World Bank urges Zambia to contain budget deficit

The World Bank on Wednesday advised the Zambian government to improve its fiscal policy in order to contain the rising budget deficit.

Kundhavi Kadiresan, the bank's director for Zambia, Zimbabwe and Malawi, said the government needs to deal with the growth in government spending which has pushed the budget deficit to at least six percent of the Gross Domestic Product (GDP).

In remarks delivered when the bank released its 5th Zambia Economic Brief, the official said the government should contain the growth of spending on salaries and subsidies to create fiscal space for programs that reduce poverty.

While acknowledging Zambia's positive sustained economic growth, the bank said the main challenge for the country was to strengthen fiscal policy in order to have inclusive growth and reduce poverty.

According to her, the budget deficit poses a risk to the southern African nation's macroeconomic stability and growth of the economy, adding that the government needs stringent fiscal policy to support growth going forward.

Zambia, she said, spends more on salaries as a share of the Gross Domestic Product (GDP), compared to other countries in the world.

On Tuesday, Finance Minister Alexander Chikwanda revealed that the 2015 budget deficit has increased to 20 billion Zambian Kwacha (about 2.7 billion U.S. dollars) from the initial projected figure of 8.5 billion (about 1.2 billion dollars) in the first six months of the year.

The Zambian minister said reduced copper earnings and unbudgeted for expenditure such as a presidential election held in January followed the death of President Michael Sata, had exerted extreme pressure on the budget resulting in the widening budget deficit.

The government, he said, will have to increase its external borrowing to complete infrastructure projects while new projects will not be entertained.

Meanwhile, the World Bank said Zambia needs to design fiscal policies that ensure fair revenue to the government whilst also encouraging private sector investment.

According to the economic briefing titled "Making Mining Work for Zambia: The Economic, Environmental and Health Nexus of Zambia' s Copper Mining Economy" the bank said mining was an important source tax revenue foreign currency earning and jobs for the country hence the need to ensure that decisions made on the sector encouraged sustained growth of the sector.

"This also requires that government has adequate capacity to deliver on all these issues that the mining companies take part and disclose the necessary long-term planning information required to undertake the necessary analysis," the bank representative said. Endi