Friday, 26th January, 2001

The House met at 1415 hours

[MR SPEAKER in the Chair]

NATIONAL ANTHEM

PRAYER

 

BUSINESS OF THE HOUSE

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

On Tuesday, 30th January, 2001, the business of the House will commence with presentation of Government Bills, if there will be any. Thereafter the House will begin debating the motion that the House do resolve into Committee of Supply on the Estimates of Expenditure for this year to be presented to the House by the hon. Minister of Finance and Economic Development this afternoon.

On Wednesday, 31st January, 2001, the business of the House will begin with presentation of Government Bills if there will be any. The House will then consider private Members’ motions, if there will be any. Thereafter the House will continue with the debate on the Motion of Supply on the Estimates of Expenditure for this year.

Mr Speaker, on Thursday, 1st February, 2001, the business of the House will start with presentation of Government Bills, if there will be any. The House will then conclude the debate on the Motion of Supply on the Estimates of Expenditure for 2001, and then resolve into Committee of Supply to consider various Heads of Expenditure in this year’s Estimates.

On Friday, 2nd February, 2001, the business of the House will commence with presentation of Government Bills, if there will any. Thereafter, the House will continue with consideration of various Heads of Expenditure in this year’s Estimates.

Thank you, Sir.

Hon. Members: Hear, hear!

 

 

 

MOTIONS

BUDGET ADDRESS

The Minister of Finance and Economic Development (Dr Kalumba): Mr Speaker, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Expenditure for the year 1st January 2001 to 31st December, 2001, presented to the National Assembly in January, 2001.

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

Mr Speaker, my message to the House this afternoon is premised on our belief that Zambians are a hardworking people and have, in the last decade, thrown off the shackles of unrealistic State benevolence and dependency to embrace an enterprise culture of independence, innovation and change. All they need is the opportunity and an enabling environment to allow them to lead productive and prosperous lives. In this regard, the theme for this year’s budget is “Empowering People for Prosperity”.

Mr Speaker, allow me, in the first place to express my sincere gratitude for the valuable contributions made by various organisations and individuals towards the preparation of this Budget. In this regard, I also recognise the fact that the achievements made hitherto under our economic programme are, to a large extent, due to consistent implementation of appropriate policies and the unwaivering support provided by the business community, civil society, the donor community and, most of all, the self sacrifice, determination and commitment of the Zambian people to see the reform process through.

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 by an outline of the Government’s macroeconomics policies for 2001. In Parts Four and Five, I present details of expenditure and the supporting revenue for the 2001 budget, respectively. Finally, in Part Six, I give my concluding remarks.

 

PART I

 

PERFORMANCE OF THE GLOBAL ECONOMY IN 2000

Mr Speaker, with the advent of globalisation, the world has become more interdependent than ever before. Developments in the international economy have a considerable influence on open economies such as Zambia’s. We can only ignore developments in the global economy at our own peril. We, therefore, need to watch with keen interest developments in the global arena and reflect on how the impact on the domestic economy and our lives and make appropriate adjustments.

Mr Speaker, Sir, in 2000, the world economy continued to expand, with global output increasing by 4.7 per cent compared to 3.4 per cent in the previous year. The expansion was led by robust growth in the North American economies, especially that of the United States of America (USA), which grew by 5.2 per cent compared to 4.2 per cent in 1999. The strong expansion in the US economy was largely due to the exceptionally buoyant growth in private domestic consumer demand coupled with subdued inflation.

The expansion in the world economy also emanated from the robust upswing in Europe, with the Euro Area economies growing at 3.5 per cent compared to 2.4 per cent in 1999. Furthermore, the consolidation of recovery in Asia, especially in the emerging economies of China and India contributed to the expansion. More generally, the expansion in the world economy owed much to the consistent application of growth-oriented policies world-wide.

Mr Speaker, the expansion in the global economy was consistent with the increase in the volume of trade, which grew by 10 per cent in 2000 compared to 5.1 per cent in 1999. To a large extent, the sharp increase in the world trade was as a result of increased demand for raw materials by the major industrial countries.

Mr Speaker, output in developing countries also continued to show signs of robust expansion in 2000 and grew by 5.6 per cent from 3.8 per cent the previous year. Growth in domestic demand in these countries and in the developed market economies as well as the favourable investment climate, especially in China and India, contributed significantly to the expansion. Combined world output growth and demand and the rise in oil prices and output led to stronger fiscal and external balances for oil exporting countries. However, non-oil producing countries suffered in terms of trade losses owing to the twin effects of rising import prices and less than buoyant world non-oil commodity prices.

Sir, the African continent’s output is estimated to have registered a growth rate of 3.4 per cent in 2000 compared to a modest growth of 2.2 per cent in 1999. The growth in the African economy was spurred mainly by the rebound in the three major economies of South Africa, Algeria and Nigeria. Contributing to the growth was the improved competitiveness of the South African economy and stronger fiscal and external sector positions of the oil exporting economies of Algeria and Nigeria.

Mr Speaker, global output growth in 2001 is expected to slow down to 4.2 per cent largely on account of the deceleration in the growth of GDP and demand in the US economy nonetheless, the outlook for Africa is more optimistic with output being projected to rise further to 4.4 per cent in 2001. For a number of African countries, output growth is projected to remain strong as these countries have begun to reap some of the benefits of macroeconomics and structural reforms.

Mr Speaker, notwithstanding the slow down, the world economy still holds out favourable prospects. We, therefore, need to position ourselves to take full advantage of the opportunities that the world will offer.

With the foregoing, I now turn to review the performance of the domestic economy in 2000.{mospagebreak}
 

PART II

 

PERFORMANCE OF THE DOMESTIC ECONOMY IN 2000

Overview

Mr Speaker, our initial macroeconomics targets for 2000 were: to achieve a growth rate in real Gross Domestic Product (GDP) of 4 per cent; end-year inflation of 14 per cent; a reserve build-up of a least US $100 million; and to limit the domestic fiscal deficit to 1.3 per cent to GDP. These targets were premised on, inter alia, a strong recovery in the mining sector once ZCCM privatisation was completed, the re-emergence of manufacturing activities to service the privatised mines, and the continued growth in the agriculture and tourism sectors. Furthermore, we envisaged a significant and improved level of support from our co-operating partners.

Mr Speaker, our economy faced two major macroeconomics challenges in 2000. First, world oil prices rose sharply. Second, for much of the year, pledged balance of payments support was significantly below programmed levels. These external factors had adverse effects on the domestic economy. The rise in world oil prices led to an increase in the import bill especially that we were importing finished petroleum products. Due to external shocks and adverse domestic developments, the target for inflation was revised upwards to 19 per cent whilst the Government domestic budget deficit was revised upwards to 2.3 per cent of GDP.

Mr Speaker, despite these difficulties, the performance of our economy was encouraging. Preliminary data shows that last year, real GDP increased by 3.5 per cent compared to a revised figure of 2.0 per cent recorded in 1999. Furthermore, the domestic budget deficit was within the revised programme target of 2.3 per cent of GDP for the year whilst the gross international reserves rose to above US $100 million. However, the external shocks already alluded to, coupled with rising energy prices and higher than programmed monetary growth, resulted in annual inflated rising from 20.6 per cent at end 1999 to 30.1 per cent at end 2000. Mr Speaker, the inflation outturn would have been worse had it not been for the favourable agricultural produce which dampened food prices.

The growth in GDP arose mainly from the following sectors: agriculture; manufacturing; transport, storage and communications; financial intermediaries and insurance; and real estate and business services. Other sectors that contributed positively of real GDP growth were electricity, gas and water, construction, and wholesale and retail trade.

Agriculture

Mr Speaker, value added in agriculture, forestry and fisheries sector grew by 1.8 per cent, from K411.0 billion in 1999 to K418.2 billion in 2000. However, its share of aggregate domestic output declined from 17.1 per cent in 1999 to 16.7 per cent in 2000. The growth in the agricultural sector was largely attributed to the normal rainfall situation in most parts of the country during the 1999/2000 agricultural season as well as improved distribution of inputs. Increased crop output was recorded for maize, soya beans, paddy rice, sorghum, sunflower, irrigated wheat, mixed beans and millet.

Mining

Mr Speaker, for the past three years, real output in the mining sector has continued to decline. The total contribution of the mining sector to GDP declined from 6.7 per cent in 1999 to 6.1 per cent in 2000. During the year under review, real value added in the sector is estimated to have dropped by only 5.1 per cent compared to a significant drop of 25 per cent in 1999. This, hon. Members, clearly shows a remarkable improvement in the performance of the mining sector following the completion of ZCCM privatisation. The 5.1 per cent decline in real output in the mining sector is attributed to the 3.6 per cent drop in copper production to 256,000 tonnes in 2000 and 11.4 per cent decline in cobalt to 3,000 tonnes over the same period.

