in the mining sector, our macroeconomic objectives for this year areas follows: achieve real GDP growth of at least 4 per cent, lower annual inflation to 13 per cent by the end of the year, limit the budget deficit to 3 per cent of GDP, and increase our gross international reserves by US $129 million.

Hon. Government Members: Hear, hear!

Mr Kasonde: Mr Speaker, our targeted real GDP growth of 4 per cent will enable us maintain the positive trend in real per capita incomes achieved over the last two years. This growth assumes a recovery in agriculture and continued growth in the tourism, manufacturing, wholesale and retail sectors, amongst others.

Mr Speaker, we are also determined to sustain the gains made in reducing inflation in 2001. In this regard, while maintaining budgetary allocations for poverty reduction programmes, we are determined to reduce the budget deficit. It is important to note that a lower budget deficit will require that the Government limits its borrowing from the banking system, which will support a reduction in the current high levels of interest rates and avoid crowding out of private sector investment.

Hon. Government Members: Hear, hear!

Monetary and Financial Sector

Mr Kasonde: Mr Speaker, Sir, last year we were able to achieve a substantial reduction in inflation and restore relative stability in foreign exchange market. It is our intention to consolidate these gains, by further lowering inflation to 13 per cent by end-2002 and to single-digit inflation thereafter as well as ensuring that the foreign exchange market remains stable.

Hon. Government Members: Hear, hear!

Mr Kasonde: Mr Speaker, the recent developments in the mining sector, referred to earlier, have impacted negatively on expectations in the financial sector and more generally, threaten to undermine confidence in the economy as a whole. 

The measures the Government will take are aimed at ensuring that the mining sector continues to contribute positively to Zambia’s economic development. It is our sincere hope and belief that local and international financial institutions as well as other co-operating partners will play a positive role in this process.

Mr Speaker, interest rates remain high, constraining efforts to increase investment and output in the productive sectors of our economy, particularly in agriculture, which is characterised by very high risks. By limiting the Budget deficit to 3 per cent of GDP, the need for bank financing will be considerably reduced and this should support a reduction in interest rates.

Hon. Government Member: Hear, hear!

Mr Kasonde: Mr Speaker, given the importance attached to agriculture, the Bank of Zambia will reduce the effective Statutory Reserves Ratio for commercial banks lending to the agriculture sector. 

Hon. Government Members: Hear, hear!

Mr Kasonde: We expect that these benefits will be passed on to farmers through a reduction in lending rates. The Bank of Zambia will also explore other ways of lowering interest rates in general.

Mr Speaker, in the coming years, the Government will strive towards a balanced budget. This will lower inflationary pressures in the economy, encourage savings and make resources available for private sector investment. It will also mean that debt service obligations will fall, thereby releasing more resources for wealth creation and poverty reduction programmes.

Mr Speaker, as alluded to earlier, at the end of last year, the Bank of Zambia strengthened its capacity to supervise the financial sector by creating a department for non-bank supervision. This year, the Bank of Zambia will step up its supervision of the financial institutions, including those for micro-finance by developing regulations and strengthening on-site and off-site supervision.

Mr Speaker, to address continuing problems posed by foreign exchange bureaux operating outside their core business of being simple money-changers, I shall issue a Statutory Instrument to streamline and regulate their operations. I also expect that the continued reduction in inflation and maintenance of stability in the foreign exchange market will further support the deepening of the capital and financial markets in general.

Mr Speaker, with the enactment of the Prohibition and Prevention of Money Laundering Act, in 2001, the regulatory authorities are now legally equipped to deal with the scourge of money laundering and related vices. I expect effective co-operation among the regulatory authorities so as to rid society of this vice.

Mr Speaker, in light of the challenges I have highlighted, the overall monetary policy stance will remain tight. Furthermore, the Bank of Zambia will continue to develop its indirect instruments of monetary policy so as to support the achievement of our monetary and financial policy objectives.

External Debt {mospagebreak}

Mr Speaker, the Government will take the necessary measures to ensure that we reach the Completion Point in 2003 under the HIPC Initiative, at which point Zambia’s major creditors are expected to cancel a large part of our debt stock. This, therefore, requires that Zambia adopts and implements the Poverty Reduction Strategy Paper (PRSP), improves social sector outputs, and remains on course with the Poverty Reduction and Growth Facility (PRGF) in 2002.

Mr Speaker, this year, the Government will, in addition, endeavour to conclude HIPC Initiative agreements with the Paris Club creditors and multilateral financial institutions, including the International Bank for Reconstruction and Development (IBRD) simply called World Bank and the European Investment Bank (EIB). In this regard, I wish to appeal to our co-operating partners to support our efforts to reduce poverty and to promote growth and development by timely delivery of their pledged financial assistance.

Domestic Debt

Mr Speaker, the Government will step up reduction of domestic arrears to the Public Service Pensions Fund. In addition, the Government will meet its current statutory contributions to the Pensions Fund, so as to avoid accumulation of arrears. On the other hand, the Government will also enhance collection of funds from all its debtors.

Mr Speaker, in order to reduce the stock of domestic debt and interest costs to the Treasury, the Government will systematically scale down its borrowing, particularly through Treasury bills and Bonds, over the medium-term.

Mr Speaker, the Government is seriously concerned with the steady accumulation of arrears arising from contracts for roads and other large capital projects. The Government is particularly concerned about the interest charged on outstanding payments and penalties. To avoid this, contracts for construction will not be signed without adequate provision in the Budget.

Hon. Government Members: Hear, hear!

Capital Markets

Mr Kasonde: Mr Speaker, availability of term financing, especially at affordable cost has continued to be difficult in our country. One important way of addressing this matter is through the development of capital markets. As a practical step, the Government will, as soon as possible, develop and issue Institutional Investment Guidelines on best practices in investing in stock markets.

Privatisation and Parastatal Reforms.

