2011 budget address - 08 oct 2010

8/7/2019 2011 Budget Address - 08 Oct 2010

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2011BUDGET ADDRESS BY HON.DR.SITUMBEKO MUSOKOTWANE,MP,

HONOURABLE MINISTER OF FINANCE AND NATIONAL PLANNING

DELIVERED TO THE NATIONAL ASSEMBLY ON FRIDAY 8TH

OCTOBER,2010

1. Mr. Speaker, I beg to move that theHouse do now resolve into Committee ofSupply on the Estimates of Revenue andExpenditure for the year 1st January 2011 to31st December 2011 presented to theNational Assembly in October 2010.

2. Sir, I am the bearer of a message fromHis Excellency the President recommendingfavourable consideration of the motion that Inow lay on the Table.

3. Mr. Speaker, I recognise that next yearthe people of Zambia will give their verdicton the performance of this Government andindeed of members of this august House.Our focus will remain clear. We willmaintain the respect of our people and gain afresh mandate to govern through hard workand determination. Sir, this MMDGovernment will remain focussed on whatwe have all worked so hard for to improve

the quality of life for our people in everycorner of this country. This budget will be atestimony to this MMD Governmentsresolve to improve the lives of our people,on whose mandate we stand to present it.

4. Mr. Speaker, for over a decade, theMMD Government has delivered robustgrowth for our economy. This is a fantasticachievement, but it is not enough. EveryZambian from every corner of the country

must be able to benefit from this growth.What does this mean? It means that everyboy and girl must have access to qualityeducation. But this is not enough. Everyhard working farmer must find a fair marketfor his or her produce. But this is notenough. Every home must have clean water.But this is not enough. Every mother mustbe able to deliver her children safely, andthat her children should be vaccinated. Butthis is not enough. For these services to beaccessible, every home in every village and

town must be connected to an all-weatherroad to ensure this accessibility. It is onlywhen all of this has been achieved can wesay, enough.

5. Mr. Speaker, our people have madegreat sacrifices over the last twenty years.We are where we are today because of thesesacrifices. The tangible benefits of oureconomic successes have started to be feltby all our people. But this is also not

enough. We must accelerate this process.Mr. Speaker, we are not a complacentGovernment. We will not rest on our laurels,but strive to accelerate this process ofdelivering benefits to our people. This iswhy the 2011 Budget is A Peoples Budget,from a Peoples Government.

6. Sir, my speech this afternoon is in fiveparts. In Part One, I talk about the globaleconomic developments in 2010 and the

outlook for 2011. In Part Two, I discuss therecent developments in the domesticeconomy, while in Part Three, I provide thisGovernments economic policy objectivesfor 2011. In Part Four, I present the 2011Budget, and conclude my address in PartFive.

PART I

GLOBAL ECONOMIC

DEVELOPMENTS IN 2010 ANDOUTLOOK FOR 2011

7. Mr. Speaker, the global economycontinues to recover from the recent globaleconomic crisis. Global economic growth isnow projected to reach 4.8 percent in 2010,well above the negative growth of 0.6percent recorded in 2009. In 2011, theglobal economy will continue expanding,although at a marginally lower rate of 4.2percent.


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8. Sir, growth in Sub-Saharan Africa isprojected to be robust at 5 percent in 2010,compared with 2.6 percent in 2009. Thisgrowth is driven by strong demand forprimary commodities from emergingmarkets such as India, Brazil and China, and

by the overall recovery in internationaltrade. The region is expected to continue itsstrong performance in 2011, with growthestimated at 5.5 percent.

9. Mr. Speaker, 2010 has been anexcellent year for copper exportingcountries. The average price of copper onthe international market has reached a recordhigh of US $7,202 per metric tonne betweenJanuary and September this year. Never

before have prices consistently remained atsuch a high level. The outlook for copperprices continues to be bright for theremainder of the year, as well as for 2011.

10. At the same time, Sir, crude oil pricesremain far below record levels seen in 2008,when the price approached US $150 perbarrel. Between January and September of2010, oil prices averaged US $75 per barrel,representing an increase of31.6percent fromthe same period in 2009.

11. Sir, in line with improvements in theglobal economic environment, world tradevolumes are projected to increase by 11.4percent by the end of 2010, and by 7 percentin 2011. It is expected that this increase willbe driven by the continued expansion ofemerging economies.

12. Mr. Speaker, global inflation continuesto be moderated by the impact of the 2009recession, and is projected to increase from3 percent in 2009 to 3.8 percent in 2010.Global inflation is expected to be 3.2 percentin 2011, mainly as a result of lower thanexpected global food prices.

PART II

RECENT DEVELOPMENTS IN THE

DOMESTIC ECONOMY

MACROECONOMICPERFORMANCE

13. Mr. Speaker, in my last budget address,I highlighted the opportunities andchallenges that lay ahead of the Zambianeconomy in 2009. In particular, the strengthof the global economic recovery was stilluncertain at the time. In view of thisuncertainty, the Government took bold stepsto protect jobs and ensure food security forthe nation. The benefits of these are beingseen this year.

14. Sir, an enabling policy environmentand increased private sector investmentunderpinned Zambias incredible resilienceto the global financial crisis. As a result, thecountry emerged as one of the bestperformers in what was one of the worstrecessions in recent times. Against an initialprojection of 4.3 percent, the Zambianeconomy grew by 6.4 percent in 2009, thehighest recorded during the last decade. Atthe same time, inflation returned to singledigits, while international reserves grew torecord levels of over 5 months of importcover.

15. Mr. Speaker, for eleven years in a rowthe MMD Government has deliveredpositive growth to the Zambian people. Inmy last budget address, I promised toreposition the Zambian economy to ensurethat it benefited from the rebound in global

economic activity. This MMD Governmenthas kept its promise, and expects real GDPgrowth to reach 6.6 percent in 2010. Thisyear will, therefore, be the twelfth year ofpositive growth. And Sir, it will be thehighest yet.

16. Sir, growth in 2010 will be driven byhistoric production from two key sectors ofour economy, agriculture and mining. Inaddition, higher growth in construction,

transport, communication and tourism arealso expected to contribute to this growth.


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17. Mr. Speaker, the performance of theagriculture sector over the past two farmingseasons can only be described asextraordinary. In my last speech to thisHouse, I indicated that maize production, at1.9 million metric tonnes, was the highest

recorded in the last ten years. Sir, I spoketoo soon. This year, maize production iseven higher at 2.8 million metric tonnes, thehighest ever achieved in the country. As aresult of this harvest, along with increasedoutput of other major crops and livestock,the agriculture sector is expected to grow by7.6 percent in 2010.

18. Mr. Speaker, it is no coincidence thatthis historic harvest occurred in a year when

the Government increased the availability ofbetter extension services and affordableinputs to more than 500,000 farmers. Sir,this Governments policies are working.

19. Mr. Speaker, I am pleased to reportthat copper production in 2010 will exceed720,000 metric tonnes, a level of productionthat was last seen in 1973.This places uswithin reach of our medium-term target ofone million metric tonnes per annum.

20. Mr. Speaker, the tourism sector wasone of the hardest hit in 2009 as a result ofthe global economic slowdown. In 2010,however, there has been a significantrebound in tourist arrivals as a result of therecovery in global economic activity, andfrom the 2010 FIFA World Cup in SouthAfrica. Consequently, the tourism sector isexpected to grow by 25 percent in 2010,

compared to a contraction of 13.4 percent in2009.

21. Mr. Speaker, the construction sector isprojected to record growth of 10 percent in2010 compared to 9.5 percent in 2009. Thisgrowth will be driven by strong demandfrom residential, commercial and publicinfrastructure construction projects acrossthe country. The coming on stream of a newcement manufacturing facility has

contributed to increased supply of cement on

the market, and will support growth in thesector.

EXTERNAL SECTOR PERFORMANCE

22. Mr. Speaker, Zambias external sectorperformance has improved significantly in

2010. This reflects the steady recovery in theglobal economy that has boosted both thedemand and price of commodities such ascopper. The pickup in domestic activity hasalso led to strong growth in the imports ofgoods and services. This year, the value ofexports and imports are expected to increaseby 38.6 percent and 36.5 percent,respectively.

23. Mr. Speaker, the current accountdeficit is expected to narrow to US $378million in 2010 from US $404 million in2009. This is mainly on account of animprovement in Zambias trade balance,which is projected to increase by 46.5percent to a surplus of US $1,327 millionfrom US $906 million in 2009. This islargely due to the strong growth in copperexports, which are expected to increase toUS $4,612 million from US $3,179 millionin 2009.