The fall in metal output is basically attributed to operational difficulties at some of the mines, which in turn are a result of lack of investment in the sector over the years. The sector is expected to perform better in 2001 and beyond. The new owners of the privatised mines have already started the re-capitalisation process, and production has started to increase

Tourism

Mr Speaker, Sir, the tourism sector witnessed higher growth in 2000 than that recorded in 1999. The sector grew by 7.2 per cent in 2000 compared to 5.6 per cent in 1999. Preliminary estimates indicate that the number of tourist arrivals increased. As a result, earnings from tourism-related activities increased by 7 per cent in the past year. The strong performance of this important sector bears out our conviction that it is a leading area for generation growth in our economy. It is also testimony that Government strategies and interventions in the sector are square on target. Indeed, we will continue to lend maximum support to ensure that the growth recorded in this sector so far is consolidated and sustained.

Mr Speaker, to underscore the statement I have made, I am happy to report that remarkable progress has been made in two important activities in this sector. Rehabilitation of the runway at the Livingstone International Airport has been completed and the refurbishment of the terminal buildings to bring them to international standards has reached an advanced stage. With this and other rehabilitation programmes, we hope to fully restore Livingstone to its rightful status as the tourist capital of Zambia and a major tourist destination.

Hon. Government Members: Hear, hear!

 

Mr Sibetta: What about Siavonga?

Dr Kalumba: Soon we will get to Siavonga. Mr Speaker, the growing number of Zambian-owned lodges and guest houses and the impending completion of construction of new hotels by the Sun International Group by the middle of this year are all pointers of good things to come for the City of Livingstone.

Mr Speaker, the prospects for an accelerated growth of the tourism sector in the year 2001 are, therefore, bright.

Hon. Government Members: Hear, hear!

Dr Kalumba: The eclipse of the sun on 21st June and the hosting of the Organisation of African Unity Heads of State and Government Summit in July will augment these further, as both events are expected to draw thousands of visitors to Zambia.

 Manufacturing

Mr Speaker, the manufacturing sector continued to register positive growth in 2001, with value added increasing from K254.2 billion in 1999 to K288.4 billion in 2001, representing an increase of 13.4 per cent. The major sources of this growth were the fabricated and basic metal products, non-metallic mineral products, chemicals, rubber and plastics and textiles and leather products sub-sectors. The incentives that have been given to the manufacturing sector over the years, including last year, continued to stimulate investment and output in the sector.

Mr Speaker, the optimism I expressed last year before the House, regarding the impact of the then expected privatisation of ZCCM on the performance of the manufacturing sector, was justified. The completion of the sale of the major assets of ZCCM contributed significantly to increased demand for manufactured inputs.

This year, Mr Speaker, I have reason to be even more optimistic. Demand for fabricated metal products is expected to increase as the re-capitalisation programme in the mines intensified. In addition, the food and beverages sub-sector will remain buoyant in the medium-term due to the expanded market presented by the Free Trade Area.

Mr Patel: Slow down!

Dr Kalumba: Yes, Hon. Patel.

Construction

Mr Speaker, in 2000 the construction sector continued to expand. Value added grew by 1.2 per cent to K124.5 billion from K123.9 billion in 1999. The activities in the sector continued to be largely driven by public infrastructure programmes such as the construction of roads, schools and markets. In addition, an expansion in private sector residential construction and the Presidential Housing Initiative (PHI) ...

Hon. Opposition Members: Aah, no!

Hon. Government Members: Hear, hear!

Dr Kalumba: ... through which our people are being empowered ...

Hon. Government Members: Hear, hear!

Dr Kalumba: ... also play a role in the growth of the sector.

Privatisation and Parastatal Reforms

Mr Speaker, the Government has made substantial progress in honouring the pledge to place in private hands the bulk of economic activity in the country. In this regard, our record is unparalleled on the African continent. During the year under review, a total of ten companies were privatised. With the completion of the privatisation of ZCCM assets and others, the total number of companies privatised out of a working portfolio of 280 reached 248 as at 31st December, 2000.

Hon. Government Members: Hear, hear!

Dr Kalumba: The remaining thirty-two companies were at various stages of preparation.

Sir, the Government’s main objective in the privatisation programme in 2000 was to finalise the transfer to private hands of the remaining major assets of ZCCM and to expedite the sale of the remaining parastatals. The privatisation of the remaining major assets of ZCCM was finalised in March, 2000.

Mr Speaker, it is now evident that this development has brought back life to the mines and related industries through re-investments. In addition, payment of arrears to ZCCM suppliers by the Government has rejuvenated the business climate in the economy, particularly on the great Copperbelt. Furthermore, the payment of arrears to ZCCM suppliers by the Government has guaranteed employment for existing jobs and created new ones.

Mr Speaker, the other significant privatisation in the review year were the leasing of the assets of Mpulungu Harbour Corporation and the completion of the leasing of the Rainbow Lodge to Sun International Hotels. The Mpulungu Harbour serves as an important link for freight to and from the Great Lakes Region.

Sir, the Government in 2000 approved concessioning of the operations of Zambia Railways Limited and preparations for inviting bids are underway. A decision was also made to conduct a separate study to evaluate the potential for concessioning the Mulobezi railway. The Government in the year under review also commissioned studies on the modalities for commercialisation and rationalisation of a number of parastatals such as Zambia Electricity Supply Corporation, Zambia National Commercial Bank Limited and Zambia Telecommunications Corporation.

Public Sector Reform

Mr Speaker, implementation of the Public Service Reform Programme (PSRP) has acquired a new dimension during the past year reflecting a transition from staff reduction to capacity building. You may recall that during my presentation of the 2000 Budget to this august House, I did make a commitment that the Public Service Capacity Building Project (PSCAP) would be launched during the year. I am pleased to inform the House that PSCAP was launched on 4th October, 2000.

Mr Speaker, with regard to the continued reductions of the Public Service Establishment, the Government during the year 2000 spent a total of K104 billion in terminal benefits and pensions to the affected employees. This included K74 billion released in January 2000 and K30 billion carryover balance from the previous year.

Monetary and Financial Sector Developments

Mr Speaker, monetary policy in 2000 continued to be directed at reducing and stabilising inflation and maintaining a stable financial system. The primary focus was to reduce end-year inflation to a revised target of 19 per cent. This was to be achieved by tight monetary policy complemented by prudent fiscal policy.

Mr Speaker, hon. Members, the monetary sector during the year under review did not perform as expected due to various pressures exerted on the economy. These pressures, driven by both external and internal factors, led to a significant divergence of actual inflation rate from the revised end year target of 19 per cent. The end-year consumer price inflation closed at 30.1 per cent.

Sir, on the external side, the sharp rise in the international oil prices, the strengthening of the US dollar against other currencies, including the Kwacha, as well as the shortfall in external financing and low export earnings amidst high demand for foreign exchange exerted tremendous pressure on the exchange rate resulting in cost-push inflation.

On the domestic front, higher energy costs and the higher than programmed growth in money supply also put pressure on the exchange rate and ultimately on inflation. The growth in money supply mainly emanated from public sector borrowing and domestic financing of arrears to ZCCM suppliers by Government all which came from the banking sector. The increased liquidity in the banking system was reflected in the downward trend in domestic interest rates.

Mr Speaker, there were sixteen commercial banks and thirteen non-bank financial institutions operating in Zambia during the year under review. I wish to inform this august House that the performance of the banking and non-banking financial sector was satisfactory. The banking sector maintained adequate capital and reserves relative to their risk profiles. In addition, assets quality, earnings performance and liquidity also remained satisfactory. However, one commercial bank was placed under curator ship and has since been liquidated.

Sir, I am pleased to mention that the amendment to the Banking and Financial Services Act was finally passed by this House in 2000. The amended Act capacitates the Bank of Zambia to deal decisively with any bank or financial institution that fails to comply with prudential and regulatory requirements whose observance is necessary for financial sector stability.

Capital Market Developments

Mr Speaker, I wish to inform the House of two significant developments that took place in the capital market in 2000. for the first time, a US dollar denominated corporate bond of US $1 million was issued on the Lusaka Stock Exchange by a Zambian public company. The Government also issued a new two-year bond. These developments laid the foundation for gradual deepening of the capital markets, a process that the Government is committed to encourage through improvements in the legislative framework and lowering inflation.

Mr Speaker, market capitalisation at year-end was K978.5 billion compared with K767 billion in 1999, reflecting 27.5 per cent increase over the period. Similarly, the volume of trades increased by 37.2 per cent from K133 billion in 1999 to K182.5 billion in 2000. However, the market capitalisation of the Lusaka Stock Exchange still remains small when compared to key capital markets in the region.

External Sector Developments

Mr Speaker, the performance of the external sector in 2000 continued to be unsatisfactory. Explaining this poor performance was the deficit in the current account, which worsened from US $483 million recorded in 1999 to US $578 million, mainly due to the deterioration in the merchandise trade balance and services account.