Mr Speaker, the Government will continue with structural reforms to improve efficiency in the economy. In particular, divestiture of Government interests in parastatal companies will continue in order to allow for more private sector participation. Furthermore, to ensure compliance by purchasers of privatised companies to the commitments made in the sales and purchase agreements, the Government will strengthen the Post-Privatisation Unit at ZPA to undertake post-privatisation monitoring.

Export Processing Zones

Mr Speaker, the Government will continue to support diversification of our export base. To facilitate export diversification, the Export Processing Zones Act was passed in 2001. The Ministry of commerce, Trade and Industry will work out the detailed modalities of implementing the Act this year.

Public Service Reform Programme

Mr Speaker, the Government is committed to streamlining the operations of the Public Service so that the service is responsive to the aspirations and needs of the people of Zambia. In this regard, the Public Service Reform Programme (PSRP), that was embarked on in 1993, aimed at rationalising public expenditure and improving the delivery of services, will continue.

Mr Speaker, in 2002, the Government will continue to build capacity, including training, in order to improve public service delivery as provided for under the Public Service Capacity Building Project (PSCAP). In addition, we will complete the design and start the implementation of the Integrated Financial Management Information System (IFMIS) and develop and adopt a Medium Term Expenditure Framework (MTEF) that will provide for strategic management of public resources.

Mr Speaker, in order to improve administration and service delivery, the Government shall revise and put in place a new Disciplinary and Code of Conduct for the Civil Service. The Public Service Regulations and the Financial Regulations will be reviewed and amended as a matter of urgency. Furthermore, the Government will expedite the finalisation of the decentralisation policy that will form the framework for effective devolution of powers to local authorities. 

Hon. Government Members: Hear, hear!

Mr Kasonde: Further, the Government is working out measures to improve the financial base of councils.

Hon. Government Members: Hear, hear!

Mr Kasonde: I am burning midnight candle over this. 

Hon. Opposition Members: No DAs!

Mr Chisala: Long live DAs!

Mr Kasonde: Please wait!

Laughter.

Mr Kasonde: Mr Speaker, at the Official Opening of this Session of the National Assembly, His Excellency the President tasked me to come up with a three-year transitional economic plan by June 2002. 

This is to be done with a view to institute five-year Development Plans from 2005 and 2006 onwards.

Sir, the Ministry of Finance and National Planning will implement this directive through the newly established Department of Planning and Economic Management. This department has the responsibility, through consultative processes, of preparing a Long-Term Development Vision, which will guide the formulation of future Poverty Reduction Strategy Papers encompassing the Public Investment Programme framed within the resource constraints of the Medium-Term Expenditure Framework. These, in turn, will provide the context within which annual action plans and budgets will be formulated and implemented.

SECTOR POLICIES

Agriculture

Mr Speaker, Zambian agriculture is heavily dependent on rainfall, resulting in food shortfalls as rainfall patterns change. This is unacceptable, especially when the country is well endowed with water and arable land resources, which currently are under utilized. To reduce shortfalls in crop production and enhance national food security, the Government will:

(a)    direct resources into construction of dams, especially in drought prone provinces, to facilitate irrigation while, at the same time, encourage private sector investment in irrigation, regardless of who you voted for.

Laughter.

Mr Kasonde:

(b)    contract large-scale farmers to produce maize under irrigation to meet the impending maize shortfall this year; and

(c)    develop appropriate technologies for small-scale farmers and access affordable draught power and associated equipment to  enable them improve efficiency and productivity and achieve food security.

Mr Speaker, small-scale livestock farmers have been adversely affected by the prevalence of animal diseases that have decimated their livestock, thereby robbing them of their only means to survival. To eradicate animal diseases and turn Zambia into an exporter of livestock and related products, the Government is taking measures to control animal diseases in various areas with high potential for livestock production, particularly Southern Province and Western Province.

Hon. Opposition Members: How?

Laughter.

Mr Kasonde: Mr Speaker, as outlined by His Excellency the President, in his Opening Speech to Parliament last week, agriculture marketing has been a problem, following the liberalisation of the agriculture sector and the collapse of Government-supported agriculture marketing institutions. Our small-scale farmers in outlying areas have not been availed a market for their crops thereby discouraging them from engaging in production for the market. To increase food production and the incomes of our farmers and to stop supporting production in other countries through importation of maize, the Government has decided to establish a Crop Marketing Authority (CMA) through an Act of Parliament.

Sir, the CMA will be a buyer of last resort for selected crops in outlying areas, especially those not serviced by the private sector, at a price that would enable farmers to, at least, recover their cost of production. In addition, it will maintain a national strategic food reserve and will procure and distribute agriculture inputs in the targeted areas. For the Authority to be effective and provide services to more farmers, this Government will foster the culture of loan repayments in the agriculture sector. Meanwhile, the Food reserve Agency will be phased out as it has regrettably failed to execute its statutory functions of buyer of last resort and keeper of strategic food reserves.

Hon. Opposition Members: Collect the debts!

Mr Chisala: From Nawakwi!

Mr Kasonde: Sir, Zambian agriculture has been struggling to compete regionally and internationally due to, among other factors, high costs of production. To increase the competitiveness of Zambia’ agriculture, I have taken additional fiscal measures in this budget to reduce production costs. With regard to small-scale agriculture, the Government will assist farmers to access inputs at affordable prices.

Hon. Government Members: Hear, hear!

Hon. Opposition Members: How?

Mr Kasonde: Mr Speaker, although agriculture exports have increased over the years, there is still potential for Zambia to export more agricultural products. To increase exports of agricultural products, the Government will support out-grower schemes for exportable high-value cash crops.

Mining

Mr Speaker, as His Excellency the President stated in his Opening Speech to Parliament last Friday, Anglo American Corporation’s decision not to proceed with further investment in KCM has posed a serious threat to the Zambian economy and the lives of Zambians. The Government takes this matter seriously and is, therefore, taking necessary measures to ensure that KCM remains a going concern.

Hon. Government Members: Hear, hear!

Mr Kasonde: Mr Speaker, the Government Task Force examining options for resolving the problems at KCM in the wake of Anglo American Corporation’s announcement of its possible withdrawal, is continuing its work. In the event that the Task Force recommends a cash injection from the Government, I will return to Parliament with additional revenue measures to raise the required funds later, as I have not provided any funds for this purpose in the Budget that I present to you today.