24. Sir, Members of this House will bepleased to note that non-traditional exportshave expanded by an average of 14.2percent over the past 9 years. The outlookfor 2010 remains bright, with growthprojected at 8.2 percent to US $973.7million. Increased earnings from the exportof products such as maize, sugar, tobacco,cotton, copper wire and gemstones will

drive this growth in non-traditional exports.

25. Mr Speaker, by end-September 2010Zambias gross international reserves hadrisen by US $197.6 million to US $2,121.8million, another milestone in the economicperformance of this Government. Thisgrowth in reserves largely reflected donorinflows, net proceeds from the sale ofZamtel, and increased mining receipts. Thislevel of reserves is sufficient to cover about

4 months of imports.


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26. Mr. Speaker, after an initialappreciation in the first quarter, the Kwachadepreciated sharply against the US Dollar,before recovering to some extent. Althoughexport earnings were strong and the currentaccount narrowed, the mixed performance ofthe Kwacha came as a result of turbulence in

the international financial markets. As atend-September 2010, the Kwacha wasweaker by 4.4 percent against the UnitedStates dollar, at K4,846.

27. Sir, reflecting the turbulence in globalfinancial markets, the performance of theKwacha was mixed against other majorcurrencies. Against the British PoundSterling, the Kwacha depreciated marginallyby 1.7 percent, while against the South

African Rand, it depreciated by 10.6percent. As a result of heightened sovereigndebt risks in the European markets, theKwacha appreciated by 0.9 percent againstthe Euro.

MONETARY AND FINANCIAL

DEVELOPMENTS

28. Mr. Speaker, annual inflation sloweddown to 7.7 percent in September 2010 from9.9 percent in December 2009. Thisfavourable outturn was largely attributed tothe reduction in annual food inflation to 2.8percent in September 2010 from the 8percent recorded in December 2009. Thiswas due to the improved supply of fooditems such as cereals and vegetables. Higherfuel and electricity prices, however,contributed to higher annual non-foodinflation of 12.5 percent in September 2010.

In addition, a weaker Kwacha against majorcurrencies during the second quarter of 2010contributed to inflationary pressures. MrSpeaker, notwithstanding this, it is myexpectation that the Governments end-yearinflation target of 8 percent for 2010 will beachieved.

29. Mr. Speaker, after a sharp slowdown in2009, money supply grew strongly in 2010.This reflected the broader recovery in

domestic economic activity, as well asincreased domestic financing for the

Government budget. For the year to August2010, growth in money supply increased by23.6 percent from 2.8 percent in thecorresponding period in 2009. Much of thisgrowth was a result of increased lending tothe Government, which rose by 41.3 percentfrom 29 percent over the same period in

2009. This increase was due to the need forthe Government to provide additionalfinancial resources for maize marketing andthe settlement of arrears relating to theprocurement of fuel.

30. Sir, credit to the private sector rose by3 percent compared to 4.5 percent in 2009.This reflected the continued cautiousapproach of commercial banks in taking onadditional risk in the wake of the global

financial crisis.

31. Mr. Speaker, over the first two quartersof the year, the yield rates on bothGovernment bonds and Treasury billsdeclined. This reflected the high demand forGovernment securities, given the amplelevel of liquidity in the banking system andthe modest recovery in credit extension tothe private sector. The average interest rateon Treasury bills declined to 6 percent inJune 2010 from 9.5 percent in December2009. Similarly, the average interest rate onGovernment bonds declined to 9.5 percentin June 2010 from 15.6 percent in December2009. The downward trend in interest rateson Government bonds was reversed in thethird quarter as excess liquidity was drainedfrom the banking system and private sectorcredit rose. By September 2010, averageinterest rates on Treasury bills and

government bonds had risen marginally to7.8 percent and 11.2 percent, respectively.

32. Mr. Speaker, average commercial banklending rates also declined over the firstthree quarters of the year, falling to 26.8percent in September 2010 from 29.2percent in December 2009. Despitesignificant improvements in themacroeconomic environment over the lastfive years, I am concerned that lending rates

are still excessively high. Small, medium,and micro enterprises, the bedrock of our


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economy, are the worst affected, oftenpaying substantially larger premiums thanbigger firms. The Government will continueto actively engage with commercial banks toensure that this recent downward trend inlending rates is accelerated further.

33. Mr. Speaker, in my last budget address,I announced that the Bank of Zambia wasreviewing its monetary policy framework.As a first step, the Bank focused on the linkbetween changes in Central Bank interestrates and commercial bank lending rates. Inthis regard, the Bank consulted stakeholdersto identify concrete steps that need to betaken to reduce interest rate spreads.

34. Sir, a number of factors havecontributed to these high spreads. Theyinclude limited information on thecreditworthiness of borrowers; high loandefault rates; high operating costs ofcommercial banks; high costs associatedwith legal processes; and the lack ofeffective competition. The Bank of Zambiais addressing these issues under theFinancial Sector Development Plan. As aresult, we are beginning to see reductions incommercial bank interest rates and charges.Going forward, the Government expects thistrend continue.

35. Mr Speaker, with regard to thedevelopment of financial markets, the Bankof Zambia introduced an overnight lendingfacility in December 2009. So far, thebanking system has had ample liquidity andthe use of the facility has therefore beenlimited. In order to enhance the market for

Government securities, the Bank of Zambiaintroduced a formalised set of rules andregulations to facilitate secondary markettrading of Government securities. Thedevelopment of a more liquid and activesecondary market for Government securitieswill deepen the financial sector and supportthe ability of the private sector to raisefinance.

36.

Sir, the performance of the Lusaka

Stock Exchange was impressive during thefirst nine months of 2010, recording growth

in both share trading and marketcapitalisation. The share index increased by11.6 percent to 3,118.5 at end-September2010 from 2,794.9 in December 2009.Similarly, market capitalisation increased toK30,634 billion in September 2010, anincrease of 23 percent from December 2009.

This growth was mainly driven by increaseddomestic investor participation, increasedconfidence in the domestic economy, andstable macroeconomic conditions.

37. Sir, the financial performance andcondition of the banking sector in the firsthalf of 2010 were satisfactory. The sectorsearnings and profitability improvedcompared to the same period last year. Onaggregate, the banking sector was

adequately capitalized and the liquidityposition remained satisfactory. There wassome deterioration, however, in the qualityof commercial banking assets as a result ofan increase in the level of non-performingloans following the adverse impact of theglobal financial crisis in 2009. Since March2010, however, the level of non-performingloans has stabilised. Further, the level ofnon-performing loans does not represent amajor systemic threat as the majority of thebanks are generally well capitalized andprofitable.

38. Mr. Speaker, the enactment of theNational Payment Systems Act of 2007 hasfacilitated the availability of new andinnovative financial services, such as theintroduction of mobile and Internet bankingservices. These innovations haverevolutionised the provision of efficient

financial services nationwide. Furthermore,the introduction of these services in ruraland peri-urban areas without banks has thegreatest potential to financially empowermillions of Zambians across the furthestreaches of the country. A daughter inChiengi can now send money to her motherin Shangombo at the simple press of abutton.

39.

Sir, in order to address the challenge of

paying salaries to civil servants in remoteareas where financial service providers do


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not exist, the Government has embraced thisremarkable new technology to ensure that allcivil servants, wherever they are, are paid ina timely manner. This year, the Governmentis working with the private sector toundertake trials to pay the salaries of civilservants at Chiengi, Chavuma and Chilubi

through mobile payment systems. Based onthe results of this trial, a full-fledged pilotprogramme is expected in 2011.

40. Sir, currently, the process of clearingcheques requires physical presentation at theclearing-house. As part of ongoing efforts toimprove payments systems, the Bank ofZambia will, by December 2010, introduce acheque imaging system that will allow forelectronic submission of cheques for

clearance. This will substantially reduce thetime taken for cheque clearance.

BUDGET PERFORMANCE IN2010

41. Mr Speaker, the Governments aim inthe 2010 budget was to continue withprudent fiscal management and policies tosustain high economic growth.

42. Sir, the budget performance has so farbeen characterised by mixed outcomes. Asat end-September 2010, domestic revenueshad performed well, and are now expectedto over perform by 12 percent by the end ofthe year. This performance is attributed tohigher collections under income and valueadded taxes arising from the collection oftax arrears. I am also pleased to report thattax collections from mining companies haveimproved this year. With the current high

copper prices and production, I expect evenhigher tax payments from miningcompanies.