Mr Speaker, due to the increased economic activities in general and in the mining sector in particular, the value of merchandise imports increased to US $1,008 million in 2000 from US $870 million in 1999. The rise in merchandise imports was attributed to an increase in imports of intermediate and capital goods, in particular imports of petroleum products and those related to the re-capitalisation of the mining sector.

Sir, the value of imports by the metal sector increased by 40.5 per cent to US $170 million in 2000, while that of petroleum products amounted to US $176 million, up by 53 per cent. The value of petroleum product imports went up largely due to sharp crude oil price increased on the world market, which increased by 47.5 per cent to an average of US $26.50 per barrel. In addition, the delayed resumption of production at INDENI following the fire in mid 1999 also contributed to the increase in the value of imports in 2000.

Mr Speaker, although the value of total merchandise exports increased by 5.4 per cent to US $800 million in 2000 that was not large enough to offset the 15.9 per cent increase in imports. This is mainly explained by the increase in the value of metal exports which rose largely due to an increase in the world metal prices, particularly that of copper. The realised average price of copper increased by 13 cents to 83 cents per pound.

Mr Speaker, for the past few years, the performance of non-traditional exports has been unsatisfactory. This contrasts sharply with the impressive growth averaging 20 per cent per annum during the 1991-1996 period. The poor performance of non-traditional exports in recent times is mainly attributed to high production costs, arising from the high energy prices, and continued strife in the Great Lakes Region which is an important export destination for our non-traditional exports. Consequently, the value of non-traditional exports is estimated to have declined by 3 per cent to US $279 million in 2000.

Mr Speaker, the current account deficit was partly financed by net capital inflows of US $96 million. contributing to the financing of the current account deficit were official project assistance, totaling US $259 million, debt relief of US $217 million and direct foreign investment amounting to US $126 million. This level of support from our co-operating partners and investment from the business community is a strong reflection of their confidence in the economic policies being pursued by the Government.

Hon. Government Members: Hear, hear! {mospagebreak}

Dr Kalumba: Mr Speaker, in the 2000 Budget Address to this august House, I promised to commit a considerable amount of our energies in the pursuit for access to the debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. I am pleased to inform the House that in December, 2000, the Boards of the International Monetary Fund (IMF) and World Bank approved Zambia’s accession to the Initiative. Under the Initiative, Zambia will get over US $3.8 billion debt cancellation over the next twenty-two years. More than 75 per cent of the debt relief of the IMF and World Bank will be provided in the first three to five years starting from 2001. Zambia’s Completion Point, that is, the time when maximum relief is given, is expected to be in 2003 after the agreed conditionalities have been fulfilled.

Mr Speaker, as a consequence of accession to the Enhanced HIPC Initiative, Zambia will reduce debt service payments from an average of US $434 million per year to US $169 million per year within the period 2001-2005 and below US $100 million afterwards. The savings as a consequence of accession to HIPC will be used for economic programmes that are aimed at reducing poverty in the country.

Mr Speaker, our external debt stock at the end of 2000 dropped by 3.1 per cent from US $6.5 billion as at end 1999 to US $6.3 billion. The decline in our stock is attributed to our continued repayments of loans and debt cancellations from some Paris Club and Non-Paris Club countries. This debt stock reflects the position before any HIPC debt cancellation is effected under the Enhanced HIPC Initiative, since the HIPC cancellation became effective on 1st January, 2001.

Budget performance in 2000

Mr Speaker, the main objectives of fiscal policy in the year 2000 were to promote sustainable economic growth, support the attainment of the revised inflation objectives of 19 per cent, and increase social sector expenditure to reduce poverty. Increased capital spending in the road sector was another focus of fiscal policy, which was aimed at facilitating growth in the agriculture, tourism and manufacturing sectors. Furthermore, the Government provided budgetary support to facilitate the privatisation of ZCCM by paying its trade creditors. To achieve these objectives, the Government planned to limit the domestic fiscal deficit to 2.3 per cent of GDP.

Mr Speaker, although a number of difficulties were experienced during the year, overall the execution of the 2000 budget was satisfactory. Total domestic expenditure, including payments to ZCCM trade creditors, amounted to K2,174.2 billion, against a target of K2,076 billion. On the other hand, total domestic revenue exceeded the target of K102.8 billion to K1,952.8 billion. Thus, preliminary data indicate that the domestic budget deficit of K221.5 billion, on cash basis, was lower than the programmed target of K227 billion.

Mr Speaker, the favourable outcome in total domestic revenues is attributed to good performance in international trade taxes and income taxes, which were above target by 28.7 per cent and 6.5 per cent, respectively.

Mr Speaker, the higher than expected expenditures were mainly due to the increased costs of operation arising from high energy prices, weakening of the Kwacha against major currencies and higher than anticipated expenditure on the national Census of Population and Housing, and the need to maintain security at our borders. Furthermore, efforts to clear outstanding payments to road contractors exceeded the budgeted capital expenditures of K172 billion by K70.6 billion.

Mr Speaker, I am pleased to report that data on the status of our population was successfully collected last year in the fourth quarter through the National Census of Population and Housing 2000. Analysis has started and we should know the latest characteristics of our population soon. This data will greatly help in our socio-economic planning process. It will also assist us to better address gender issues. This information is also important for our electoral process.

Mr Speaker, I now address our specific macro-economics policies for the year.

PART III

MACRO-ECONOMICS POLICIES FOR 2001

Dr Kalumba: Mr Speaker, over the last decade, we have laid the foundation for growth and development through the implementation of thoroughgoing economic reforms. The completion of the privatisation of the major assets of ZCCM and the accession to the Enhanced HIPC Initiative in 2000, have consolidated our efforts in that direction. Our future macroeconomics objectives will seek to build on the momentum gained so far and priority will be given to directing scarce public resources to areas where they will have the greatest impact on economic growth and empowerment programmes for poverty reduction.

Mr Speaker, macroeconomics policies in 2001 will continue to focus on achieving high and sustainable economic growth, reducing inflation and building a viable balance of payments position.

Mr Speaker, Sir, our macroeconomics objectives in 2001 are to attain: 5 per cent growth rate in GDP; 17.5 per cent end-year inflation; domestic fiscal deficit of 0.75 per cent of GDP; and an increase in our reserves by US $150 million. We also aim to increase core social sector spending to over 37 per cent of discretionary expenditure and raise domestically financed capital by 50 per cent to 15 per cent of revenue. These measures, Hon. Sibetta, ...

Laughter.

Dr Kalumba: ... are purely from domestic resources excluding those arising from accession to HIPC Initiative.

Sir, our growth objectives will be underpinned by increased investment and our continued determination to implement appropriate macroeconomics policies. This will include implementation of a tight monetary policy to restore and maintain stability following the upsurge in inflation and a rapid depreciation of the Kwacha experienced in 2000. Fiscal policy will support these efforts by ensuring that the budget deficit is contained within the set limits. A reduction in inflation in 2001 is also premised on the stability of domestic energy and food prices.

Sir, the Government is committed to a liberalised exchange rate regime to ensure that our economy remains competitive in the international arena. This means that the Government has no intention of re-introducing exchange controls.

Hon. Government Members: Hear, hear!

Mr Sata: Hear, hear, Dipak Patel!

Dr Kalumba: The measures announced last week were meant to ensure that the economy and consequently the people of Zambia benefit from a liberalised exchange rate regime.

Hon. Government Members: Hear, hear!

Dr Kalumba: To this end, I will expect all market participants in the foreign exchange market to adhere to the measures put in place by the Government.

Mr Speaker, the Government reaffirms its commitment that growth in the economy will continue to be driven by private sector initiative in agriculture, manufacturing, mining, construction and tourism sectors, with Government playing a proactive facilitative role. The on-going recapitalisation of the mines and investments in new projects for processing of metals should result in an increase in metal output and export volumes. This, coupled with the recovery in global metal prices, is also expected to lead to increased metal export receipts.

Mr Speaker, the Budget will this year direct resources to areas that will improve productivity and promote growth, in line with the theme “Empowering People for Prosperity”. In this regard, the Government will invest and rehabilitate infrastructure that supports economic growth and poverty reduction. Accordingly, the Government has acquired equipment for the construction of roads, dams and canals.

Hon. Government Members: Hear, hear!

Dr Kalumba: Mr Speaker, priority will be given to dams, canals, trunk roads, feeder roads and access roads to agricultural, small-scale mining and tourist areas.

Hon. Government Members: Hear, hear!

Mr Sibetta: Every year assurances!

Dr Kalumba: Muyombe must start producing. The Government will also continue to rehabilitate airports and other tourism infrastructure.

Hon. Government Member: Hear, hear! {mospagebreak}

Dr Kalumba: Sir, the Government has recognised that heavy freight traffic on our roads has resulted in high cost of road maintenance. The Government has, therefore, mobilised resources to rehabilitate the main rail line and restructure the operations of Zambia Railways to enhance its capacity to carry heavy traffic.

Mr Speaker, in addition to infrastructure, the Government will arrange financing schemes for agriculture and industry. To this end, the Government will continue to source medium to long-term financing on behalf of industry from both domestic and foreign sources, such as the Japanese Non-Project Grant Aid and Enterprise Development Fund, among others.