Hon. Government Members: Hear, hear!

Mr Kasonde: Mr Speaker, I must add that consistent with its privatisation policy, the Government firmly believes that the solution to KCM problems and other such enterprises lies, first and foremost, in the hands of the private sector. The focus of Government actions will, therefore, be towards providing the necessary support for the private sector to play its expected role effectively.

Mr Speaker, in the light of uncertainties in the mining sector, the Government will be taking measures to diversify the economy in general and the mining activities in particular, within the shortest possible time. More specifically, the Government will encourage private sector initiatives through provision of geological, geophysical and geochemical data on a countrywide basis. In addition, the Government is taking measures to reduce production costs for the mining companies and the business community as a whole.

Tourism

Mr Speaker, the tourism sector has in recent years experienced a renaissance with increased tourist arrivals and earnings. Given the immense tourism resource base that we have, it is clear that this sector can contribute even more to foreign currency earnings, economic growth and poverty reduction.

Mr Speaker, Government’s strategy in 2002 will, in addition to maintaining existing incentives, improve infrastructure such as, roads, airports, telecommunication facilities and security. Furthermore, the Government will continue to encourage community participation in the preservation of our wildlife and natural resources and facilitate the flow of private sector investment in the sector and also the introduction of new tourist products. In this respect, the Tourism Development Master Plan will finalised this year.

HIV/AIDS

Mr Speaker the HIV/AIDS pandemic remains one of the world’s biggest challenges, and it is imperative that we re-double our efforts in combating it. In this vein, the Government established the National HIV/AIDS/STD/TB Council with the responsibility to co-ordinate the national effort to fight the pandemic. It is important that all of us realise that the fight against this pandemic is not for the Government alone, but for all citizens.

Hon. Members: Hear, hear!

Mr. Kasonde: Mr Speaker, the Government is concerned that the majority of patients are unable to access HIV/AIDS drugs and the scourge has contributed to an increase in the incidence of other related diseases, as well as the number of orphaned children. On its part, the Government has, therefore, allocated large resources to reduce the rate of infection and improve access to HIV/AIDS drugs.

Mr Speaker, to effectively monitor the incidence and prevalence of the HIV/AIDS pandemic, the Government, through the Ministry of Health, in collaboration with the Central Statistical Office, is undertaking a nationwide study to accurately determine the magnitude of the problem. The results of this study will be made public by the end of the year and will form the basis for informed decisions and interventions to fight the scourge.

Governance

Mr Speaker, good governance is a vital prerequisite for a vibrant economy and a citizenry that can pursue their livelihoods free from any arbitrary use of power…

Hon. Opposition Members: Aah!

Mr Kasonde: This Government is committed to good governance,… 
Hon. Government Members: Hear, hear!

Mr Kasonde: … which embraces the key principles of the rule of law and separation of powers. Amongst other things, this means equality before the law and genuine respect for human rights as set out in our Constitution.

Hon. Government Members: Hear, hear!

Mr Kasonde: Checks and balances between the three arms of Government will be observed to ensure accountability and transparency will be the rule of the day.

Hon. Government Members: Hear, hear!

Interruptions.

Mr Kasonde: Mr Speaker, as part of the good governance programme, the Government will strengthen institutions that promote and safeguard good governance by improving their allocations in the Budget. I am giving them more money.

Hon. Members: Hear, hear!

Mr L. L. Phiri: Which will disappear.

Mr Kasonde: You will be arrested this time.

Laughter.

Mr Kasonde: Furthermore, to enhance transparency and accountability in Government operations, cash releases to spending agencies will be published regularly and in a timely manner. Spending agencies will in turn be expected to send expenditure returns on a regular and timely basis to the Ministry of Finance and National Planning. If they do not do that, they do not get the next allocation.

Hon. Members: Hear, hear!

Mr Kasonde: Mr Speaker, as regards to the rule of law, I wish to repeat the policy of this Government, that anyone who owes the Government money, will be required to pay back in full…

Hon. Members: Hear, hear!

Interruptions.

Mr Kasonde: …irrespective of who they are. Defaulters will be pursued through the courts of law.

Interruptions.

PART IV

THE 2002 BUDGET

Mr Kasonde: Mr Speaker, in 2002 the Government proposes to spend a total of K5,676.8 billion, which is 35.5 percent of GDP. Of this amount, K3,429.7 billion or 60.4 per cent will be internally financed. The remaining K2,247.1 billion or 39.6 percent will be externally financed.

Mr Patel: How?

Interruptions.

Mr Kasonde: I will repeat that because it is an important point. This year, 60.4 per cent of the total expenditure will be internally generated.

Interruptions. {mospagebreak}

Mr Kasonde: The remaining K2,247.1 billion or 39.6 per cent will be externally financed. And 50 per cent of this comes from the World Bank and IMF.

Mr Hachipuka: Will they honour?

Mr Kasonde: They always perform.

Mr Speaker, reflecting the Government’s commitment to poverty reduction, the proportion of the domestic budget allocated to economic and social sectors has been increased from 43.5 percent in 2001 to 46.5 percent in the 2002 Budget. 
The detailed 2002 expenditure estimates is as follows: 

    K’billion
Personal Emoluments
Of Wages & Salaries (inc
Which other emoluments)
PSRP    

1,118.0
 80.0 
    1,198.0

Recurrent Departmental Charges
Of Drugs Which RDCs in Poverty Reduction Programmes
(inc. K25 billion top-up to drugs)
Other

    
25.1
29.8
379.7    434.6

Grants and Other Payments
Of  ZRA
Which Grants to District/Mission Health Boards/Universities
& University Bursaries Foreign Financed Grants
and other Payments
Other    
80.0
73.8
30.8
 234.7

    419.3

Pensions
Of Pension Arrears
Which Public Service Pension
Fund Board (Grant)    
48.0

10.0    58.0
Non RDC Poverty Reduction Programmes
Of Subsidised Fertilizer and 
Which Input Packs
Out-grower Schemes
Feeder Roads
Public Welfare Assistance Scheme and Basic Education
Bursaries
Rural Housing for 
Teachers and Health Workers
Other    

160.0
15.0
27.8
17.0

38.0
162.4    420.2
Capital
Of Domestically Financed
Which Capital
Foreign financed capital    

479.8
1,750.2    2,230.0
Constitutional & Statutory Expenditure
Of Domestic Debt Service
Which Foreign Debt Service
Other
Contingency    
500.0
366.0
25.0
25.7
    916.7
TOTAL EXPENDITURE        5,676.8

Mr Patel: It is too much.