43. Sir, notwithstanding this positiveperformance, customs and excise dutiescontinue to underperform, and are expectedto be below target by 1.6 percent by the endof the year. Receipts from our CooperatingPartners have so far underperformed by 36.8percent.

44. Sir, on the expenditure side, theGovernment has faced additionalexpenditure pressures, which include:

(a) a higher than projected wage award,which will cost an extra K262 billion;

(b)

additional financing for maize

purchases amounting to K680 billion;(c) the financing of the fuel subsidy, at a

cost of K400 billion; and

(d) the need to finance the numerous by-elections this year at an expected costof K15 billion.

45. Sir, in order to finance these activities,the Government has been compelled torealign its expenditures and provide

additional resources. As a result, totalborrowing is now expected to reach 3.3percent of GDP by the end of the year,against an initial projection of 2.5 percent.

46. Mr. Speaker, the historic maize harvestwas the result of the hard work of ourmillions of farmers. The fruit of this hardwork would have gone to waste without theGovernments intervention to help purchase,secure and market the maize. This would

have discouraged our farmers from futureproduction, and posed serious challenges toour future food security.

47. Mr Speaker, total expenditure in 2010is now expected to be 8 percent higher thanbudgeted, at K17,853.3 billion. This will befinanced by K15,653.3 billion in domesticresources, and K2,200 billion in externalgrants and loans.

STATUS OF INFRASTRUCTURE PROJECTS

48. Mr. Speaker, in my 2010 budgetaddress, I informed this House that spendingwould be concentrated on infrastructure andimproving service delivery. Sir, I wouldlike to highlight some of the achievementsattained in these areas.


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ROADS

49. Mr. Speaker, in the 2010 budget, thisGovernment allocated unprecedentedresources for the development of roadinfrastructure, amounting to K1,461.9billion. By the end of the year, releases to

the sector are expected to exceed this figure.I am pleased to report that the followingroads are among the ones that have beencompleted this year:

(a) Kasama Mbala Mpulungu;(b) Chipata Lundazi Lot 1;(c) Mukunsa-Nkosha-Mununga;(d) Zimba Livingstone; and(e) Choma/Chitongo.50. Sir, in addition, the following roadswill be completed by the end of the year:

(a) Luansobe Mpongwe; and(b) Kasama Luwingu.

AGRICULTURE

51. Mr. Speaker, the Governmentcontinues to pursue national and householdfood security. In my last address to thisHouse, I allocated resources for the nation-wide rehabilitation of grain silos and storagesheds. I am pleased to report that the storagesheds at Chambeshi, Chisamba, Kalomo andKapiri Mposhi have been completed. Shedsin Mbala, Mufumbwe, Petauke, and Serenjewill be completed by the end of the year.

52. Mr. Speaker, in the 2010 budget, Iinformed this house of our intention tocomplete the main gravel access roadleading to the Nansanga farm block fromMulilima, bring electricity to the area, andconstruct three bridges. Sir, the road hasbeen completed. The area has been providedwith electricity. Two of the three bridgeshave been completed, while the third onewill be completed by the end of this year.

The Nansanga Farm Block is beingpromoted to investors as a Public Private

Partnership. Significant interest has beenraised from both domestic and internationalinvestors.

53. Sir, in addition, dams have beenrehabilitated in the following locations:

(a) Muyembe in Luapula Province;(b) Mzewe and Kayimbonya in Eastern

Province; and

(c) Kasiya in Southern Province.TOURISM

54. Mr. Speaker, the opening up of thenorthern tourism circuit will enhance touristflows in an area of great potential. Tosupport this initiative, projects such as therehabilitation of the Kasaba Bay airport,construction of the terminal building atMbala airport, electrification of Kasaba Bayand rehabilitation of the Mbala - KasabaBay road were included in the 2010 budget.

55. Sir, I am happy to report to this augustHouse that about 70 percent of earthworkson the extension of the runway at KasabaBay airport has been done and works on the

Mbala/Kasaba Bay road have commenced.Electrification works are underway, and willbe completed in 2011.

56. Sir, in addition to these initiatives,work is under way to further develop theKafue National Park in order to attract moretour operators and visitors to the area.Through the assistance of CooperatingPartners, infrastructure is being upgraded,and studies are being undertaken to

determine the optimal development strategy.I expect these studies to be completed in2011, paving way for development tocommence over the medium term.

EDUCATION

57. Sir, with regard to education and skillsdevelopment, the Government set out to

raise standards of education and providebetter opportunities for our young people.


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Significant resources have been provided forinfrastructure development and recruitmentof teachers. In this regard, about 2500teachers will be hired this year. I also wishto inform the House that by September,K167.3 billion was released forinfrastructure programmes. The following is

an update on the status of infrastructureactivities in the Education sector:

(a) In the Copperbelt Province, theconstruction of one basic school wascompleted, while the construction offive high schools is ongoing;

(b) Four basic schools in Lusaka Provincehave been completed, whileconstruction of seven high schools isongoing;

(c) In Luapula Province, one boardinghigh school and six basic schools werecompleted, while construction of threehigh schools is ongoing;

(d) Two high schools and six basicschools were completed in EasternProvince, while the construction of onehigh school and four basic schools isongoing;

(e) In Northern Province, one high schoolwas completed, while the constructionof four high schools is ongoing;

(f) Three basic schools were completed inNorth-Western Province, whileconstruction of five high schools andtwo basic schools is ongoing;

(g) In Southern Province, seven basicschools have been completed, whilethe construction of five high schools

and one basic schools is ongoing;(h) Two high schools and two basic

schools were completed in the WesternProvince, while construction of threehigh schools and seventeen basicschools is ongoing;

(i) In Central Province, the constructionof seven high schools is ongoing; and

(j) Under the community mode ofconstruction, an additional 2,019

classrooms and 369 teachers houses isongoing.

HEALTH

58. Mr. Speaker, as in all other criticalsectors the Government has been making

strides in improving health infrastructurethroughout the country. This Governmenthas been undertaking a number ofinfrastructure projects in the Health sector,which include the construction, expansionand rehabilitation of 26 hospitals and 125health posts in all provinces, broken down asfollows:

Province Number

ofHospitals

Number

of HealthPosts

Central 4 12

Eastern 3 18

Northern 3 23

Luapula 4 13

Copperbelt 2 10

North-Western 3 10

Lusaka 3 7

Southern 2 14

Western 2 18

Total 26 125

59. Sir, the Ministry of Health will providethe full details of these projects duringdebate on the 2011 Budget.

ASSESSMENT OF THE FIFTH NATIONAL

DEVELOPMENTPLAN

60. Mr. Speaker, the launch of the FNDPin 2006 renewed our efforts to addressdevelopment challenges in a moreconsultative and coherent way. As the plancomes to an end this year, it is clear that wehave achieved some significant success. Wehave increased growth, lowered inflation,maintained fiscal prudence and strengthenedour external position. At the same time,classrooms have been built, hospitals andhealth posts have been created, andkilometres of roads have been tarred.


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Another achievement during the FNDPperiod has been the ability of theGovernment to track progress in theimplementation of developmentprogrammes. As a result, many moreZambians have access to quality servicestoday than they did five years ago. Some

examples include:

(a) An increase in school completion ratesat grade seven, from 81.6 percent in2005 to 91.7 percent in 2009. This isalso the trend for all levels ofschooling;

(b) An improvement in the pupil teacherratio for grades 1-4 from 80.6 in 2005to 75.6 in 2009; and

(c) A decline in the prevalence ofHIV/AIDS from 16 to 14 percentduring the FNDP period.

61. Sir, the implementation of this plan didnot come without challenges. One of thelessons we have learned is that we need tobetter link resource allocations in the Budgetto the Plan. There is also greater need forour planning process to be more resultsoriented, with well-defined measures of

success. Most importantly, strongermonitoring tools are needed from the grassroots level up to ensure that results can bemeasured and feed back to the nationalplanning and budgeting processes.

62. Mr. Speaker, as we prepare to launchthe Sixth National Development Plan, wedraw on these experiences, and employmore effective strategies to ensure that itwill be an even bigger success. One of the

main instruments to achieve more effectivelinkages between planning and budgetingwill be the Planning and Budgeting Bill,which will be presented to this House nextyear. This Bill will also provide aframework for stronger monitoring andevaluation systems to ensure a more resultsoriented planning and annual budgetingprocess.