Mr Speaker, it is the Government’s intention to make the Development Bank of Zambia (DBZ) viable so that it can effectively contribute to economic development. In line with this, Cabinet approved the restructuring and re-capitalisation of DBZ.

Hon. Government Members: Hear, hear!

Dr Kalumba: Hon. Dr Sondashi, the Bank will require approximately US $10 million in capital and credit lines if it has to have an impact on the economy. The restructuring and re-capitalisation plan addresses the need to increase authorised capital, make 40 per cent of equity to be held by the Government and Government institutions, introduce the concept of a ‘Golden Share’ to be retained by the Ministry of Finance and Economic Development and make 60 per cent of equity to be held by non-Government shareholders.

Mr Speaker, the Government is determined to combat the HIV/AIDS pandemic through a multi-sectoral approach. To this end, a national strategic framework has been developed to scale up our response and will be implemented through the newly created National AIDS Council.

External Debt

Mr Speaker, as alluded to earlier, Zambia reached the Decision Point under the Enhanced HIPC Initiative in December, 2000. I expect Zambia to reach the HIPC Completion Point before end of 2003. The completion point is the time when Zambia will receive maximum debt relief from both the multilateral and bilateral creditors. Between now and 2003, Zambia will have to implement a participatory Poverty Reduction Strategy Programme for, at least, one year and, in this regard, make some progress in combating HIV/AIDS and implement macroeconomics, education and health reforms. These are the requirements for reaching the completion point.

Mr Shimonde: Hear, hear!

Dr Kalumba: Mr Speaker, in order to ensure that our external debt is sustainable, the Government shall continue to approach various creditors to seek faster, deeper and broader debt relief. May I take this opportunity, Mr Speaker, to thank combatants in civil society particularly Jubilee 2000, for having worked with me tirelessly, ...

Hon. Government Members: Hear, hear!

Dr Kalumba: ... in supporting Government’s efforts to access the decision point in HIPC. In this respect, Mr Speaker, ...

Mr Sibetta: Now you know the benefit of NGOs!

Dr Kalumba: I have always known that without being told by anybody else, Hon. Sibetta. 

Laughter.

Dr Kalumba: In this respect, I have approached all the other multilateral institutions that are also supposed to participate in the Enhanced HIPC Initiative to provide us with their mechanisms for providing this relief. I have also approached the Paris Club seeking 90 per cent debt relief for all debt service falling due in the next three years. To this effect, I am pleased to inform the House that the Canadian Government has suspended all debt claims on Zambia ...

Hon. Government Members: Hear, hear!

Dr Kalumba: ... and these are subject to write off once Zambia attains the completion point. I call on all other bilateral partners to follow the beautiful lead of the great country of Canada.

Export and Investment Promotion

Mr Speaker, the Government is, among other things, committed to diversifying the economy through export promotion and attraction of new investment. The Export Board of Zambia is expanding the portfolio of non-traditional exports and is widening the electronic marketing network. Investment promotion is now going to be more product focused and location specific. In this regard, the Zambia Investment Centre, through the auspices of the Ministry of Local Government and Housing, will assist each and every district to formulate investment profiles. This will assist in directing investments to areas whose endowments have already been identified. So, Lukulu, please be on line.

Mr Speaker, the launch of the COMESA Free Trade Area on 31st October, 2000, has expanded economic opportunities for our domestic producers through an enlarged market. This has created a challenge for our local producers to improve the competitiveness of their products destined for this market.

We must take full advantage of these opportunities to boost domestic economic activity. However, taking cognisance of the effects of free trade on local industry and the need to ensure Zambia’s competitiveness in the region, the Government will guard against unfair competition.

To this effect, application of safeguard measures and reciprocity within the context of the World Trade Organisation (WTO), Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) treaties will be given high priority.

In the micro, small and medium enterprise sector, the Small Enterprise Development Board (SEDB) is undergoing institutional reorganisation so that SEDB it can successfully support programmes such as the sericulture and hides and hides skins projects. Sericulture, Hon. Sibetta means something to do with silk.

Laughter.

Privatisation

Dr Kalumba: Mr Speaker, we have made important gains in restructuring the economy including parastatal sector reform. After the completion of the privatisation of the major assets of ZCCM, the focus now will be on issues of post-privatisation institutional arrangements and Government remains committed to privatisation based on a systematic and deliberate approach to decisions on the form, timing and nature of privatisation.

Hon. Government Members: Hear, hear!

Monetary and Financial Policies

Dr Kalumba: Mr Speaker, the achievement, on a sustained basis, of a stable macroeconomics environment characterised by low inflation and a stable and competitive exchange rate remains the most important contribution that monetary policy can make towards economic growth and poverty reduction. An important source of monetary instability in 2000 was the rapid growth in money supply, largely driven by the financing of the Government budget deficit by borrowing from the banking system. This was compounded by the increase in petroleum prices and a shortfall in donor inflows.

This borrowing was necessitated by the need to pay ZCCM creditors and meet the shortfall that arose from the non-disbursement of external budgetary support. The expansion in primary liquidity fed through into the instability in the foreign exchange market and compounded structural weaknesses relating to low inter-mediation in foreign exchange.

Mr Speaker, in 2001 we aim to contain annual money supply growth to 20.5 per cent by limiting direct borrowing from the Bank of Zambia. In this regard, the Bank of Zambia will use both direct and indirect instruments of monetary policy at its disposal, to ensure that this objective is achieved. Reflecting this determination, Bank of Zambia has in recent weeks significantly tightened the monetary policy stance through the upward adjustment of the statutory reserve ratios and tightening of rediscount limits.

Mr Speaker, Bank of Zambia will also tighten its prudential regulations aimed at bringing the regulatory framework in line with international best practices. In addition, last week I announced measures that address some of the structural impediments in the foreign exchange market, with the aim of ensuring that substantial benefits of a liberalised foreign exchange regime accrue to the domestic economy.

Mr Speaker, as stated earlier, we expect to strengthen our external position by increasing international reserves by US $150 million. This will improve our ability to finance imports and respond to external and internal shocks. The improvement is predicated on an increase in export receipts, net foreign direct investments as well as improvements in the disbursements of balance of payments and project support from our co-operating partners. A steady supply of foreign exchange will contribute to a stable exchange rate, that will in turn, lead to lower inflation and put us back on the path to macroeconomics stability.

Mr Speaker, in addition to maintaining the existing incentives, I have put in place measures and incentives to enhance the performances of our industries especially in manufacturing, tourism and agriculture. These measures are aimed at stimulating growth as well as enhancing the competitiveness of our local industries especially in view of the regional free trade areas.

Mr Speaker, in addition to leveling the playing field, the Government will continue to provide the much needed long-term finance to industry through schemes such as the World Bank Enterprise Development Project, the European Community Private Sector Development Programme and the Development Bank of Zambia.

Mr Speaker, in my Budget Address last year, I alluded to the difficulties encountered by the business community to service compound interest charged on tax arrears and penalties. Henceforth, I had directed that effective April 2000, no business should be charged compound interest on tax arrears and penalties. 

Hon. Government Members: Hear, hear!

Dr Kalumba: This was aimed at retaining sufficient earnings in business entities to help with expansion of operations and boost economic growth. Mr Speaker, I am disappointed to note that while the Government, through Zambia Revenue Authority, stopped charging compound interest on outstanding dues, banks and other lending institutions, including suppliers of goods and services to the Government have continued to charge compound interest. 

Mr Nyundu: They must be arrested!

Dr Kalumba: In some cases, providers of credit are compelling their clients to sign agreements containing compound interest since they know that such clients have nowhere else to obtain credit. This practice has to come to an end, and to this end I am going to introduce legislation later this year to correct this anomaly.

Hon. Government Members: Hear, hear! Arrest them!

Public Service Reform Programme

Dr Kalumba: Mr Speaker, in 2001 the Government will continue to pursue and implement the Public Service Reform Programme (PSRP) by building upon the achievements of the past few years. As I have alluded to earlier, with the launch of the Public Service Capacity Building Project (PSCAP), the PSRP has now moved into the next critical phase of strengthening both the individual and institutional performance to improve the delivery of services to the people of Zambia.

Mr Speaker, PSCAP is a thirteen year project divided in three phases with the first phase ending in 2002 and the subsequent phases lasting five years each. I am pleased to inform this august House that funding for the first phase, amounting to US $28 million has already been sourced from our co-operating partners.

Mr Speaker, during 2001, the restructuring process will continue to be implemented along side PSCAP. A good number of ministries and institutions still have to be restructured, which will result in further staff separations.

Poverty Reduction

Mr Speaker, poverty continues to be the most important developmental challenge facing the nation. The Budget will, therefore, apart from promoting growth, increase social expenditures to support human development and poverty reduction. As part of this framework, gender mainstreaming will be expanded so as to remove conditions that lead to the impoverishment of women. 