Mr Kasonde: Mr. Speaker, the total expenditure, K450 billion has been specifically targeted to finance new or enhanced activity in priority poverty reduction programmes. You, hon. Members, have a lot of say in what actually this money is spent on. It should be spent in your areas.

Hon. Opposition Members: Remove District Administrators!

Interruptions.

Mr Kasonde: These have been identified in close liaison with stakeholders on the basis of the draft PRSP. The Government is constituting a HIPC Initiative monitoring committee comprising stakeholders, including Non-Governmental Organisations and professional bodies, to monitor the use of HIPC Initiative resources. There has been a complaint in the past as to whether we were doing these things under the darkness. Members of the public will be invited to be part of those committees.

Hon. Member: Hear, hear!

Mr Kasonde: In addition, in the spirit of accountability and transparency, an annual report on the use of these resources will be prepared for public information and discussion.

Hon. Member: Long live District Administrators.

Interruptions.

Mr Kasonde: Mr. Speaker, agriculture is the prime engine for achieving broad-based economic growth and poverty reduction. It is also of vital importance in attaining food security at both household and national levels. Reflecting the importance that the Government attaches to the sector, the allocation for agriculture related expenditures has almost been trebled in this year’s budget, from K88 billion in 2001 to K231 billion in 2002.

Hon. Government Members: Hear, hear!

Mr Kasonde: This increased allocation is targeted at both new and existing programmes that have the potential to increase productivity in the sector and raise income levels.

Mr. Speaker, to increase agriculture production, particularly among small-scale farmers who are in the majority, I have provided K100 billion to facilitate the supply of 80,000 metric tonnes of fertilizer for the 2002/2003 season. In addition, I have provided K50 billion as a subsidy on the fertiliser sold to targeted small-scale but-commercially-viable farmers, with each expected to grow one hectare of maize. The Ministries of Finance and National Planning, Agriculture and co-operatives, and community Development and social Services will jointly work out the implementation modalities for the exercise in readiness for the next farming season.

Mr. Speaker, I have provided a further K10 billion as a grant to vulnerable but-productive small-scale farmers for the distribution of input packs to enable them to grow food crops for their sustenance. This is better than actual handouts.

Hon. Members: Hear, hear!

Mr Kasonde: This is a continuation of the programme that was started last year and has assisted many vulnerable households to improve their food security.

Interruptions.

Mr Kasonde: Mr Speaker, the Food Reserve Agency (FRA) has an outstanding debt of K112 billion,

Interruptions.

Mr Kasonde: … relating to the 2001/2002 season. In this year’s Budget, I have only allocated K30 billion towards the reduction of this debt. The Food Reserve Agency has been instructed to recover the balance and all other outstanding debt owed to it from previous seasons before the Agency is phased out.

Hon. Government Members: Hear, hear!

Mr Kasonde: Mr. Speaker, as regards securing affordable agricultural inputs for our farmers in the medium-term, I have allocated K20 billion to revive the activities of Nitrogen Chemicals of Zambia (NCZ)…

Hon. Members: Hear, hear!

Mr Kasonde: This money will be used to provide working capital to resume production of fertiliser and explosives for the agriculture and mining sectors, respectively, and allow for the organisation to be revitalised.

Hon. Members: Hear, hear!

Mr Kasonde: This action should also reverse the decline in the fortunes of Kafue town and safeguard employment for the remaining workforce – I did not hear, 'Hear, hear!' from the area Member of Parliament.

Mr Sichinga: I appreciate.

Laughter.

Mr Kasonde: I appeal to the management and workforce of NCZ to work closely together to ensure that the plant has a commercially viable future that can safeguard jobs and provide valuable inputs for two of our key sectors at affordable and competitive prices.

Mr Sichinga: Hear, hear!

Mr Kasonde: Now I hear the area Member saying, 'Hear hear.' I thank you.

Mr. Speaker, in addition, to encourage productive self-employment in rural areas, I have allocated K15 billion to support out-grower schemes. Small-scale farmers, by working alongside large commercial farmers growing cash crops, such as, paprika, tobacco, coffee and cotton, can benefit from improved input supply, extension services and marketing arrangements.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, in order to encourage large-scale investment in commercial farms, I have allocated K2.5 billion for the demarcation of land into farm plots for large-scale investors and for advocacy.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, to enhance livestock production and crop yield, promote irrigation and increase fish stock, I have provided K21.9 billion. This amount will go towards animal health care programmes to avoid denkete. You call it degede?

Laughter.

Mr Kasonde: In addition, this money will go to the construction of dams for irrigation, seed multiplication and fisheries development programmes. In addition, K6.0 billion has been allocated for the Rural Investment Fund and K4.3 billion for the improvement of infrastructure in resettlement schemes in all the nine provinces.

Mr Speaker, under the Poverty Reduction Programmes, K27.8 billion has been allocated for feeder roads and K1.5 billion for canals. In addition, K5 billion has been allocated to the Rural Electrification Fund, over and above the K10 billion to be raised through excise duty on electricity.

Hon. Government Members: Hear, hear!

Mr Kasonde: Mr. Speaker, in addition to the feeder roads programme that I have already mentioned, investment in rehabilitation and development of economic infrastructure is vital to achieve growth. In this respect, I propose to spend K161.8 billion of domestic resources on trunk roads, bridges and pontoons in 2002. Within this figure, K67 billion will be from the fuel levy for road maintenance.