PART III

ECONOMIC OBJECTIVES AND

POLICIES FOR THE 2011 BUDGET

MACROECONOMICOBJECTIVES63. Mr. Speaker, the economic agenda thatwe have set for 2011 seeks to translate themacroeconomic gains achieved so far intotangible benefits for our people. It seeks todo this by encouraging and rewardinginnovation and entrepreneurship. We will re-double our efforts to reduce the excessivereliance on the success of one sector, asimportant as it is to our economicdevelopment. Zambians across the country,

whether in Chama, or Chavuma, Kazungulaor Kasama, are impatient for developmentand prosperity to reach their doorsteps. Wewill ensure that all Zambians benefit fromthe fruits of our economic successes.

64. Mr. Speaker, in my last budget addressto this House, I informed the nation that anyimprovements in metal export earningswould not deter this Government from itsgoal to promote the diversification of oureconomy and export base. I stand here todayimmovable in my resolve to honour thispromise. The MMD Government remainssteadfast in its commitment todiversification. Our future prosperitydepends less on our copper, but more on ourwildlife, electricity and beef. Sir, with firmresolve and sustained investment indiversification, Zambia can feed and powerSouthern and Eastern Africa.

65. Mr. Speaker, in this context, theGovernments macroeconomic objectives in2011 will be to continue with thediversification programme, while increasingproductive employment and maintaining astable macroeconomic environment.Specifically, our objectives will be to:

(a) achieve real GDP growth of above 6percent;

(b) reduce end-year inflation to 7 percent;and


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(c) maintain international reserves of atleast 4 months of import cover.

66. Mr. Speaker, real GDP growth in 2011is projected to be 6.4 percent. This growth ispremised on a revival of the manufacturing,transport and communication sectors, and

continued growth in the mining,construction and tourism sectors.

67. Sir, growth in the manufacturing sectorhad fallen below trend levels in recent years.Following two strong crop harvests andsustained mining production, themanufacturing sector is expected to expandas a result of increased food and copperprocessing activity.

68. Mr. Speaker, the communicationssector is also expected to be a strong driverof growth in 2011 following the launch ofthird generation mobile services in thecountry. Similar to the innovation of mobilebanking, this technology has the potential totransform the way we communicate. It willallow for the provision of high-speedInternet services in areas that are currentlyunserviced by traditional Internet serviceproviders. In addition, recently announcedreductions in call tariffs are expected tofurther boost growth.

69. Sir, the mining and construction sectorsare expected to support growth in 2011. Thecoming on stream of production from newcopper projects such as Konkola Deep, aswell as increased production from theMunali nickel mine will drive growth in thesector. The construction sector will be

boosted by strong demand for residentialand commercial property, and through largepublic expenditures in the roads sector. Thesector will also benefit from thecommencement of construction works at theKafue Gorge Lower project and variousmini-hydro projects, which are expected tostart in 2011.

MONETARY AND FINANCIAL SECTOR

POLICIES

70. Mr. Speaker, monetary policy in 2011will remain focussed on the maintenance ofsingle-digit inflation. In line with thisobjective, the Bank of Zambia will continue

to rely on market-based instruments tocontain end-year inflation in 2011to no morethan 7 percent.

71. Maintaining a sound financial systemis essential to growth and investment in theeconomy. In this regard, the Bank of Zambiawill continue to promote the stability of thefinancial sector through monitoring financialinstitutions and ensuring their compliancewith prudential regulations.

72. Sir, in January 2010, the Governmentextended the implementation of theFinancial Sector Development Plan bythree-years to December 2012. The secondphase of the plan will mainly focus onenhancing market infrastructure, increasingcompetition and access to finance. The planwill also deal with longer-term issuesincluding the harmonisation of financialsector laws, the full establishment of anindependent Financial Intelligence Unit andthe implementation of a national switch.The national switch is a payments systeminnovation that allows banks to sharefacilities such as automated teller machinesand point of sale terminals that will offercustomers wider access to financialfacilities.

73. Sir, the Government will also enhancefinancial safety nets by implementing adeposit protection scheme and strengtheningthe lender of last resort framework. Thisframework will enable the Bank of Zambiato assist solvent financial institutions thatmay encounter temporary liquidity stress. Inaddition, the Government has madeimportant strides in designing a financialsector contingency plan that provides aframework for resolving financial crises.

74. Mr. Speaker, access to financialservices is key to empowering our


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entrepreneurs to better contribute toeconomic development. Recent data showsthat there has been an increase in access tofinancial services between 2005 and 2009.With the financial sector becoming morecontestable and competitive, we expect evenmore Zambians to have access to financial

services. The Government remainscommitted to providing a platform forfinancial service providers to embrace newtechnologies that increase access to financialservices.

FISCAL POLICY

75. Mr. Speaker, maintaining fiscalprudence will remain critical in 2011 inorder to further the economic gains made

during the FNDP. Our focus will be tocreate fiscal space through increasedrevenue mobilisation, increased externalfinancing, and through realignment andprioritisation of expenditures. In this regard,our fiscal objectives in 2011 will be to:

(a) return domestic revenue collections toabove 18 percent of GDP;

(b) limit domestic borrowing to no morethan 1.4 percent of GDP in order not tocrowd out private investment whileincreasing external financing to 2percent of GDP; and

(c) commit at least 50 percent of thebudget to social sectors andinfrastructure development.

FOREIGNDEBT

76. Mr. Speaker, Zambias long-termeconomic prosperity depends on theresources we invest today. Theseinvestments in roads, bridges, and powerstations are necessary in order to build amore economically vibrant Zambia for ourchildren. Our domestic resource base cannotaccommodate the substantial amountsrequired to finance these investments. In thisregard, the Government intends to receiveabout US$400million in concessional and

non-concessional loan disbursements during2011.

77. Sir, keeping debt within sustainablelevels remains critical for macroeconomicstability. These resources we intend toborrow will be spent wisely. We remain

mindful that five years ago we were stillpaying the price of unsustainable debtcontraction for projects of little or noeconomic return.

COMPETITIVENESS

78. Mr. Speaker, over the past two years Ihave reiterated the importance of enhancingthe competitiveness of our economy. Theremoval of structural impediments will clear

the way for broad based private sectordriven growth.

79. Sir, high inland transportation costsreduce the competitiveness of our exports.In an effort to address this, the Governmenthas embarked on an ambitious programmeto improve regional transportation linkages.These include the rehabilitation of theMwinilunga-Jimbe and Mongu-Sikongoroads to Angola, the recently completedChipata-Mchinji railway line, theimprovement of the Great East Road, andthe construction of the Kazungula Bridge.These projects are expected to reducetransportation costs, and improve thecompetitiveness of Zambian exports.

80. Sir, in 2009, I announced theGovernments intention to divest themajority of its equity in ZAMTEL. This was

aimed at improving the quality of serviceand reducing high costs in thetelecommunications sector. I am pleased toreport that the Government divested 75percent of its equity in ZAMTEL to LAPGreen Networks of Libya earlier this year.LAP Green has already injected US$64million for operations. The company hasfurther committed to invest an additionalUS$75 million. With this fresh investment,ZAMTEL will set new standards in service

delivery. This in turn will encourage the


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industry as a whole to reduce costs andimprove the quality of service.

81. Mr. Speaker, the high cost of theinternational telecommunication gatewaylicensing fees has been cited as one of themain reasons for the high cost of

communication in the country. In responseto these complaints, the Governmentliberalised the international gateway earlierthis year, resulting in a 97 percent reductionin charges from US$12 million toUS$350,000. Within days of thisdevelopment, mobile operators reducedtariffs on international calls by up to 70percent.

82. Sir, I wish to take this opportunity tocommend mobile telephone operators forthis decisive action. However, both local andinternational call tariffs remain aboveregional averages. I, therefore, call uponoperators to further reduce tariffs andempower Zambians through affordableaccess to communication services.

83. Mr. Speaker, the Government iscommitted to ensuing reliable electricitysupply to power economic activity. Themulti-year electricity tariff adjustmentframework is aimed at attracting furtherinvestment into the sector by ensuring thattariffs allow for cost recovery. In line withthis policy, the Energy Regulation Board, inJuly 2010, approved an average increase of25.6 percent in electricity prices.