Hon. Female Members: Hear, hear!

Dr Kalumba: We expect these efforts to be supported by our co-operating partners through the funding of programmes incorporated in the budget to achieve poverty reduction.

Mr Speaker, Sir, you may recall that in last year’s budget address, I indicated that we would develop a Poverty Reduction Strategy Paper (PRSP) through a broad-based consultative process. The PRSP, Hon. Kangwa ...

Laughter.

Dr Kalumba: ... which is slightly different from PSRP, would spell out our priorities for actions that would have the greatest impact on economic growth and poverty reduction. These programmes will be implemented through the budget.

Sir, I am pleased to report that the process of developing the PRSP is in progress. Stakeholders drawn from all sections of our society are currently engaged in developing a PRSP. This wide and open consultative process will ensure that the PRSP truly reflects the aspirations of our people. PRSP will be a vehicle for implementing programmes aimed at reducing poverty so that the benefits of economic growth are widely shared.

Apart from the elaboration of the PRSP process, the Government in 2001 will in line with the core strategy of reducing poverty, continue to support programmes aimed at ameliorating the standard of living of the vulnerable and disadvantaged persons. Furthermore, to enhance social service delivery and poverty alleviation, we will continue to safeguard the share of core social expenditures in the 2001 Budget to at least 36 per cent of discretionary expenditure.

Mr Speaker, I now address the budget for 2001.

Hon. Members: Hear, hear! {mospagebreak}

PART IV

THE 2001 BUDGET

Dr Kalumba: Mr Speaker, the Government proposes to spend a total of K5,015.05 billion in 2001, which is 38.4 per cent of GDP. Of this, K2,411 billion, will be internally financed. The proposed total expenditure is broken down as follows:

Table i

Mr Speaker, as hon. Members are aware, the 2000 Budget had provided K423 billion to reduce the outstanding bills to ZCCM trade creditors, of which K418 billion was released based on verified invoices. However, ZCCM’s debt to suppliers is still not liquidated. I have, therefore, provided a further K207 billion in the 2001 Budget to continue to dismantle this debt. This will improve the financial strength and viability to local businesses especially those on the Copperbelt, placing them in a position to continue operations, grow and create employment opportunities.

Mr Speaker, the Government is committed to empowering peasant farmers.

Interruptions.

Dr Kalumba:  I have, therefore, provided K32 billion as a grant for input packages to ensure household food security...

Hon. Government Members: Hear, hear!

Mr Sibetta: Election gimmick!

Dr Kalumba: ... for 200,000 resource-poor peasant-farming families across the country. Priority will be given to female-headed households in this scheme.

Hon. Members: Hear, hear!

Dr Kalumba: The Ministry of Community Development and Social Welfare in conjunction with the Ministry of Agriculture, Food and Fisheries as well as Non-Governmental Organisations will handle the programme.

As a response to market failure in private sector delivery of agricultural credit, and to stimulate agricultural production among small-scale farmers, I have provided a further K32 billion to empower vulnerable-but-viable small-scale farmers.

Mr Patel: Election gimmick.

Dr Kalumba: This brings Government’s total commitment in 2001 for empowerment programmes to the small-scale farmers to K64 billion for inputs.

Hon. Government Members: Hear, hear!

Mr Sibetta: Third Term Campaign Budget.

Interruptions.

Dr Kalumba: Kwamana. Moreover, while private sector participation in crop marketing has developed substantially, there are limited opportunities for the farmers in outlying areas to sell their crops. Therefore, to rectify this shortcoming in agricultural marketing as well as to contribute to food security at national level through effective management of strategic food reserve, I have allocated another K10 billion for the purchase of agricultural produce through the Ministry of Agriculture, Food and fisheries.

Hon. Government Members: Hear, hear!

Dr Kalumba: Mr Speaker, as the focus of PSRP has shifted to capacity building under PSCAP, I have provided a reduced amount of K20 billion to meet retrenchment packages to those who will be separated from the Civil Service.

Hon. Members: Hear, hear!

Dr Kalumba: To avoid the anguish and suffering that would otherwise be experienced, we will ensure that only those who can be paid from this amount are separated.

Mr Speaker, I have provided K40 billion to settle outstanding arrears to suppliers to Government institutions. To curtail accumulation of arrears this year by ministries and other spending agencies, I will ensure that allocations for operations, Grants and Capital are released in a timely manner and as approved in the budget.

Hon. Members: Hear, hear!

Dr Kalumba: This entails that unbudgeted for requests from ministries and spending agencies will not be entertained by my ministry.

 Mr Speaker, to achieve our economic growth objective and to provide growth supporting infrastructure, I have substantially increased the level of domestically financed capital spending by 67.9 per cent from an allocation of K165 billion in 2000 to K277 billion in 2001.

Mr Patel: Third Term Campaign Budget.

Dr Kalumba: Of this total capital allocation, K76 billion is for trunk roads, K9 billion for feeder roads under the Feeder Roads Programme, K36 billion for road maintenance through the fuel levy with a further K1.4 billion for canals in Bangweulu and other places.

Mr L. L. Phiri: Mwachedwa. It is too late ba minister.

Dr Kalumba: The expenditure on roads will improve rural communities' access to marketing and other facilities, thereby allowing them to take advantage of income generating opportunities and get benefits from social and other amenities. furthermore, the expenditure on roads will empower our people through the jobs to be created by road works.

Mr Speaker, the Government last year acquired equipment for construction of feeder roads, irrigation dams and water systems. The equipment will be utilised through the allocation for feeder roads alluded to earlier. I have, therefore, allocated K2 billion for maintenance of the equipment to ensure effective and smooth delivery of services. The equipment will be deployed to all the provinces in the country in an effort to improve access to rural areas and so promoting economic expansion in these localities.

Hon. Members: Hear, hear!

Dr Kalumba: Mr Speaker, in response to the plight of our retirees, I have provided K36 billion to start dismantling the outstanding debt of the Government to the  Public Service Pensions Fund. This will alleviate the plight of retired civil servants as well as improving the financial viability of the Public Service Pensions Fund. In addition, I will ensure that no more arrears are allowed to accumulate to the Pensions Fund. 

Hon. Members: Hear, hear!

Dr Kalumba: To this end, the K22.3 billion allocated for employers’ contributions to the Fund in the budget will be remitted in full and in a timely manner.

Dr Mbikusita-Lewanika: At last, after we have talked and talked.

Dr Kalumba: Mr Speaker, to cater for unforeseen and unavoidable expenditures arising from occurrences like natural disasters, loss due to currency conversions and higher than expected debt service payments, I have provided a contingency of K40 billion.

Sir, in line with our objective to reduce poverty through empowerment, I have increased core social sector spending to over 37 per cent of discretionary expenditures (621.7 billion). This is before HIPC resources are taken into account.

Mr Sibetta: Pretending.

Dr Kalumba: Mr Speaker, to facilitate the holding of elections so as to entrench democratic governance in the country, I have provided K64 billion for 2001 Presidential, General and Local Government elections.

Interruptions.

Dr Sondashi: Where will you find the money?

Dr Kalumba: We are ready, Sir. Mr Speaker, I have also provided K64 billion for the hosting of the Organisation of African Unity (OAU) Heads of State and Government Summit. This will advance the cause of African unity, economic integration and peace as the basis for sustained economic development on the African continent. Hosting of this summit will also underscore the country’s role in international and regional affairs where it  has played a pivotal role in the search for peace and stability in our region.

Hon. Members: Hear, hear!

Dr Kalumba: Hon. Dr Sondashi, I have provided K600 billion (25 per cent of domestic revenue) for current Personal Emoluments (PEs). As you may be aware, the Government decided in 1999, because of high inflation and persistent depreciation of the Kwacha, to increase the lowest salary for public employees to K200,000 beginning January, 2000 but this was not implemented because of constraints in our IMF Supported Programme. However, it was agreed with the Unions that this would be implemented effective January, 2001.

Hon. Members: Hear, hear!

Dr Sondashi: I ask, again, where will you get the money from?

Dr Kalumba: Mr Speaker, with the accession to the Enhanced HIPC Initiative, donor balance of payments and budget support is expected - Listen carefully Hon. Dr Sondashi - to exceed the US $169 million required to service the external debt service due by US $75 million (K352 billion) which can be used for empowerment programmes and poverty reduction. Implementation of the programmes and projects will solely depend on receipt of the expected amount.

Mr Speaker, the savings realised after accession to HIPC resources have been allocated to programmes and projects that are targeted to socio-economic empowerment of our people. Of the K351.8 billion HIPC resources in the budget, K117.3 billion has been allocated to the Education and Health sectors with a further K31.4 billion to HIV/AIDS programmes. Grants for water and sanitation operations to councils and water supply projects in rural and peri-urban areas is allocated K33.5 billion while K30.2 billion is provided to social safety net and micro finance programme. Rural development programmes and projects, good governance programmes and low cost housing are allocated K124.4 billion, K10 billion and K5.1 billion respectively.

