Macroeconomic Constraints and Public
Spending in Zambia
Lusaka, 1 December 2010Public Expenditure Review Workshop
OutlineMacroeconomic Constraints
The Evolution of Fiscal Policy
Composition of Public Spending
Benefit Incidence of Public Spending
Conclusions
Macroeconomic ConstraintsZambia has made significant strides on the
macro economy over the last decadeGrowth has been the result of favorable
external conditions but based on adequate economic policies
Structural reforms, as well as fiscal, monetary, and exchange rate policies have resulted on a stable macroeconomic environment of low inflation
Dependence on copper exports and government revenues pose a challenge
Economy has been growing by about 6 percent in the last decade
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0Real GDP Growth
(Annual percent change)
Inflation has fallen to single digits
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f0
5
10
15
20
25
30
35
Annual Inflation(percent)
The Current Account deficit has been reduced
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f-15.0
-10.0
-5.0
0.0
5.0
External Current Account(percent of GDP)
Evolution of Fiscal PolicyUnsustainable high public (external) debt was
caused by weak fiscal discipline and inefficient state-owned enterprises
Privatization initiated a period of fiscal stabilization reforms in the early part of the decade
Debt relief (HIPC and MDRI) in 2006 was the result of a strong reform program
Higher fiscal revenues are needed to support government spending priorities (and lower donor support)
Evolution of Fiscal Policy
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f-8.0
-6.0
-4.0
-2.0
0.0
2.0
Fiscal Deficit(percent of GDP)
Evolution and Composition of Public SpendingOverall public spending rose slowly through 2006
and slightly faster thereafter (falling in 2009)Spending rose by 63% in real terms from 2002 to
2009, but only from 20% to 21.5% of GDP.Spending does not account for aid (project
grants)Budget execution has improved (budget cycle
and capital spending)Limited availability of resources (both domestic
and external) require greater efficiency (to do more with less)
Evolution and Composition of Public Spending
1 2 3 4 5 6 7 80
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
under spending
Actual
Budget
Composition of Public SpendingEducation remains the largest sectorSpending on transport (roads) has
acceleratedHealth spending, which had recovered since
2006, fell slightly in 2009Agriculture spending has increased, but two
major programs (Farmer Input Support Program and Food Reserve Agency) account for most of it
Spending on the Water sector remains low (considering the important effect on health)
Composition of Public Spending(constant 2009 prices)
2002 2003 2004 2005 2006 2007 2008 20090
500
1,000
1,500
2,000
2,500
3,000EDUCATIONHEALTHTRANSPORT (ROADS) AGRICULTUREWATER
Poverty and InequalityNational poverty rates have fallen by a small
percentage, from 68% in 1996 to 59% in 2006Poverty remains very high in rural areas, at
77% in 2006, compared to 84% in 1996But it has continue to fall in the urban areas,
to 27% in 2006, from 41% in 1996In addition to the rural-urban divide,
inequality has actually increase (the Gini coefficient rose from 47.4 in 1996 to 52.6 in 2006)
Poverty and Inequality
Poorest 2nd 3rd 4th Richest0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2,213,092
1,964,024
1,725,915
1,184,320
536,155
132,950
379,167
618,667
1,159,760
1,808,104
Population by Consumption Quintile and Place of Residence, Zambia 2006
RuralUrban
Benefit Incidence of Public SpendingPoverty reduction is a difficult goal to achieve
through the budget process on an annual basis
But government should be able to identify which expenditures have a positive impact in reducing some of the effects of poverty
Governments usually concentrate in public goods such as education and access to health
Equity analysis does not substitute for need to analyze efficiency of public spending (ex-ante and ex-post)
Benefit Incidence - EducationEducation is the largest sector on
government spendingData from 2006 shows that 32 percent of
the poorest quintile of the 15-19 years old has not attended school (vs. o.6 percent of the richest)
Total (primary and secondary) net enrollment rate for the poorest rural quintile is 66 percent, compared to 88 percent for the richest urban quintile
Educational Outcomes
Poorest 2nd 3rd 4th Richest0
20
40
60
80
100
66.4
73.777.9
80.4 81.9
69.9
75.7
81.583.9
87.5
Overall Enrollment Rate of Primary and Secondary Schooling by Consumption Quintile and Locality, Zambia 2006
RuralUrban
Benefit Incidence – Access to Electricity
Only 20 percent of the total population has access to electricity, but only 3 percent of the rural population
Compared to 51 percent of the urban households
In equity terms, 64 percent of the richest quintile has access to electricity compared to 0.6 percent of the poorest quintile
Benefit Incidence- Access to Electricity
Poorest 2nd 3rd 4th Richest0
20
40
60
80
100
0.5 0.8 2.45.8
21.0
2.7
10.8
24.3
44.6
76.8
0.6 2.4
8.2
25.0
64.0
Access to Electricity for Lighting by Consumption Quintile and Location, Zambia 2006
RuralUrbanTotal
Benefit Incidence - WaterWater services are dominated by various
public-sector and quasi-public institutionsBased on data of the 2006 LCMS, 65
percent of the poorest quintile uses water from an unprotected well or a river
Compared to 72 percent of the richest quintile uses water from a public or private tap
Benefit Incidence - Water
Poorest 2nd 3rd 4th Richest0%
20%
40%
60%
80%
100%
Source of Water Supply by Consumption Quintile, Total
River Well-unprotected Well-protectedBorehole Own tap Public/other tap
ConclusionsZambia has achieved significant gains over
the last decade at the macroeconomic levelDespite faster growth, government spending
remains constrained (by resources and in its effectiveness)
No significant results of government spending on reducing poverty (or inequality)
Analysis of public spending efficiency limited by data availability, but more can be done