84. Mr. Speaker, let me take thisopportunity to indicate that this Government

is sensitive to the needs of our people, andthat the higher electricity tariffs were adifficult sacrifice to make. Not increasingthe tariffs, however, would have done moreharm than good. Zesco would have beenforced to use resources intended forinvestment to cover the cost of existingfacilities. This would have led to more loadshedding. It would also deter the privatesector from investing in key projects forZambias future energy security such as

Kafue Gorge Lower and Itezhi-tezhi.

85. Sir, I, therefore, ask Zambians to bepatient, as these increases in electricitytariffs will ensure that the country will meetits future energy requirements. It will alsoprovide for a more diverse source of exportearnings to protect our economy fromvolatile copper prices.

86. Mr. Speaker, the cumbersome businesslicensing and regulatory environment hasbeen identified as one of the reasons for thehigh cost of doing business in the country.To date, 21 Acts have been reviewed,resulting in the elimination of 38 licensesand simplifying the procedures for 10 more.As the reform process continues, theGovernment expects to eliminate anadditional 132 licenses, which is expected to

significantly reduce the costs of regulatorycompliance for businesses.

PUBLICPRIVATEPARTNERSHIPS

87. Mr. Speaker, Public PrivatePartnerships have emerged as an importantmodality for financing large infrastructureprojects. It enables the Government to raiseadditional resources to finance largeinvestment projects, while also allowing theprivate sector to participate in projects thatmay have otherwise been unviable withoutGovernment participation. So far, theprivate sector has shown keen interest topartner with Government in undertakingprojects through Public Private Partnerships.88. Mr. Speaker, in my last address, Iinformed this House that the Governmentwould undertake a large number of

infrastructure projects through PublicPrivate Partnerships. This year, the firstproject in Zambia, the Kasumbalesa borderpost will be completed. The border post isexpected to significantly reduce transactionscosts for cross-border trade.

89. In 2011, a total of 12,000 houses willbe built in Southern, Lusaka, and theCopperbelt provinces under the publicprivate partnership framework. Work will

also start on the conversion of the Kitwe-Chingola-Kasumbalesa road into a dual


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carriageway. In the energy sector,construction will begin at the Kafue GorgeLower and Kabompo Gorge power projects,which in total will add over 700 megawattsin generation capacity.

90. Sir, this is a Government that deliverson its promises. In the medium term, weintend to roll out the use of public privatepartnerships to other sectors such as healthand education, with the aim of acceleratingthe provision of social infrastructure. Wehear the needs of our people, and we areresponding to their call.

PUBLICFINANCIAL MANAGEMENT

91. Mr. Speaker, revelations of financialmismanagement at the Ministry of Health,and the Road Development Agency have ledto the suspicion that the Government is notcommitted to the prudent use of publicresources. This is far from the truth. ThisGovernment places paramount priority inensuring that public financial resources areused for the intended purposes.

92. Sir, this has been demonstrated by thedecisive action taken in dealing with theirregularities identified in the health androads sectors. In the health sector, theGovernment has implemented the first phaseof the joint action plan developed withstakeholders. We have now embarked on afull systems audit within the Ministry ofHealth. The results of this audit will be used

as a blueprint for strengthening financialmanagement across Government operations.

93. In the roads sector, the Governmentswiftly dissolved and reconstituted theboards of the Road Development Agencyand National Road Fund Agency, to enhanceoperations and inter-agency coordination.By the end of this year, capacity in financialmanagement, internal audit, and monitoring

and evaluation will be strengthened. Thesemeasures have been taken after wide

stakeholder consultation, including withMembers of this House.

94. Sir, these measures are a concretedemonstration of this Governmentsunwavering commitment to zero tolerance to

the mismanagement of public resources.

95. Sir, the measures taken in both thehealth and road sectors will allow us to builda more fruitful relationship with allstakeholders including our CooperatingPartners. The Government remainsdetermined to improve the lives of theZambian people, and actively seeksproductive partnerships with all who share

this noble cause.

96. Sir, we are involved in discussionswith stakeholders on the design of asuccessor to the Public ExpenditureManagement and Financial Accountability(PEMFA) programme, which will come toan end this year. The new programme isexpected to build on the gains achievedunder PEMFA and firmly entrench it withinthe national development process.

MONITORING AND EVALUATION

97. Mr. Speaker, nationwide monitoring ofprojects requires active participation of allstakeholders, including local communities.This is to ensure that projects are completed

in a timely manner and to the requiredstandard. To this effect, all Sector AdvisoryGroups, and Provincial and DistrictDevelopment Coordinating Committees areencouraged to form monitoring andevaluation sub-committees. Thesecommittees are, in turn, encouraged topartner with my Ministry to monitor variousdevelopment projects in their areas. Thiswill promote local ownership and enhancetransparency and accountability in the use of

public resources.


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98. Sir, one of the lessons learned from theimplementation of the Fifth NationalDevelopment Plan was the need for a moreeffective, results-driven, monitoring andevaluation framework. As we launch theSNDP, public institutions will be required tobe more accountable to their beneficiaries on

the expected deliverables of the projectsthey undertake. In the 2011 Budget, andover the course of the SNDP, theGovernment will ensure that each publicinstitution is held accountable for deliveringits development outputs.

PART IV

THE 2011 BUDGET

99. Mr. Speaker, this Budget marks thefirst year of the implementation of theSNDP, which places strategic focus oninfrastructure and human development. The2011 Budget aligns resources towards thesestrategic areas, by committing moreresources towards programmes and projectsthat carry high economic and social returns.

100.Mr. Speaker, the Government intendsto spend K20,537.4 billion in 2011. In total82.7 percent of the budget will be financeddomestically, while the remaining 17.3percent will come from external resources.

101.Mr. Speaker, over the last ten years, theGovernment has increasingly relied on

domestic resources to finance the budget.We remain committed to paying our ownway in the world.

102.Sir, K15,769.1 billion or 76.8 percentof the budget will come from domestic

revenues, and K1,587.7 billion or 7.7percent through grants from our CooperatingPartners. The deficit of K3,180.6 billion or15.5 percent will be financed throughdomestic borrowing of K1,219.8 billion andexternal borrowing of K1,960.8 billion.

SECTOR POLICIES AND

SUPPORTING EXPENDITURES

EXPENDITURE BY FUNCTIONAL

CLASSIFICATIONS

103.Mr. Speaker, in 2011, the Governmentwill continue realigning expenditures awayfrom administration and towards investmentin economic and social service delivery.While expenditures on General Public

Services will fall below 30 percent for thefirst time, expenditures on economic affairs,health and education have been increased,and will account for over half of the totalbudget.

104.Mr. Speaker, the following tablepresents a summary of expenditures for2011, categorised by function:


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2011 Budget `by Functional Classification, K' Billion

Function and Sub-FunctionAllocation

(K'Billion)

% of

Budget

General Public Services 5,855.5 28.5

Executive 708.9o/w Grants to Local authorities 146.2

Constituency Development Fund 108.0Legislation 423.3

General Government Services 4,478.5o/w Domestic Debt Interest 1,170.7

External Debt 494.6Compensation and Awards 169.6Elections 244.6

Centralised Administrative Services 244.8

Defence 1,485.8 7.2

Public Order and Safety 919.0 4.5

Economic Affairs 5,252.0 25.6

General Economic, Commercial, and Labour 248.9o/w Empowerment Funds 76.0

Agriculture, Forestry and Fishing 1,231.6o/w Farmer Input Support Programme 485.0

Strategic Food Reserve 150.0Food Security Pack 15.0

Fuel and Energy 355.8o/w Rural Electrification Programme 314.3

Transport 3,312.0o/w Roads 3,098.0

Communication 15.9

Tourism 63.3

Environmental Protection 121.3 0.6

Housing and Community Amenities 646.6 3.2

o/w Water Supply and Sanitation 555.0

Health 1,772.9 8.6

o/w Infrastructure Development 152.4

Recreation, Culture and Religion 108.0 0.5

Education 3,828.8 18.6

o/w Infrastructure Development 444.2

Social Protection 547.5 2.7

o/w Public Service Pension Fund 358.6Social Cash Transfer 42.7

Grand Total 20,537.4 100.0

GENERAL PUBLICSERVICES

105.Mr. Speaker, the allocation to theGeneral Public Services, amounts toK5,855.5 billion, or 28.5 percent of thebudget. Of this, K1,665.3 billion will beused to service domestic and external debt. Ihave also allocated K244.6 billion for theholding of elections. In addition, K146.2billion has been provided for grants to localauthorities, and K108 billion for theConstituency Development Fund. Following

the approval of the DecentralisationImplementation Plan in 2009, K3.5 billion

has been set aside for preparations for sector

devolution, which will commence in 2012.When implemented, sector devolution willmove resources and responsibilities forservice delivery closer to the people, andwill allow for greater transparency andaccountability.