The main rural development programmes represent a topping up of finance for feeder roads, irrigation infrastructure and the small holder credit scheme I announced earlier, as well as additional resources for the Rural Investment Fund, the Rural Electrification Fund and animal disease control. School requisites and desks as well as support to community schools and improvement to rural teachers’ housing are the main education programmes.

 Mr Speaker, in the health sector, the savings arising from our accession to HIPC will be focused on the procurement of drugs, improving the finance for the essential health care package and extra resources for the roll-back malaria campaign, while the resources allocated to HIV/AIDS are for support and drugs for home-based care and public awareness campaigns. Social safety net programmes supplemented through the said savings include the Public Welfare Assistance Scheme (PWAS), Programme of Urban Self-Help (PUSH), the Disaster Relief Fund and Peri-urban micro credit. Human rights programmes supported include infrastructure improvements to prisons and retraining of enforcement officers.

Mr Speaker, in order to implement the above programme, the Government needs to raise K2,313 billion in domestic revenues in 2001. The details of the revenue estimates are given below as follows:

Table ii

PART V

REVENUE MEASURES

 Mr Speaker, this year’s revenue measures are consistent with the principle of empowerment I elaborated at the start of my address. They seek to empower individuals and the business community to unlock our nation’s development potential. More importantly, they seek to consolidate the economic growth we have restored over the past two years, by promoting productivity and protecting the nation’s revenue base.

Direct Taxes

Mr Speaker, the Government is aware that the tax system needs to be as inclusive as possible, with an equitable burden of taxation.. However, the burden of income tax is currently skewed towards the few individuals in the traditional formal sector. In my view, the skewed tax burden has contributed to the constant push for upwards adjustment of wages in both the private and public sectors.

We cannot address this problem in one stroke. However, as a start, I propose to amend the Income Tax Act so as to increase the tax credit from the current level of K120,000 to K144,000 per annum. This means that a person earning K120,000 per month or less will not pay tax.

 I further propose to adjust the annual tax bands to take into account effects of inflation as follows:-

Table iii

The combined effect of these two measures is to ensure that workers have increased take home pay and are cushioned against the effects of inflation. The revenue loss arising from these measures is estimated at K50 billion.

Mr Speaker, on a related note, I have observed that the introduction of a national pension scheme has introduced a significant tax burden on pension contributions due to the higher monthly instalments associated with the scheme. I propose to increase the allowable deduction for pension contributions from the current K120,000 to K180,000 per annum. I expect this measure to ease the tax burden on people contributing to pension funds. The estimated revenue loss resulting from this proposal is K6 billion.

 Mr Speaker, I have also observed that workers who receive lump sum payments upon losing employment on medical grounds have had to bear a tax burden on such payments. I recognise that these payments are meant to help meet medical costs and compensate affected employees for loss of earning power. I, therefore propose that lump sum payments made to employees upon loss of employment on medical grounds should be exempted from tax.

Hon. Members: Hear, hear!

Dr Kalumba: This is in line with our stated commitment to be a proactive, inclusive and caring society for those of us that are deprived of employment due to ill health, and are unable to generate incomes to sustain ourselves

Mr Sibetta: You will not pay if you lose elections.

Dr Kalumba: Mr Speaker, the Government has in recent years encouraged our people to form co-operatives so as to create viable productive capacity in commodities. Much as we have addressed most of the relevant framework for creating a vibrant co-operative movement in the country, we need to do more. Co-operatives are taxed by dividing the total income of the co-operative by the number of members. If the result thus obtained is K800 per annum or more, then the income is liable to tax. I, therefore, propose to increase the limit to K3.6 million per annum from the current K800 per annum, which is no longer realistic.

Hon. Members: Hear, hear!

Dr Kalumba: With this measure, I hope to provide a degree of relief to our co-operators to enable them uplift their living standards, and have an incentive to participate actively in the co-operative movement, Hon. Chikamba.

Mr Speaker, I have taken time to carefully review the utilisation and efficacy of Tax Clearance Certificates. Currently, the Income Tax Act requires taxpayers to produce Tax Clearance Certificates before they can be issued with documents like trading licences, manufacturing licences, liquor licences, bar, restaurant and canteen licences, practicing certificates and taxi, bus or minibus operator’s licences.

Professor Luo left the Chamber.

Mr Patel: Ba mayo baya.

Hon. Members: Ba mayo, ba mayo!

Laughter.

Dr Kalumba: My findings are that this requirement has hampered, rather than encouraged, compliance by taxpayers. In a good number of cases, prospective taxpayers have resorted to illegal operations or have been discouraged from going into business, thus defeating the very essence of Tax Clearance Certificates. I, therefore, propose to remove the requirement for Tax Clearance Certificates under the Income Tax Act, as the Zambia Revenue Authority has other measures that can be used to enforce tax compliance.

Hon. Members: Hear, hear!

Dr Kalumba: This measure means that no Tax Clearance Certificate will be required for persons wishing to venture into businesses such as trading, taxi and bus operations, bars, restaurants and other similar operations where Tax Clearance Certificates have previously been required.

Hon. Members: Hear, hear! {mospagebreak}

Dr Kalumba: However, the requirement for a Tax Clearance Certificate when transferring property still remains, as it has implications for Property Transfer Tax.

In the same vein, I propose to repeal the subsection that provides for the limit of twenty-eight days within which a revised provisional tax return should be submitted as it is not practicable to enforce or administer. I also propose to amend the basis on which penalties are charged in cases where taxpayers understate the provisional tax, which is supposed to be paid in four equal instalments.

Mr Speaker, I propose to amend the Third Schedule of the Income Tax Act to further strengthen the provisions dealing with insurance income by providing that any excess of management expenses over an insurance company’s investment income should be treated as a loss.

 Similarly, I propose to amend Section 97 so as to strengthen and broaden the provisions that deal with thin capitalisation. This is a follow-up to the anti-avoidance provisions that were introduced in the 1999 Budget and are meant to protect the Zambian tax base in view of the liberalisation of the economy.

I also propose to amend provisions dealing with capital allowances so that only assets, which are proved to be directly and exclusively used in farming, tourism, manufacturing and leasing qualify for increased rate of wear and tear allowance. Sir, all the above measures will take effect from 1st April, 2001.

Customs and Excise

 Mr Speaker, I stated earlier that we have seen an upturn in the output of the manufacturing sector. For this sector to continue growing, our fiscal regime needs to support those sub-sectors that are capable of generating growth through their linkages in the local economy. As my hon. Colleagues in the House will recall, I made a commitment in my last address to revisit taxation of the clear beer industry. I am pleased to report that my review is complete and as a result, I propose to reduce excise duty on clear beer from 100 per cent to 85 per cent.

Hon. Members: Hear, hear!

Dr Kalumba: In taking this measure, I am keenly aware of the vast scope of linkages that the clear beer industry has in our economy, and the potential benefits we stand to reap from an upturn in the fortunes of this industry.

However, to minimise the impact of this measure on the Treasury, this measure will only be effected on condition that the brewing industry guarantees estimated tax revenues for 2001.

Mr Speaker, I also mentioned earlier that global economic prospects, and recent developments in our regional market hold out good opportunities for our local industry. I have noticed that malt extract, an intermediate product used in the food processing industry has been attracting duty at 25 per cent, thereby contributing significantly to high costs of production for this industry. In this regard, I propose to reduce duty on malt extract concentrates for food preparation from 25 per cent to 15 per cent. I expect this measure to reduce the cost of production for the food processing industry.

Similarly, I have noticed that duty on anti-foaming agents that are basic inputs in the manufacture of paints attract duty at 25 per cent , which is not consistent  with their use as intermediate products. I, therefore, propose to reduce duty on these anti-foaming agents from 25 per cent to 15 per cent. The measure is meant to bring the item in line with other intermediate products that are taxed at 15 per cent. I expect that this measure will improve the viability of our paint manufacturing industry and reduce the cost of paint, which is a major input for the construction industry.

Dr Sondashi: So that this House can be painted.

Dr Kalumba: Truly.

Laughter.

Dr Kalumba: Mr Speaker, I also propose to reduce duty on wires of iron or non-alloy steel from 15 per cent to 5 per cent...

Hon. Members: Hear, hear!

Dr Kalumba: ...in order to harmonise the rate with other basic inputs that are taxed at 5 per cent.

Hon. Members: Hear, hear!

Dr Kalumba: I expect this measure to contribute to a reduction in costs of production for some manufacturing companies. This is in line with our growth strategy for the manufacturing sector, which is one of the lead sectors for generating growth in our macroeconomics strategy.