Mr Speaker, in order to ensure national food security, I have provided K48 billion to facilitate importation of food to meet the expected shortfall in maize supply. Part of this money will also be used to contract farmers to immediately grow maize under irrigation, which will be available for consumption this year and also to purchase maize from small-scale farmers in outlying areas during the normal harvest period for the 2001/2002 crop season. We do not want to hear of any maize being spoilt this year.

Interruptions.

Mr Kasonde: Mr. Speaker, I have provided K2 billion for the establishment of the Crop Marketing Authority, which will be the buyer of last resort, especially in outlying areas and will maintain a national strategic food reserve.

Mr Situmbeko: It is a good start.

Mr Kasonde: Mr. Speaker, as part of our poverty reduction strategy, the Government has maintained its commitment to the provision of social services, especially health and education. I have raised the allocation to the health sector to K314 billion from K199 billion in 2001.

Hon. Members: Hear, hear!

Mr Kasonde: Similarly, the allocation to education and training has been raised to K505 billion from K338 billion in 2001.

Hon. Members: Hear, hear!

Mr. Kasonde: Mr Speaker, I have allocated K5 billion under the Poverty Reduction Programmes for bursaries for basic school students from vulnerable households. This is in addition to K12 billion allocated to the Public Welfare Assistance Scheme that operates both health care cost and primary school cost schemes to assist vulnerable people to have access to these services. To rehabilitate universities, colleges, schools and hospitals, I have allocated K33.5 billion. A further K53.8 billion has been allocated to the two universities for grants and bursaries.

Hon. Members: Hear, hear!

Mr Kasonde: Mr Speaker, as part of the Government’s effort to retain teachers and health personnel in rural areas, I have allocated K38.0 billion specifically for construction of housing for teachers and health personnel in the rural areas.

Hon. Members: Hear, hear!

Mr Kasonde: This will encourage the retention of key staff in rural schools and health centres so that rural communities can also have access to basic health and education services.

Hon. Members: Hear, hear!

Mr Muntanga: No diversion.

Mr Kasonde: Mr. Speaker, within the health sector, K50 billion has been allocated for essential drugs, of which K12.5 billion is for drugs to fight the HIV/AIDS scourge. I have also provided a further K5 billion to support the Roll-Back Malaria Campaign.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, as hon. Members are aware, good health is closely related to a clean environment and access to potable water. I have, therefore, allocated K13.3 billion under the Poverty Reduction Programmes to improve the water supply for rural and peri-urban areas as well as prisons along the line of rail.

Mr Speaker, in order to relieve the hardship faced by public sector workers retrenched in previous years, I have provided K80 billion for retrenchment packages to clear most of the outstanding payments…

Hon. Members: Hear, hear!

Interruptions.

Mr Kasonde: You will not pay more tax. The total outstanding amount, as at 31st December 2001, is K118.8 billion for 12,317 workers. However, in the event that revenues come in above target, I intend to allocate more resources for this purpose.

Hon. Members: Hear, hear! {mospagebreak}

Mr Muntanga: No Mandandi.

Mr Kasonde: It is my wish to clear but there is not enough money for that.

Mr Speaker, at the time of privatisation of the major assets of ZCCM, the Government undertook to meet ZCCM’s external and domestic obligation. Government has so far paid K499 billion to ZCCM trade creditors against an initial claim of K653.7 billion. In this year’s Budget, owing to revenue constraints, I have only provided K50 billion for ZCCM trade creditors.

Mr. Speaker, paying debt service obligations is the first call on revenue. In this regard, I have provided K500 billion to meet interest payments on domestic debt.

Mr Speaker, to allow the Government to meet its commitments while at the same time consolidating the macroeconomic gains made in 2001 and allowing allocation to poverty reduction/growth enhancing programmes, I propose to run a deficit of K488.3 billion or 3.0 per cent of GDP in 2002.

Mr Sibetta: Where have you been all this time?

Mr Kasonde: I was sacked.

Laughter.

Mr Kasonde: Mr Speaker, details of the revenue estimates to finance the above expenditures are as follows:

                (K’Billion)
TAX REVENUES        2,879.5
Direct Taxes
Company Income
Taxes
Pay As You Earn
Other Income Taxes
Mineral Royalty Tax
Tax Arrears    

243.0
764.0
131.5
    3.0
    3.0    1,144.5
Excise Taxes
Fuel Levy
Other Excises     
  67.0
 365.0    432.0
Domestic VAT    312.0    312.0
Trade Taxes
Import Tariffs
Import VAT    
344.0
647.0    991.0
NON-TAX REVENUE          62.0

User Fees & Charges
Vehicle Licences &  Fees
        
     31.6
     30.4       62.0
TOTAL DOMESTIC 
REVENUE        2,941.5
FOREIGN 
FINANCING        
2,247.0

Project Financing
Budget Financing    
1,991.0
   256.0     2,247.0

TOTAL REVENUE 
AND FINANCING                                                                                                         5,188.5

PART V
REVENUE MEASURES

Mr Speaker, the tax system is an important tool for the achievement of national development. A good tax system should be fair to all taxpayers and be easy to administer. This is why we have committed ourselves to the constant process of reforming our tax system over the past ten years. However, even as we proceed with these reforms, we must not forget that the ultimate objective of the tax system is to yield sufficient resources for the Government to finance development and other expenditures. This year, emphasis will be on stimulating growth whilst ensuring that the Government has adequate resources to sustain its operations.

Mr Speaker, the Government recognises the burden that taxation places on our citizens, especially those in the formal sector. The low –income group are the ones mostly affected as the purchasing power of their pay has been greatly eroded by inflation. To cushion the effect of inflation and increase take home pay for the low-income group and fixed income earners, I propose to increase the tax free income threshold for individuals from K1,440,000 to K1,800,000 per annum so that a person earning K150,000 per month or less will not pay income tax.

Interruptions.

Mr Kasonde: I propose to remove the 10 and 20 per cent bands so that all income above K1,800,000 per annum will be taxed at the rate of 30 per cent.