AGRICULTURE AND LIVESTOCK

106.Mr. Speaker, agriculture remains at thecentre of our development and

diversification efforts. This year, our hardworking farmers delivered an historic


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production of 2.8 million metric tonnes ofmaize. We now want to extend these gainsto areas such as livestock and fisheries byencouraging increased output and greaterproductivity in this sector. I am, therefore,increasing the allocation for agriculture andlivestock to K 1,231.6 billion, from K1,139

billion allocated in 2010.

107.Sir, as the focus of our farmers nowshifts to the forthcoming planting season,this MMD Government will continue tostand by their side, helping them to increaseoutput, productivity and incomes. TheGovernments policy focus, therefore, willbe on expanding areas under cultivation andirrigation, promoting the use of better seedvarieties and improving linkages between

research and extension services. Drawing onthe successes of the Farmer Input SupportProgramme in 2010, I have increased theallocation to the programme to K485 billionin 2011, from K435 billion in 2010. Sir,with these interventions, I am confident thatour farmers will deliver an even higherharvest next year.

108.Mr. Speaker, sustaining these bumperharvests requires that we strengthen ourmarketing arrangements to avoid possiblewastage and losses to our farmers. In aregion where food deficits are common,Zambia has an opportunity to realise its fullpotential through the export of surplusproduction. The Government, therefore, willfully engage with stakeholders to increasetheir participation in crop marketing and inexploring regional export markets.

109.Sir, in order to continue with ourefforts to support farmers in far flung areasof the country and to guarantee nationalfood security, I have allocated K150 billionfor the Food Reserve Agency in 2011. I amalso concerned about the food security ofour most vulnerable households. I have,therefore, decided to increase the allocationfor the Food Security Pack programme by50 percent to K15 billion in 2011.

110.Sir, agricultural extension workersprovide frontline support to our farmers. In a

continued effort to make extension servicesmore accessible, the Government willcontinue to construct and rehabilitate camphouses, step up efforts to increase farmertraining, and improve the mobility of ourextension workers. For this I have allocatedK13.3 billion.

111.Mr. Speaker, overdependence on rain-fed agriculture poses one of the biggest risksto national food security. Currently, lessthan one percent of Zambias arable land isunder irrigation. In order to step up efforts tobring more land under irrigation, I haveallocated K37.2 billion for the constructionof dams, irrigation projects and training forsmall-scale farmers.

112.Sir, now that the Nansanga Farm Blockis almost complete, preparatory works at theLuena Farm Block in Kawambwa Districtwill continue in 2011, to pave way for majorworks to commence in 2012. I haveallocated K1.5 billion for the construction ofan access bridge and further preparatoryworks.

113.Mr. Speaker, as I emphasised in myspeech last year, the livestock and fisheriessector has tremendous potential to createjobs and serve as a source of diversifiedeconomic growth and export earnings. Focusin the sector will be on animal diseaseprevention and control, and fisheriesdevelopment. I have allocated K261.8billion to livestock and fisheriesprogrammes in 2011.

114.In an effort to reduce the incidence ofanimal disease through the creation ofdisease-free zones, the Government will, in2011, construct livestock service centresinfive districts in Northern Province, fourdistricts in Southern Province, two districtseach in Central and Western provinces, andone each in North-Western and Easternprovinces. In addition, disease checkpointswill be constructed across the country, andmore vaccines will be procured in 2011. Forthese activities, I have allocated K26.6

billion in 2011. In addition, K21.8 billion


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has been provided for fish breeding, andaquaculture extension services.

TOURISM

115.Mr. Speaker, prospects remain brightfor our tourism sector over the medium-

term, in line with a projected uptake inglobal tourism. For Zambia, tourismcontinues to represent a key source of jobs,prosperity, and competitiveness, particularlyin rural areas. To continue the developmentof this sector, I have allocated K63.3 billionin 2011. The main focus in the sector will beto take full advantage of the recovery inglobal tourism to reposition Zambia as apremier nature, wildlife, and culturaltourism destination. This will be done

through increased marketing activities, forwhich I have allocated K12.8 billion.

116.Tourism infrastructure developmentwill also continue in 2011, through thedevelopment of the Northern TourismCircuit. With the completion of the Mbala-Mpulungu road, focus will move tocomplete the Mbala Kasaba Bay road andthe terminal building at Kasaba Bay airport.For this, I have allocated K38.6 billion.

117.In addition, I have allocated K37.7billion for the development of roads andinfrastructure in the Kafue National Park,the development of Lusaka National Park,and the creation of a Tourism One-StopShop facility which will provide a singlewindow licensing platform for tourismoperators. In addition, K1.1 billion has beenallocated to upgrade permanent exhibitions

at the Lusaka National Museum.

ENERGY

118.Mr. Speaker, as this MMDGovernment positions the Zambianeconomy to achieve even higher and morediverse growth, the availability of powerwill emerge as one of the critical constraintsfor further growth and development. Ourfocus over the medium term will be to turn

Zambias vast energy potential intogeneration capacity that can be used to light

and power our homes and businesses fordecades to come.

119.Sir, this is a Government that valuesaction over empty promises. I am pleased toreport to this House that progress has beenmade on a number of energy projects across

the country. Impressive progress is beingmade on the Kariba North Bank ExtensionProject, which is on-track to commenceoperations in 2013. Work on the 600megawatt Kafue Gorge Lower project isnow expected to commence by mid-2011,and will be one of Africas largest publicprivate partnerships in the energy sector.The project will be developed by Zesco, inpartnership with Sino Hydro Corporation ofChina, and is likely to be completed by

2016.

120.Sir, work will also start in 2011 on theKabompo Gorge and Kalungwishi projects.When completed over the medium-term,these projects will add about 258 megawattsin generation capacity.

121.Mr. Speaker, rural development cannottake place without sustainable energysources. The Government will, through theRural Electrification Programme, developmini-hydro power stations and extend accessto electricity in rural areas, helping to openthese areas to investments and reduce therural-urban divide. I have, therefore,increased the allocation for the RuralElectrification Programme to K314.3 billionin 2011, from K234.7 billion in 2010. Thisis the first step in attaining theGovernments SNDP target of increasing

rural access to electricity from 3 to 15percent of the rural population by 2015.

TRANSPORT AND COMMUNICATION

122.Mr. Speaker, the power of an all-weather road in bringing development to arural area is only matched by the power thatthe mobile phone can bring in providingaccess to information and communication.Together, the road and mobile phone have

partnered to transform the lives ofZambians, even in the most remote parts of


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the country. In this partnership, theGovernment is investing substantialresources in road development, while theprivate sector has taken the lead in enablingmillions of Zambians to communicate moreeasily.

123.Sir, this partnership has proven to beone of the most effective weapons in ourunwavering effort to empower our people.In furthering this partnership, I have morethan doubled the allocation for roadinfrastructure development, from K1,461.9billion in 2010 to K3,098 billion in 2011. Ofthis, K2,881 billion will be spent in roadconstruction and rehabilitation, and K150.8billion will be spent on the building andmaintenance of bridges.

124.Mr. Speaker, let me outline some of themajor road works that will be undertaken in2011:

(a) Mongu Kalabo;(b) Kalabo Sikongo - Angola Border;(c) Sesheke Senanga;(d) Landless Corner Mumbwa;(e) Kabompo Chavuma;(f) Isoka Muyombe;(g) Chipata Mfuwe;(h) Chipata Lundazi Lot 2;(i) Mukuku Bridge Samfya; and(j) The Bottom Road from Siavonga to

Sinazongwe.

125.In addition, the Government willcontinue with its programme of constructingand rehabilitating rural feeder roads. Forthis, each provincial rural roads unit willreceive K6 billion in 2011. Roads will alsobe rehabilitated in the urban areas of Lusaka,Chingola, and Chipata, among others.Further, bridges will be constructed acrossthe country, including at Mufuchani, Sioma,Lufubu, and Chiawa.

126.Sir, I have allocated a further K28.4billion for the rehabilitation and upgrading

of airports and airstrips, including at KasabaBay, Mansa, Kasama and Mongu.

127.Sir, the full details of all theseinfrastructure programmes will be availablein the work plans of the Road DevelopmentAgency and the Ministry of Communication

and Transport.