Mr Speaker, the opaque beer brewing industry is an area that has seen the emergence of remarkable Zambian entrepreneurship, which is the very essence of our privatisation and liberalisation programme. However, the existing tax structure for the industry has placed constraints on producers that inhibit sustained viability. Furthermore, present excise duty levels have given rise to evasion through additional bulk brews and clandestine marketing structures on the part of a significant minority of errant brewers. I, therefore, propose to reduce excise duty on opaque beer from 50 per cent to 35 per cent by removing the surtax of 15 per cent. This measure is meant to address the concerns of opaque beer producers and improve compliance in the industry. With this measure, I expect the Zambia Revenue Authority to ensure that there is no further leakage of revenue through the evasive practices perpetrated by some members of the industry. The revenue loss from this measure is about K3.3 billion.

Mr Speaker, in the face of the stiff challenges posed by HIV/AIDS and related sexually transmitted diseases, less than adequate attention has been paid to some of the serious endemic diseases that continue to steal Zambian lives especially those of the young. The tragic thing about this situation is that, for the most part, these diseases are not only preventable, they are curable. I have in mind one of the most deadly killers on this score: malaria. This disease is veritably a leading cause of mortality in Zambia.

In order to reduce the cost of basic malaria prevention, I propose to remove duty on mosquito nets so that a greater number of our people have access to them for their protection.

Mr L. L. Phiri: Where.

Interruptions.

Dr Kalumba: Mr Speaker, I also propose to increase the minimum threshold of duty on saloon cars and commercial vehicles from the current K1 million to K2 million. This measure will result in a revenue gain of K2 billion. All the above measures become effective from midnight tonight.

Value Added Tax.

 Mr Speaker, I have received numerous representations from the business community on the operations of the VAT regime, particularly with regard to Import VAT. Before I proceed further, I must remind the House that Import VAT Deferment was suspended due to widespread abuse. However, I have studied the representations of the business community, and my assessment is that the current Import VAT regime places a lot of strain on them. I am aware that businesses importing large capital items for investment have had to borrow funds at high interest rates to pay import VAT. This has not only limited their volumes of imports and increased the cost of investment, but has tended to slow economic growth as it does not promote the re-capitalisation of the industrial base.

Sir, I, therefore, propose to reintroduce the VAT Deferment Scheme on capital goods and specified raw materials. This means that for qualifying goods, there will be no payment of import VAT. For ease of implementation and expediting clearance, qualifying items will be linked to customs tariff codes. With the computerisation of Customs, the Zambia Revenue Authority will now be able to more rigorously monitor the scheme and its linkage with domestic VAT. I expect this measure to significantly reduce the difficulties that have been experienced and result in a cash-flow advantage for businesses. This measure is effective from midnight tonight.

Mr Speaker, during my review of the economy, I mentioned that the Government was committed to supporting the status of Livingstone as our tourist capital, and to priming it up as an emerging international tourist destination. This is a cardinal cornerstone of our strategy to ensure that the tourism sector gains a firm foothold as a leading growth sector.

In this regard, I propose to zero rate accommodation offered by hotels, lodges, motels and guest houses in the Livingstone district for two years.

Hon. Members: Hear, hear!

Dr Kalumba: Through this measure, I expect the hospitality industry in Livingstone to help transform the district into a major international tourist destination thereby boosting foreign exchange earnings and promoting investment in related industries.

Hon. Members: Hear, hear!

Dr Kalumba: Hon. Sondashi, I will keep this measure under review and if it is successful, I may consider replicating the lessons learnt here to other parts of the country.

Hon. Members: Hear, hear!

Dr Kalumba: The revenue loss from this measure is K6 billion and the measure takes effect from midnight tonight.

Mr Speaker, the soft drinks industry is an area where we have seen substantial investment, especially by local industry. However, the tax regime for the sector is inequitable, as carbonated drinks manufacturers pay the minimum taxable value on VAT, while non-carbonated drinks manufacturers do not. In order to level the playing field, I propose to extend the payment of minimum taxable value to non-carbonated soft drinks. I expect this measure to result in a revenue gain of K0.5 billion. This measure is effective from 1st March 2001.

Sir, in the same vein, I propose to increase the limit for cash accounting from K300 million to K500 million per annum. I have taken this measure to adjust the threshold for inflation, enable more registered suppliers to qualify for cash accounting and thus improve their cash flow. This measure is effective from midnight tonight.

Mr Speaker, suppliers of professional services such as Accountants, Consultants and Lawyers, like Hon. Kabange, are not obliged to issue tax invoices in respect of their services. I intend to bring an amendment to the VAT Act that will compel this category of suppliers to issue tax invoices in addition to their detailed billing systems. I expect this measure to ensure that all sales are accounted for and to create audit trails for inspections. Above all, it will enable recipients of allowable services from these suppliers to claim back input VAT.

Sir, I also propose that the use of date stamped tax invoices will be discontinued and instead a rule be made that all tax invoices be pre-printed. Stamping of tax invoices was a transitional measure that was adopted at the inception of VAT. Since the tax has now been in place for six years, I consider that the business community is familiar enough with it for me to dispense with transitory practices that could give rise to evasion. Under this measure I seek to discontinue the practice of suppliers stamping any document without following the sequence of invoices. I expect this measure to raise K66 million.

These measures will be effective on 1st March 2001.

Mr Speaker, gaming and betting services are exempt from VAT and hence the providers of these services are not able to claim back input VAT. I propose to make these services taxable to enable providers to reclaim VAT suffered on their allowable business purchases. I expect to raise K0.5 billion from this measure.

This measure is effective from 1st March, 2001.

Mr Speaker, when VAT was introduced in 1995, insurance services were exempt until 1997 when they became taxable. Experience to date has shown that due to the difficulties associated with taxing this industry, it is necessary to review its status in the VAT regime. Currently the industry is in a net refund position. I, therefore, propose to make insurance business exempt from VAT. This measure takes effect from midnight tonight.

Hon. Members: Hear, hear!

Dr Kalumba: Mr Speaker, in order to harmonise the taxation of similar transactions, I further propose that interest on hire purchase be taxable so as to bring it in line with the treatment of interest on leasing. I expect to raise K1.5 billion from this measure.

Mr Speaker, I have previously committed myself to giving VAT refunds within thirty days of the claim being lodged. However, there has been an increase in the level of refunds that has pushed up the cost of verifying claims, leading to delays in effecting the refunds which in some cases take as long as ninety days. It has also created opportunities for fraudulent claims particularly on the smaller claims. In this regard, I propose to introduce a diminimus of K5 million for VAT refund payments so that amounts below the diminimus are credited to the claimant’s account.

I further propose that businesses engaged in zero rated supplies whose annual turnover is below K100 million should be compulsorily given staggered six monthly tax periods. This means that such businesses will submit only two returns in a year, thereby substantially minimising the administrative work for both the trader and the Zambia Revenue authority.

Mr Malambo: Very good.

Dr Kalumba: Furthermore, I propose to introduce a requirement that foreign currency denominated tax invoices show the Kwacha exchange rate at the date of transaction or Kwacha equivalent amount.

Mr Shimonde: Hear, hear!

Dr Kalumba: Currently, input tax on purchases made at a lower exchange rate are in some instances made at the rate ruling on the date of the claim, resulting in loss of revenue in most cases. I propose this measure in order to curb this possibility for revenue loss.

Mr Speaker, currently, non-resident suppliers who have no place of business in Zambia can only appoint a tax agent to perform functions required by the Act on their behalf at the Commissioner General’s request. I propose that such suppliers appoint their own agents instead of these agents being appointed at the request of the Commissioner-General. All the above measures are with effect from midnight tonight.

CONCLUSION

Mr Speaker, this Budget, as I mentioned earlier, is an empowering Budget. In agriculture, I have put more resources for credit and input delivery to empower our peasant farmers. This, coupled with increased resources to infrastructure programmes such as feeder roads, dams and canals, will set the stage for increased agricultural production I have equally increased resources for poverty reduction supplemented by resources freed by the Enhanced HIPC Initiative. Sir, by paying ZCCM creditors and Government suppliers, I have also ensured that the working capital condition of the private sector is improved including thereby guaranteeing jobs for a good number of people in society.

Mr Speaker, this being, in earnest, the first Budget of the MMD Government in the new millennium, I beg the House to allow me a generous period of policy reflection as I conclude. The decade of the 1990s was a decade of challenge. It was a decade of faith in our capacity to face the odds and turn adversity into opportunity. Adversity visited upon us by much inefficiency in our economic management in more than three decades, inefficiency of the ideology of centralised planning and management of the economy. An effort that bore only transitory relief and pains of high inflation, low productivity, shortages of essential commodities and a popular sense of despair.

Sir, we wanted to change all that in the 1990s. 

Mr Patel: Presidential material. 

Dr Kalumba: Ten years of painstaking reform, Hon. Patel. Ten years of leadership without easy answers. We all know the turbulence created by the reforms of the last decade. It was an extraordinary period demanding extraordinary measures especially that the rest of the world did not stop for Zambia. They all continued with their business, shocks and other things included.

An honest review would indicate that throughout this period the economic, monetary and financial resources, which we  took were aimed at achieving three key targets:

    We liberalised in order to restore confidence in Zambia within the international economy;

    We restructured and privatised public agencies in order to turn the crisis of state enterprises into an opportunity for efficient economic and public management;

    We established social safety nets to relieve the difficulties created by reform on the communities.

