LUSAKA, Zambia, December 7, 2016 – Zambia needs higher domestic revenue collection if the current levels of government expenditure are to be maintained in a sustainable manner, says a new World Bank Economic Brief released today.
According to the Economic Brief: Raising Revenue for Economic Recovery, Zambia continued to face slower growth in 2016. Tough global conditions have combined with do mestic challenges including power outages, tight liquidity, and limited appetite for economic reform during the first half of 2016.
The brief notes that implementation of the 2016 budget has been characterized by weak commitment control and deteriorating budget credibility. As revenues fell below target, Government did not make the necessary expenditure adjustments, resulting in a substantial build-up of arrears. Monetary policy has helped moderate inflation and supported exchange rate stability, but at the price of an increased cost of borrowing, a low availability of credit, and a drawdown in reserves; all of which have added an extra drag on growth.
“The 2017 national budget and Economic Recovery Program provide a good framework to support a return to faster and more inclusive growth,” said Gregory Smith, World Bank Senior Economist. “Further details are needed on the Government’s plan for 2018 and 2019,” he added.
The report highlights that to shift to faster and inclusive growth, efforts are needed to overcome a set of interlinked economic policy challenges – if progress is made on only some of them, and not on others, the desired outcomes will not be achieved. The sequencing and coordi nation of measures are key in 2017 and over the course of a medium-term economic recovery plan.
GDP growth is forecast to remain close to 3.0% in 2016, before improving in 2017 (4.0%) and 2018 (4.2%). The 2017 forecast as sumes progress with the economic recovery plan, a better electricity situation than in 2015/2016 and improved copper exports.
According to Country Manager for Zambia, Ina-Marlene Ruthenberg, “there is a need to look closely at ways to improve revenue collection so that economic re covery will be expedited, growth itself can be made more inclusive to support households escape from poverty, and to ensure that prosperity is better shared in Zambia.”
For Zambia to realize its goal of fiscal fitness, then higher domestic revenue collections are essential. The report suggests that Government should work to improve both tax policy and tax admin istration. Four ideas for improving tax administration are as follows: (i) develop a strategy to increase tax compliance; (ii) scale up taxpayer focused public education campaigns; (iii) design and build an effective system for property tax; and (iv) further support efforts to improve transparency in monitoring the country’s mineral value chain.