Interruptions.

Mr Kasonde: In addition, I propose to increase the tax credit applicable to persons with disabilities from K1,200 to K18,000 per annum as further relief on their income. The expected revenue loss from these measures amounts to K11.95 billion.

Mr Patel: You are killing the worker.

Mr Kasonde: Mr. Speaker, to encourage companies to employ persons with disabilities, I further propose to increase the deductible amount for companies that employ persons with disabilities from the current K240,000 to K500,000 per annum for each such person employed. This will also take into account the effects of inflation on the allowable tax deduction, as this has not been adjusted for some time. The expected revenue loss from this measure will be K100 million.

Mr Speaker, currently, interest earned on Government Bonds is not taxable while that earned on Treasury bills is taxable. In order to address this discrimination, I propose to introduce a tax on interest earned from Government Bonds at a withholding tax rat of 15 per cent and this will become a final tax. I estimate that this measure will raise K12 billion.

Mr Speaker, upon retiring, an employee is currently entitled to 50 per cent of their pension in a lump-sum payment and the other 50 per cent is paid on a monthly basis. For tax purposes, relief is currently provided up to a maximum of K1 million. To assist the retirees, I propose to increase the commutable amount, from an Approved Pension Fund, from the current K1 million to K5 million. This measure will result in minimal revenue loss.

Mr Speaker, in the same vein, I propose to increase the exempt portion of terminal benefits from K3 million to K5 million in order to provide further relief to retiring employees. The expected revenue loss from this measure amounts to K100 million.

Mr Speaker, the state of dwelling structures provided for most farm workers leaves much to be desired. This runs contrary to our wish as Government to ensure that Zambians from all walks of life are provided with decent housing. In order to encourage our farmers build better houses for their farm workers, I propose to increase the farm dwelling allowance from the current K1 million to K5 million to take into account the effects of inflation on the cost of building materials. The farm dwelling allowance is the amount spent on construction of workers’ houses that is allowable against profits for tax purposes. The allowance was last adjusted in 1997. This measure will result in a minimal revenue loss.

Mr Speaker, education passages applicable to children of expatriates are presently exempt from tax. This implies that companies that pay for passage of children of expatriates studying abroad will be allowed the cost of passage as a deduction against profits. However, the cost of passage, if paid for children of Zambians, would be disallowed. This provision was introduced to attract expatriate personnel during the times when Zambia did not have sufficient numbers of qualified personnel. Clearly, the trend has since changed and we now have a lot of qualified Zambians. It is, therefore, outdated and unnecessary to maintain this discriminatory provision. In view of this, I propose to remove the exemption on education passages applicable to children of expatriates. This measure is expected to raise K200 million.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, as I mentioned when I discussed the state of farm dwelling structure, the Government remains committed to the availability of affordable decent housing for Zambians. This was the spirit in which we provided a scheme for extending relief on mortgage interest to low-income earners who had obtained mortgages from commercial institutions and were paying market rates of interest. However, it has become apparent that the major beneficiaries of this relief are high-income earners who have been provided with mortgages by their employers at subsidized interest rates. In order to reverse this inequitable trend, I propose to remove the relief provided on mortgage interest, as it is not benefiting the intended group. This measure is expected to raise K100 million.

Concessions to the Mining Industry

Mr Speaker, currently there are is discrimination in the taxation of mining companies. Konkola Copper Mines (KCM) and Mopani Copper Mines (MCM) enjoy favourable taxation regimes that are better than other mining companies. The Government will soon carry out a comprehensive review of the taxation of the mining sector as part of the process of resolving the current problem. As an initial step towards levelling the playing field, I propose to extend the following relief to other mining companies who are involved in copper and cobalt production other than KCM and MCM.

Mr Tetamashimba: We told you last time.

Laughter.

Mr Kasonde: I was on my farm.

Laughter.

Mr Kasonde: A reduction in the corporate income tax rate from 35 to 25 per cent;

Secondly, a reduction in the Mineral Royalty Tax from 2 to 0.6 per cent on the gross revenue of mineral revenue produced in mining areas, which will be defined explicitly for this purpose; and

Thirdly, no payment of withholding tax on dividends, royalties and management fees to shareholders or their affiliates, and on interest payments to shareholders or their affiliates, including any lender of money to the affected mining companies.

In extending this relief, I have confidence that the mining companies in the country will join hands with us in sustaining the fortunes of the mining industry, which will continue to be a major player in the economy.

Mr Speaker, all the above measures will take effect on 1st April 2002.

Value Added Tax

Mr Speaker, last year customs duty was removed on mosquito nets in order to reduce the cost of basic malaria prevention. This was in line with the Abuja Declaration on Roll-Back Malaria of removing all forms of taxation on malaria control strategies. As a follow up to this important initiative, I propose to exempt treated and untreated mosquito nets, insecticides and equipment used in the treatment of mosquito nets. The removal of VAT on mosquito nets will further cushion the cost of basic malaria prevention. The estimated revenue loss of this measure is K2.6 billion. This measure will become effective on 1st July 2002.

Interruptions.

Mr Kasonde: Mr Speaker, the threshold for VAT registration has not been revised since the introduction of VAT in July 1995. As a result, the threshold has been eroded by inflation, leading to the VAT register holding a large number of non-performing suppliers. I propose to increase the statutory VAT registration threshold from K30 million to K100 million. I envisage the removal of non-performing suppliers from the register to free administrative resources into enforcement and better management of active suppliers that contribute significantly to VAT revenue. Those suppliers below the threshold will be eligible for voluntary registration. The revenue implication of this measure is a minimal loss. This measure will become effective from midnight tonight.

Mr Speaker, I also propose to make voluntary registration for VAT renewable every twelve months. The majority of the non-performing suppliers on the current VAT register are below the statutory threshold and are therefore, registered under voluntary registration. In order to realise the administrative benefits expected from the proposal to increase the statutory registration threshold, applications for renewal of voluntary registration will be subjected to thorough scrutiny to ensure that all conditions for voluntary registration are met. The revenue impact of this measure is neutral. This measure will become effective from mid-nigh tonight.