128.Mr. Speaker, the total allocation to thetransport and communications sector,amounting to K3,327.9 billion, is historicand unprecedented. This is unequivocalevidence of a proactive Government layingthe foundations for the prosperity for ourchildren and our childrens children.

129.Mr. Speaker, I have repeatedly statedthat this MMD Government is in a hurry tobring progress and prosperity to all. Sir, thisis just the beginning.

EDUCATION AND SKILLS

DEVELOPMENT

130.Mr. Speaker, in line with our focus onhuman development under the SNDP, I haveallocated K3,828.8 billion, or 18.6 percentof the total budget, to education and skillsdevelopment in 2011. This represents a 15.3percent increase from the 2010 Budget. Theallocation reflects the MMD Governmentscontinuing commitment to facilitating theempowerment of our citizenry with theknowledge and skills to fight poverty,disease, and ignorance.

131.Sir, over the last five years, theGovernment has followed a dual strategy of

accelerating infrastructure development,while ensuring requisite staffing of thenewly built facilities. This programme willcontinue in 2011 and over the SNDP, withadditional emphasis on upper basic,secondary and tertiary education.

132.Mr. Speaker, the Government willcontinue with infrastructure creation andrehabilitation in the education and skillsdevelopment sector. In 2011, the

Government will complete the constructionof 7 high schools in Central Province, 5 high


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schools and 1 basic school in CopperbeltProvince, 6 high schools and 3 basic schoolsin Lusaka Province, 4 high schools and 6basic schools in Luapula Province, 1 highschool and 3 basic schools in EasternProvince, 5 high schools each in Northernand North-Western Provinces, 4 high

schools in Southern Province, and 18 basicschools in Western Province. For these andother infrastructure projects in the educationsector, I have allocated K444.2 billion in2011. In addition, I have provided K36.5billion for construction and rehabilitation oftraining institutes and research centresacross the country.

133.The full details of these infrastructureprojects will be available in the work plan

for the Ministries of Education and Science,Technology and Vocational Training.

134.Sir, new schools need new teachers,desks, and books. In 2011, the Governmentwill recruit 5,000 teachers, for which aprovision of K131.6 billion has been made.Another K46.4 billion has been provided forthe procurement of desks and learningmaterials.

135.Sir, this MMD Government appreciatesthe significant contribution that our teachersand lecturers make by endowing our youthwith the knowledge and life skills they needto become productive citizens. It is in thisspirit that we have provided a total ofK159.9 billion towards the dismantling ofpersonnel related arrears to our teachers andlecturers.

HEALTH

136.The Government continues to makesteady progress in the health sector throughinvestments in infrastructure and humanresources. In the continued absence ofcommitments from Cooperating Partners inthe health sector, I have increased theallocation of domestic resources to thehealth sector by 30.1 percent. In 2011, Ihave allocated K1,772.9 billion to the sector

compared to K1,362.5 billion in 2010. Thisis a demonstration of our resolute

commitment to ensuring that servicedelivery is not compromised at our healthposts, health centres, and hospitals.

137.Sir, I have allocated K114.3 billion forinfrastructure development in the sector.These resources will be used to construct

and rehabilitate district hospitals at Serenje,Chama, Samfya, Lufwanyama, Chongwe,Chiengi, Nakonde, Kaputa and Shangombo;six health centres in Northern and Luapulaprovinces; 16 nurses flats in each of thefollowing districts: Chipata, Solwezi andMansa. In addition, our programme ofbuilding, rehabilitating and upgrading ruralhealth posts and urban health centres willcontinue.

138.Sir, the full details of theseinfrastructure projects will be available inthe work plan for the Ministry of Health.

139.Mr. Speaker, these infrastructureprojects need new medical equipment,doctors, nurses, essential drugs, and hospitallinen. Our efforts to increase recruitment inthe health sector will continue with theengagement of 1,700 doctors, nurses andother essential medical personnel, at a costof K52.7 billion. I have also allocated K37.5billion for the procurement of medicalequipment. In addition, K117.8 billion hasbeen allocated for the procurement ofessential drugs and medical supplies, ofwhich K23.1 billion is for anti-retro-viralmedication, and K11.5 billion for vaccinesand immunizations.

WATER SUPPLY AND SANITATION

140.Mr. Speaker, we must accelerate ourefforts to meet our MillenniumDevelopment Goal target of halving theproportion of people without access to safedrinking water and basic sanitation. In thisregard, I have increased the allocation forthis key sector to K555 billion, representinga 28 percent increase from 2010. Theseresources will be used to constructboreholes, repair water reticulation systems,

and provide pit latrines.


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141.Sir, from this allocation, I haveprovided K179.3 billion towards theNational Rural Water Supply and SanitationProgramme. Of this, K135.8 billion will beused to construct boreholes and water pointsin rural areas, and K6 billion will be used toprovide sanitation facilities at the district

level.142.I have also allocated K166.3 billiontowards various urban and peri-urban waterand sanitation programmes. Of this, K110.1billion will go to support the Nkana Waterand Sewerage Company to extend water andsanitation facilities to more households inKitwe, Chambeshi, and Kalulushi. K56.2billion will be used to improve other watersupply and sanitation facilities under the

National Urban and Peri-Urban WaterSupply and Sanitation Programme. Anadditional K98.3 billion has been allocatedto water supply and sanitation programmesin Eastern, Luapula and Northern Provinces.I have also allocated K97.8 billion forvarious water infrastructure developmentprogrammes in the country.

PUBLICORDER AND SAFETY

143.Mr. Speaker, this Governmentscontinued investment in public order andsafety has resulted in a safer, more open andvibrant society and economy. In 2011, Ihave allocated K919 billion towards publicorder and safety programmes. Theseresources will be used to:

(a) Complete prisons in Mwembeshi,Livingstone, Luwingu, and Kalabo;

(b) Complete construction of a forensiclaboratory in Lusaka;(c) Construct and rehabilitate immigration

border control centres in Kamapanda,Kilwa Island, Kambimbi, Namafulo,Sindamisale, Kanyala, Imusho, Vubwi,Chikalawa, and Chipungu; and

(d) Complete the construction of policeand prison officer housing in Kasama,Chipata, and Livingstone.

144.In addition, Sir, the Government willcontinue with its programme of constructingand rehabilitating of local courthousesacross the country. For this, I have allocatedK40 billion.

SOCIAL PROTECTION

145.Mr. Speaker, the Government has aresponsibility to assist its citizens to planand prepare for when they are no longer inactive employment, and to protect those whoare most vulnerable in our society. In thisregard, the Government has allocated a totalof K547.5 billion towards social protectionactivities in 2011.

146.Of this amount, K358.6 billion hasbeen allocated to the Public Service PensionFund. These resources will help ease thefinancial challenges faced by the institution,and reduce waiting periods for publicservice retirees before they obtain theirpension benefits. In addition, a total ofK42.7 billion has been allocated to theSocial Cash Transfer Programme beingpiloted by the Government in collaborationwith its Cooperating Partners.

EMPOWERMENTFUNDS

147.Mr. Speaker, the spirit ofentrepreneurship runs in every Zambian.This Government will continue encouragingthis spirit, and will empower our citizens,particularly our women and youthentrepreneurs, with affordable capital to helptheir businesses flourish. In this regard, Ihave provided K76 billion for the

empowerment funds. Of this amount, K10billion is specifically for the youth; K26billion is for women while the balance ofK40 billion has been allocated to theCitizens Economic Empowerment Fund.


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REVENUE ESTIMATES AND

MEASURES

REVENUEESTIMATES

148.Mr. Speaker, the 2011 Budget isanchored on an expansionary fiscal policy

aimed at increasing Government resourcesto undertake essential public services anddevelopment programmes required by ourcitizens.

149.Sir, the Government expects to raiseK20,537.4 billion in 2011. K15,230.1billion will be raised from taxes, K539billion will come from non-tax revenues,and K1,587.7 billion will come as budgetand project support grants from our

Cooperating Partners. In addition, K1,219.8billion will be borrowed domestically andK1,960.8billion will be sourced externally.