The pain of the last decade may not have started to fully dissipate. But we can remain certain that we have not suffered in vain. The long night of the storm is beginning to clear. We must draw lessons from our policy and implementation challenges of the last decade. We must keep to heart the hard earned lesson. Never to forget that:

    We have engaged ourselves in the global economy, no matter how marginal, and therefore, rapid development in information technology and globalisation mean that financial markets are increasingly becoming volatile and unpredictable. We must develop system of intelligent surveillance and rapid strategic response to turbulence.

Mr Sibetta: The cobra is watching you from behind.

Laughter.

Dr Kalumba: We must remember that our best capacities as a country and individuals in it are nurtured by confidence created from upholding the rule of law, running a clean, transparent and accountable Government, free from corruption, maintaining free speech for all and a free flow of information, operating strictly in accordance with the best international standards, comparing ourselves with the best and not just the average, and providing a level playing field for all businesses and above all, a culture of caring for the least able and the disadvantaged in our midst, making an earnest effort to close the gender divide.

    Prudent management of our public finances remains crucial. only by controlling Government spending can we leave the bulk of our economic resources in the hands of our people, while meeting the needs of the community. Only with the healthy level of fiscal reserves will we have the ammunition to defend ourselves, the means to relieve hardships, and the capacity to restore confidence.

    Our free market economy with the market-determined exchange rate system free of exchange controls is still the best economic stance for Zambia. Where threats are evident, we must preserve it by acting against those greedy economic agents who distort its performance. We shall not react to crises in this economic system by throwing the baby with bath water.

Mr Speaker, let me restate, at the expense of stretching to the limit, the attention span of hon. Members of the House, that if there are fundamental lessons deserving of being enshrined into our Constitution as the basic foundations of an Economic Charters, these are:

    (i)    The economy must be market-led;

    (ii)    The Government must adhere to its rule of “maximum support and minimum intervention”.

    (iii)    The Government must live within its means and manage our public finances prudently.

Mr Sata: Tell Kangwa.

Dr Kalumba: Zambians know well and truly, Mr Speaker, that this country has learnt in the last decade that investors and entrepreneurs both local and international understand markets far better than Government officials and that private initiatives are a surer way to build Zambia’s prosperity than any bureaucrat’s blueprint.

The Government’s primary role is to provide the most business-friendly environment possible. It should provide the fundamental core environment of personal liberty, the rule of law, a clean and efficient administration, and a level playing field for business. That is the ‘software’. It must also provide the land and infrastructural ‘hardware’ such as schools, health, roads and so forth that Zambia needs for its growth.

In addition, with special emphasis in the context of recent events in the currency markets, the Government has special responsibility for removing market restrictions and distortions so as to enhance fair competition. In recent weeks we had to seize the opportunity created by a crisis in the financial markets by adjusting our monetary policy instruments to secure Zambia a greater chance of responsible corporate citizenship.

Mr Speaker, we expect to emerge a greater sense of market identification with Zambian national interests. We cannot let non-interventionism become an excuse for doing nothing in the face of real threats to our economy. We have enough track record, Mr Speaker, to show that our actions have clearly been consistent with our belief in the market and creating conditions that give maximum support to the private sector as the principle engine of growth. No less important is the fact that we continue to exercise sound judgement on the need and the timing of Government intervention when necessary.

We have other responsibilities, Mr Speaker, that only the Government can shoulder. It is our duty to promote and protect Zambia’s commercial interests in the national and international arena. Our representation in various international finance, trade and regional groupings serve part of this function. Our capacity to monitor movements in the economy and identify strategic national interests that the markets may poorly hand, is another.

Mr Speaker, recent debates regarding the modalities for the efficient management of public utilities still in the Government hands is consistent with reasonable economic governance in any country. The Government has no monopoly in banking and telecommunications. The Government has no monopoly in these sectors. Neither does it want monopoly in power generation and distribution. It is Government policy to invite private sector partners in these and other areas. Yet the intermediation role of the Government in these sectors on behalf of Zambians must be considered carefully based upon practical lessons learnt.

Let me re-state, Mr Speaker, what our Republican President, Dr. F. J. T. Chiluba, has publicly pronounced lately to avoid misunderstanding. The Government strategy towards remaining public sector enterprises will continue to encompass a judicious mix of strengthening strategic units, privatising non-strategic ones through gradual disinvestments or strategic sale and devising viable rehabilitation strategies for weak ones. That is policy.

Further, it is a fact of our commitment to fiscal prudence, that we cannot allow, Mr Speaker, a situation where public utility companies are so mismanaged as to become an unbearable leech on the public treasury. 

Dr Sondashi: ZESCO!

Dr Kalumba: Efficient and commercialised management must be a critical option available to the Government just as capitalisation based upon greater public ownership through shareholding. Whatever the outcome, Mr Speaker, we need a judicious approach to the articulation of the balance of advantage between our economic and our strategic national interests. We need to make this policy stance clear in all our collaboration with our development partners.

Mr Sibetta: Congo DR.

Dr Kalumba: Mr Speaker, we must stick to fiscal prudence. We have to be able to:

    (i)    Maintain sufficient reserves to underpin our monetary stability, deal with emergencies and thereby guarantee our national security and sovereignty. No poor country, Mr Speaker, which is helplessly donor-dependent, can boast of national security and real sovereignty. We must elevate our quest for economic recovery, our strategies for real economic growth to the level of national security. We must declare a real war on poverty. We must discipline our army of independent market players to be intelligent executioners of our national strategy against poverty.

    (ii)    We need to ensure that the public sector does not consume too much of the societal resources, allowing the private sector to function as the engine of creating wealth and prosperity.

    (iii)    We must provide the Government with sufficient resources to enhance our infrastructure and improve public services as our economy grows; and

    (iv)    We must assure, in all we do and say, that both local and foreign investors are welcome to Zambia that Zambia is a worthy long-term investment destination.

Mr Speaker, this hour is at the threshold to prosperity ... 

Hon. Members: Hear, hear!

Dr Kalumba:...away from economic malaise and decadence. This is the real step into nationhood based on economic security. We cannot flirt with ideologies of failure. We know the aroma of success. Countrymen and women, bothers and sisters, let us play to win. Let us be angry at failure, at simple and momentary prescriptions of easy answers, angry at benevolence, angry at the paternalism of the State. Let us reject mediocrity. Zambians, Mr Speaker, are capable of success. 

Hon. Members: Hear, hear!

Dr Kalumba: Mr Speaker, we have fought a good battle, as MMD Government. We have kept the faith against all odds, against adversity, and victory is within our reach. As a country we cannot give up now. The hour is now for the scores to register success. 

Hon. Members: Hear, hear!

Dr Kalumba: We must believe in ourselves. We must vision our destiny. We must refuse to die slowly, from the many poverties of want. We deserve good health. We need skills and useful knowledge. We must exhibit innovation and enterprise. We must aspire to richness for many and discard the ideologies of defeatism and fatalism. No Zambian, Mr Speaker, deserves to die premature death. Life is valuable for all of us. No Zambian must suffer the embarrassment of homelessness. We must build homes for all. Educate our future and overcome ignorance. Enrich our spirits by faith in God the Creator. Protect our environment, enjoy the love for work and productivity and, through creativity, Mr Speaker, uplift our identify among the family of culture peoples. Sir, let us play to win.

I beg to move, Mr Speaker.

Hon. Members: Hear, hear!

Miss Mwansa (Mfuwe): Mr Speaker, I want to thank you for giving me the opportunity to support the hon. Minister of Finance and Economic Development in his Speech to this august House.

Mr Speaker, the year 2001 is a very special year for Zambia in many respects and the challenges that we shall be facing as a country will be enormous. Mr Speaker, notably, we will be having the Presidential and Parliamentary Elections later this year. In addition, Mr Speaker, we have the global economic influences to the Zambian economy. Mr Speaker, it is for this reason that we should start the year with sound good policies and a sound Budget, as the one that the hon. Minister of Finance and Economic Development has just delivered to this House.

Hon. Members: Hear, hear!

Miss Mwansa: Mr Speaker, I would like to congratulate the hon. Minister of Finance and Economic Development and his entire staff for having come up with such a good Budget.

Mr Speaker, I have no intention at this stage to go into the critical analysis of the Budget because I want to request you, Sir, that this august House do adjourn until Tuesday, 30th January, 2001 so as to allow the hon. Members to critically look at the Budget Speech so that they can debate it more meaningfully on Tuesday.

Mr Speaker, I, therefore, beg to move that this House do adjourn.

I thank you, Sir.

Mr Speaker: Is the proposal seconded?

Mr Kalenga (Kabompo West): I second the proposal, Mr Speaker.

Question put and agreed to.

ADJOURNMENT

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

Question put and agreed to.

The House adjourned at 1621 hours until 1430 hours on Tuesday, 30th January, 2001.