Mr Speaker, I further propose to provide for cancellation of dormant traders from VAT register. This measure will help in the tidying up of the VAT register by removing missing traders or businesses that are no longer actively trading, instead of them submitting nil returns or accumulating penalties from non-submission of returns. However, once these businesses resume active trading, they will be able to apply for registration. The revenue impact of this proposal is neutral. This measure will become effective from mid-night tonight.

Mr Speaker, the Value Added Tax Act presently allows VAT input tax to be claimed within a period of three years after a transaction has occurred. This opens up opportunities for fraudulent claims of input tax. In order to mitigate this risk and protect Government revenue, I propose to reduce the period within which input tax may be claimed from three years to one year. The revenue impact of this measure is neutral. This measure will become effective from 1st April 2002.

Mr Speaker, I also propose to make it mandatory for businesses to attach schedules of all input tax claimed to their VAT returns. This is intended to reduce false input tax claims, speed up the processing of VAT refunds, reduce the number of visits to suppliers’ premises and enhance enforcement capacity through office-based verification thus saving valuable resources for both the tax payer and the tax authority. The revenue impact of this measure is neutral. This measure will become effective from 1st April 2002.

Mr Speaker, we have made major strides in computerising and integrating the tax administration system. In order to increase the accuracy of assessments and enable easy tracking of documents across all tax types, I propose to allow the Commissioner General to include a requirement for applicants for VAT registration to have a Taxpayer Identification Number (TPIN). This measure will become effective from mid-night tonight.

Customs and Excise

Mr Speaker, the excise duty levied on diesel fuel and petrol is 45 per cent . This, coupled with a 15 per cent fuel levy brings the maximum duty payable on both products to 60 per cent. Sir, Members of this august House, will agree with me that fuel, particularly diesel, is a major input in production throughout the economy. For our agriculture sector, diesel is a critical input for achieving increased production and distribution of produce. Similarly, our mining sector is dependent on high consumption of diesel to carry out production. In view of its importance in the economy, the need to lower the high cost of production, and to improve the competitiveness of our industries, I propose to reduce the excise duty on diesel from 60 per cent to 45 per cent.

Hon. Members: Hear, hear!

Mr Kasonde: The Government expects this benefit to be passed on to consumers through reduced pump prices. This measure will entail a revenue loss of K28 billion.

Interruptions.

Mr Kasonde: In the same regard, Sir, electricity is a critical input in production, and a basic consumption good for many households. For the mining sector, which is a major part of the economy, electricity constitutes a significant portion of the costs of mineral production, while agricultural production and agro-based industries also heavily depend on electricity. I, therefore, propose to reduce excise duty on electricity from the current 7 per cent to 5 per cent.

Hon. Members: Hear, hear! 

Mr Kasonde: Sir, in making this reduction, I have retained the 3 per cent levy for the Rural Electrification Fund, which is an important tool for ensuring that more of our people have access to electricity. Once again, the Government expects this benefit to be passed on to consumers through reduced electricity bills. I expect this measure to generate a revenue loss of K8 billion. This measures takes effect from midnight, tonight.

Interruptions.

Hon. Opposition Members: When is reduction of diesel?

Mr Kasonde: From midnight, tonight.

Hon. Members: Hear, hear!

Mr Kasonde: Mr Speaker, I have repeatedly stated Government’s commitment to ensuring growth in our manufacturing industry. A strong manufacturing industry provides a firm basis for overall economic growth. Last year, we reduced the excise duty on clear beer from 100 per cent to 85 per cent on the basis of a guarantee from the industry that there would be no loss of revenue from the levels projected in 2001. On this basis, I am convinced that further relief to the industry is justified. I, therefore, propose to further reduce the excise duty on clear beer from 85 per cent to 70 per cent.

Hon. Members: Hear, hear!

Mr Kasonde: This reduction is subject to a guarantee that there will be no loss of revenue from clear beer producers. All these measures take effect from midnight, tonight.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, I am mindful that we cannot resolve the significant challenges our industries face in one stroke. It is impossible to change everything overnight. However, with these measures, I am confident that we have gone some way in dismantling the high cost structure of our industries. I, therefore, hope that we will see a corresponding response to these measures in our productive sectors.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, our commitment to supporting and strengthening the manufacturing sector requires us to ensure that our trading regime provides optimum conditions for trade. In this regard, we constantly review our customs tariffs in conjunction with industry and other stakeholders. I, therefore, propose to reclassify and re-categorise certain goods with a view to lowering the duty rates. This will mainly apply to selected inputs in the manufacturing sector. This measure will cost the Treasury about K2.8 billion.

Sir, as stated earlier, malaria remains a major killer-disease in Zambia. I further propose to remove duty on the fabrics used in the manufacturing of mosquito nets and suspend duty on insecticides used in the treatment of mosquito nets. Both measures will lead to a minimal revenue loss.

Mr Speaker, in order to mitigate the revenue losses arising from the measures I have outlined, I propose to introduce excise duty on cosmetics and perfumes…

Hon. Members: Hear, hear! 

Mr Kasonde: …at the rate of 20 per cent. This measure is expected to raise K2.5 billion.

In addition, I propose to introduce a 5 per cent excise duty on imported motor vehicles. The revenue gain is estimated at K8 billion Mr. Speaker, all the above measures are effective from midnight, tonight.

Hon. Members: Hear, hear!

Mr Kasonde: On housekeeping measures, I propose to carry out amendments to the Customs and Excise, Value Added Tax, and Income Tax Acts in order to update, strengthen and remove ambiguities in certain provisions of tax legislation. These measures are revenue neutral.

Non-Tax Revenue

Mr Speaker, motor vehicles registration has not been comprehensive in recent years. This development and the associated fall in revenue collection can be attributed to various factors, the biggest being lack of accountability and aggressiveness towards registration and revenue collection. In view of this, and in order to protect public revenue, I propose that the Zambia Revenue Authority be appointed sole agent for the collection of fees on motor vehicle registration. This measure will become effective on 1st July, 2002.