150.Mr. Speaker, the summary of theestimates of revenue and financing tosupport expenditure in 2011 is as follows:

Total Resource Envelope for the 2011 Budget

( Kbillion )

Tax Revenues 15,230.1

Direct TaxesCompany Income TaxOther Income TaxesPay As You EarnMining taxo/w Mineral Royalty Tax

Mining Tax Arrears

7,800.81,337.1

894.73,710.61,858.4

404.7554.8

Value Added TaxDomesticImport

3,998.8828.5

3,170.3

Customs and Excise DutyCustoms DutyExcise Duty

o/w Fuel Levy

3,430.51,674.51,756.0

313.8

Non-Tax Revenue 539.0

Total Domestic Revenues 15,769.1

Domestic Financing 1,219.8

Total Domestic Revenues

and Financing16,988.9

Total Foreign Grants and

Loans3,548.5

GrantsDirect Budget SupportProject Support

o/w SWAPS

1587.7586.6

1,001.1220.5

Foreign FinancingProject Financing

Budget Financing

1,960.81,762.0

198.8

Total Revenue and

Financing20,537.4

REVENUESMEASURES

DIRECTTAXES

151.Mr. Speaker, in my first BudgetAddress to this august House in 2009, Iemphasized Governments firm commitmentto provide relief to workers. At the time, weincreased the PAYE exempt threshold fromK600,000 to K700,000 per month. In 2010,we again increased this threshold toK800,000 per month.

152.Sir, we are a listening Government thatis concerned about the welfare of our

workers. This is why we want to provideeven more relief to them, particularly thosein lower income brackets. I, therefore,propose to increase the exempt threshold by25 percent, from K800,000 to K1,000,000per month, and to adjust the income bandsas follows:

Current PAYE System

Income BandTax

Rate

K800,000 and below per month 0%

K800,001 - K1,335,000per month 25%

K1,335,001 - K4,100,000per month 30%

Proposed PAYE System

Income BandTaxRate

K1,000,000 and below per month 0%

K1,000,001 - K1,735,000 per month 25%

K1,735,001 - K4,200,000 per month 30%

153.Mr. Speaker, I propose to providefurther relief by:

(a) increasing the exempt portion ofincome paid at termination ofemployment from K25 million to K35million; and


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(b) increasing the tax credit fordifferently-abled persons from K1.92million to K3.0 million per annum.

154.Sir these measures will result in arevenue loss of K222.2 billion but will keepthis large sum of money in the pockets of

our workers.

155.Mr. Speaker, in order to mitigate therevenue loss as a result of the personalincome tax relief that I have proposed, butstill raise sufficient resources for ourdevelopment agenda, I propose thefollowing:

(a) to align the income tax structure forthe telecommunication sector with that

applicable for the banking sector. Inthis regard, profits of K250 million orbelow will continue to be taxed at 35percent while any profits above K250million will now attract a tax rate of 40percent;

(b) to increase the property transfer taxrate from 3 to 5 percent; and

(c) to make interest paid on mortgage forresidential property non deductible for

tax purposes.

156.Mr. Speaker, these three measures willresult in a revenue gain of K61.7 billion.

157.Sir, all these measures will take effecton 1st April 2011.

VALUE ADDED TAX

158.Mr. Speaker, in 2009, the Governmentrevisited its VAT policy on agriculture inorder to accelerate our economicdiversification programme. As a result,selected agricultural equipment andaccessories were zero rated for Value AddedTax purposes. This tax measure, coupledwith other policy interventions of theGovernment and the hard work of ourfarmers, has delivered an unmatched harvestthis year.

159.Sir, now that our small-scale farmershave enough grain to sustain their families,they need hammer mills to turn their maizeinto mealie-meal. In order to encourageinvestment in hammer mills and benefit ourpeople, I propose to include hammer millson the list of agricultural equipment that are

zero-rated for Value Added Tax purposes.

160.Mr. Speaker, when the VAT law wasintroduced, it was meant to expand therevenue base and become a majorcontributor to tax revenue. This law was alsomeant to facilitate the Governmentsachievement of the tax policy objective ofshifting the burden from direct to indirecttaxation. Put simply, this means less tax onpersonal income and the taxpayer is given a

choice to pay tax at the point of spending.

161.Sir, in order to broaden our VAT baseand generate more revenues, I propose tostandard rate property and casualtyinsurance for VAT purposes. I also proposeto standard rate fee-based banking services,such as managers/bank cheques, drafts andtransfers, and excess withdrawal fees.

162.Sir, these two measures will result in arevenue gain of K109.9 billion.163.Mr. Speaker, all the VAT measureswill come into effect on 1st January 2011.

CUSTOMS AND EXCISE

164.Mr. Speaker, imported electricityattracts a customs duty of 15 percent.Electricity may be imported during power

shortages, when Zesco and other powerutility providers import electricity to meetthe shortfall. This increases the cost and maynot be passed onto the consumers under thecurrent pricing system. I therefore proposeto remove customs duty on electricity.

165.Sir, I have also proposed to removecustoms duty on fire-fighting equipment inorder to reduce costs and improve fire safetyand compliance in the country.


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166.Mr. Speaker, I propose to provide aspecific tariff classification for palm oleinoil at a duty rate of 5 percent so as to align itwith the rate applicable to palm stearin oil.I expect to raise K5.8 billion from thismeasure.

167.Mr. Speaker, the policy of Governmenthas always been to align our tax policy topromote local manufacturing, in line withour diversification objectives. As a result ofincreased local production capacity, Ipropose to introduce customs duty of 15percent on cold-rolled coils, and 25 percenton deformed bars and galvanised cold-rolledcoils.

168.Sir, these measures will raise revenuesof K1.6 billion.169.Mr. Speaker, in virtually every shop inthe country, plastic bags are provided free ofcharge to shoppers. These bags cause harmto our environment by littering ourtownships and blocking our drainagesystems. In order to promote environmental-friendly behaviour and discourage the use ofthese plastic bags, I propose to introduce anexcise duty on these bags at the rate of 10percent. This duty will not apply to paperbags, which are biodegradable.

170.Sir, this measure will generate K1.8billion.

171.Mr. Speaker, under the currentprovisions of the law, any person importinggoods worth US$ 500 or more is required toappoint a clearing agent for customs

clearance purposes. For our small-scalecross-border traders, the cost incurred inagency fees is too high in relation to theirbusiness turnovers. I, therefore, propose toincrease the threshold at which an individualrequires the use of a clearing agent forcustoms clearance purposes, from US$ 500to US$ 2,000.

172.Sir, in addition, I propose to removethe requirement for importers to apply to the

Commissioner-General for entry of goodsfor pre-clearance. Honourable Members of

this august House may be aware that theintroduction of pre-clearance was intendedto allow for faster customs clearance ofgoods and support risk-based interventionsby customs officers. By removing therequirement to formally apply to theCommissioner-General for pre-clearance,

the Government will streamline theadministration of the pre-clearance facilityand better facilitate trade.

173.Mr. Speaker, in line with theGovernments commitment to reducing thecost of doing business, the Zambia RevenueAuthority is implementing reforms toimprove customs clearance at our borders.In support of these reforms, commercialimporters will be required to register their

entries and provide supportingdocumentation to the Zambia RevenueAuthority at least 7 days before the goodsarrive at the border or within 24 hours whenthe goods are accompanied by the importer.This requirement will not only facilitatetrade but will also reduce border delays andfraud.

174.Mr. Speaker, in the 1990s theGovernment introduced a Duty DrawbackScheme to make exporters moreinternationally competitive. Under thisscheme, the tax paid on inputs used toproduce exported goods can be reclaimed.Although this law is well intended, exportershave consistently complained aboutbureaucracy and complications in the claimprocedures. In order to continue assistingour non-traditional exporters, especiallythose involved in horticultural products, I

propose to review the system so thatsimplified procedures for exporters can beintroduced.

175.Mr. Speaker, all the Customs andExcise duty measures will come into effecton 1st January 2011.

NON-TAX REVENUES

176.Mr. Speaker, road user charges are oneof the main sources of financing for roadmaintenance under the Road Sector


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And we will empower more Zambianentrepreneurs than we have ever donebefore, putting power where it rightlybelongs in the hands of our people.

186.Mr. Speaker, this is a peoples budgetthat empowers our citizens in unprecedented

ways by creating opportunities and wideningpossibilities. But real empowerment is self-empowerment. This is my open challenge tothe Zambian people: use these possibilitiesto aim higher and reach further to achieveyour full potential. Use our roads andbridges. Use our electricity. Use our schools,hospitals, and markets to improve the livesof your families, communities, and this greatNation. This is the vision we have of anopen, honest and unbreakable partnership

between the Government and its people,working together to provide for a Zambiathat is equally prosperous whether inMwansabombwe or Mtendere, Nakonde orNakambala.

187.Mr. Speaker, I beg to move.

2011 budget address - 08 oct 2010

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