Mr Speaker, the Appropriation-In-Aid system was established to provide an incentive for Government Departments and Statutory Bodies to collect more revenues. This has not worked effectively because in most cases, the system is benefiting the respective ministerial headquarters and not the collecting departments. Ministries have also not been reporting correct figures to the Ministry of Finance and National Planning resulting in under reporting of non-tax revenues. I, therefore, propose to abolish the Appropriation-In-Aid system, so that all the revenue collected by Government departments is deposited into Control 99 and properly accounted for. Ministries will be funded in the normal way. This measure will take effect from midnight, tonight.

PART VI
CONCLUSION

Mr Speaker, the New Deal is not and will not be a mere political slogan. It must be translated into practical actions that can rejuvenate and diversify our economy and restore prosperity and hope to our people.

The New Deal means human-centred development, defined in terms of benchmarks that measure material improvements in people’s lives, not just in terms of macroeconomic targets set for the economy as a whole. That is just a measure.

Mr Speaker, it means good governance, based on strengthened governance institutions, heeding the checks and balances between the three organs of State. It also means strict observance of the rule of law so that power is used to advance the welfare of the people, not arbitrarily for the benefit of a small elite at the people’s expense.

Hon. Members: Hear, hear!

Mr Situmbeko: No Mandandi!

Mr Kasonde: It means advancing the national interest, pragmatically accepting that Zambia is part of the global village and must interact with the rest of the world in ways that will benefit all Zambians.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, the 2002 budget has set the stage for giving practical expression to the New Deal. It sets a firm foundation for continued economic growth and meaningful poverty reduction through the development of a vibrant private sector working in partnership with the Government to place Zambia in competitive as well as comparative advantage in regional and international markets.

Hon. Members: Hear, hear!

Mr Kasonde: Mr. Speaker, in agriculture, by providing affordable fertiliser to small-scale farmers and input packs to vulnerable rural agriculture households, it ensures that Zambians will be food secure and better fed. By reforming crop marketing arrangements, with the establishment of the Crop Marketing authority and district bulking, it ensures that Zambians can market their produce. By encouraging large-scale investment in commercial farming and out-grower schemes, more opportunities will be created for productive employment in our rural areas. By reducing axes on diesel and electricity, and by providing concessionary financing to our commercial farmers, we will be able to reduce their production costs making them competitive in regional markets.

Hon. Members: Hear, hear!

Mr Kasonde: In education and health, by providing bursaries for basic school students and free health and education services to the most vulnerable, through public welfare assistance, our people will have improved access to education and health. By providing better housing for teachers and medical personnel in rural areas, an increased number of such staff can be retained in the rural areas and be better motivated. By rehabilitating health and education infrastructure and enhancing the budget for drugs, including for retroviral drugs to combat HIV/AIDS, the quality of service provision will improve.

Sir, for a poor country, this new administration has made a wonderful start.

Hon. Members: Hear, hear!

Mr Kasonde: This is the New Deal. This is the future of our nation. This is your Government at work.

Mr Speaker, I beg to move.

Hon. Members: Hear, hear!

Mr Chulumanda: Long live District Administrators.

Interruptions.

Mr Mulanda (Chifubu): Mr Speaker, in the first place allow me to record my appreciation to you for giving me this rare opportunity to speak on this important Motion.

On behalf of this august House, it falls upon me to sincerely congratulate the hon. Minister of finance and National Planning for the able manner in which he has presented his Budget. 

Hon. Members: Hear, hear!

Mr Mulanda: Above all, I congratulate him on his clarity and felicity of expression and the manner in which he has brought to an end the national budgetary fever. I can assure the hon. Minister that he has maintained the interest of this House to the end of the speech, …

Hon. Government Members: Hear, hear!

Mr Mulanda: … and I am sure that he will be glad to feel, as the whole House, feels that this has been one of his best speeches.

Hon. Government Members: Hear, hear!

Mr Mulanda: Mr. Speaker, I am referring to the form rather than the content of the speech that the hon. Minister of Finance and National Planning has delivered to the House. It remains the task of hon. Members to make a careful study before making critical and constructive contribution on he content of the speech and on the hon. Minister’s analysis, doctrine and proposals contained in this year’s Budget which is under the theme ‘Food Security Through Production and Job Creation’.

The current Budget has been prepared to, among other things, alleviate the serious economic hardships the majority of Zambians are going through. This is a serious challenge before this House. In the light of what I have said and in view of the importance the nation attaches to the national Budget, it is appropriate that we give hon. Members of this august House ample time to study the proposals contained in the Budget Speech and seriously digest them before any critical and constructive contributions could be made.

Hon. Government Members: Hear, hear!

Mr Mulanda: In this regard, Sir, I now move that the debate be adjourned until Tuesday, 5th March, 2002.

Mr Speaker, I beg to move.

Hon. Members: Hear, hear!

Mr Speaker: Is the proposal seconded?

Mr L. L. Phiri (Chipangali): Mr. Speaker, I beg to second the motion. I wish to take this opportunity to thank you for affording me this opportunity to second the motion on the adjournment of this august House. 

Mr Speaker, before I second, I have very few words to make and I mean business. The New Deal Government Budget seems to meet the aspirations of the people…

Hon. Government Members: Hear, hear!

Mr L. L. Phiri:… after people have starved for ten years.

Laughter.

Mr L. L. Phiri: Sir, the Budget, in my understanding, sounds good, but…

Laughter.

Mr L. L. Phiri: Mr. Speaker, I know that there are a lot of hidden things which your hon. Members need to go and digest, study and then come back to the House and weigh to see if the New Deal Budget meets the people’s aspirations.

Mr. Speaker, I thank you.

Hon. Members: Hear, hear!

Question put and agreed to.

ADJOURNMENT

The Vice-President (Mr  Kavindele): Mr. Speaker, I beg to move that the House do now adjourn.

Question put and agreed to.

The House adjourned at 1625 hours until Tuesday, 5th March, 2002 at 1430 hours.