BUDGET ADDRESS BY THE HON. NG’ANDU P. MAGANDE, MP
MINISTER OF FINANCE AND NATIONAL PLANNING
DELIVERED TO THE NATIONAL ASSEMBLY ON 25TH JANUARY
2008

1. Mr. Speaker, I beg to move that the House do now
resolve into Committee of Supply on the Estimates of
Revenue and Expenditure for the year 1st January 2008
to 31st December 2008, presented to the National
Assembly in January 2008.

2. Sir, I am the bearer of a message from His
Excellency the President recommending favourable
consideration of the motion I now lay on the Table.

3. Mr. Speaker, over the past five years, the nation
has achieved macroeconomic stability characterised by
growth in the real Gross Domestic Product (GDP) in
excess of 5 percent per annum, the reduction of
inflation to single digit, a stable exchange rate,
declining interest rates, a stable financial system,
the removal of the external debt burden, and a
substantial build-up in foreign exchange reserves.
These achievements have resulted in notable successes
in the creation of jobs and wealth, and the reduction
in poverty levels.

4. Sir, our cherished and chosen vision is to be a
prosperous middle income country by 2030. This will be
achieved by creating a nation of dynamic, self
confident and vibrant entrepreneurs. Our foremost
challenge, this year and in the medium-term, is to
create the fiscal space that will allow us to marshal
both human and financial resources. This will enable
us to accelerate the implementation of the Fifth
National Development Plan.

5. Mr. Speaker, to realise this vision, the theme of
this year’s budget is “Unlocking Resources for
Economic Empowerment and Wealth Creation.”

6. Mr. Speaker, the preparation of this Budget has
benefited from broad-based consultations with various
stakeholders. This is in line with this Government’s
policy of openness and transparency. I, therefore,
wish to express my utmost gratitude for the valuable
contributions made by various organisations and
individuals.

7. Mr. Speaker, my address this afternoon comprises
five 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, in Part three, by an outline of the
Government’s economic policies for 2008. In Part Four,
I present details of the 2008 Budget. Finally, in Part
Five, I conclude my address.

PART 1

PERFORMANCE OF THE GLOBAL ECONOMY IN 2007

8. Mr. Speaker, preliminary estimates indicate that
the world economy registered a robust real GDP growth
of about 5.0 percent, largely driven by strong
expansion in China, India and Russia. These favourable
developments mitigated the lower growth recorded in
the advanced economies, especially the United States,
which experienced a significant reduction in
investments in residential property.

9. Mr. Speaker, this sustained growth in the world
economy continued to drive the price of commodities
upwards, with oil prices reaching record levels.
Further, lower oil production by the Organization of
Oil Producing and Exporting Countries (OPEC), and a
smaller rise in oil output in non-OPEC countries
contributed to the high oil prices.

10. Sir, the prices of non-fuel commodities similarly
increased during the year, with copper prices rising
by 12.6 percent to US $3.15 per pound.

11. Sir, in 2007, Africa posted real GDP growth of 5.7
percent, a modest 0.1 percentage points above the
growth recorded in 2006. However, Sub-Saharan Africa
recorded a robust real GDP growth rate of 6.1 percent,
which was 0.4 percentage points above the 2006 level.

12. Sir, on balance, these global developments had a
positive impact on Zambia’s terms of trade.

PART II

PERFORMANCE OF THE DOMESTIC ECONOMY IN 2007

MACROECONOMIC PERFORMANCE

13. Mr. Speaker, preliminary estimates indicate that
the macroeconomic outturn was satisfactory. The growth
in real GDP continued to be positive at a preliminary
estimate of around 6.2 percent, which was lower than
the target of 7 percent. This was mainly on account of
the lower than projected growth in the primary and
secondary sectors of the economy.

14. Mr. Speaker, despite the adverse external shocks
associated with high international oil prices, an end
of the year single digit inflation rate was achieved
for the second year running. As at end-December 2007,
annual inflation was 8.9 percent, which was consistent
with the revised target of 9 percent but was above the
8.2 percent achieved in December 2006.

15. Mr. Speaker, with regard to the fiscal outturn, a
strong revenue performance and the slow utilisation of
resources by Government institutions explains the
lower domestic borrowing. Preliminary estimates
indicate that in 2007, domestic borrowing amounted to
K437 billion or 0.95 percent of GDP against the target
of 1.2 percent.

16. Mr. Speaker, Zambia’s external position remained
positive during the year under review. This was
reflected in the strong build-up of Gross
International Reserves (GIR) to US $1,080.2 million or
3.6 months of import cover against the target of 2.5
months.

EXTERNAL SECTOR DEVELOPMENTS
17. Mr. Speaker, preliminary information indicates
that, in 2007, external sector developments were
largely positive. The overall balance of payments
recorded a positive balance of US $266.3 million
compared to US $821 million in 2006. The current
account balance recorded an estimated deficit of US
$856 million, compared to a surplus of US $120 million
in 2006. This was largely accounted for by a higher
deficit in the income account.

18. Sir, the current account deficit was financed by
increased external capital inflows in the form of
foreign direct and portfolio investments of US $853.5
million and project grants of US $153.6 million.

19. Sir, although the trade surplus declined to US
$686.4 million from US $1,183 million in 2006, both
total exports and imports increased. Total exports
increased by 11.9 percent to US $4,273.4 million
compared to the US $3,819 million recorded in 2006.
However, imports rose at a higher rate of 37.4 percent
to US $3,622.3 million, largely on account of
increased investment in the mining sector.

20. Sir, metal exports rose by 10.2 percent to US
$3,400.3 million whilst non-traditional exports were
24.5 percent higher, at US $924.4 million, largely due
to the growth in the economies of our trading
partners.

EXTERNAL DEBT
21. Mr. Speaker, preliminary information indicates
that the stock of external debt increased by 9.5
percent to US $2,035.2 million in 2007 from US
$1,859.0 million in 2006. The increase was largely
accounted for by the 16.7 percent growth in private
sector external debt to US $980.7 million, related to
investment in plant and machinery by mining companies.
The stock of Government external debt increased by 3.5
percent to US $1,054.5 million in 2007 from US
$1,019.0 million in 2006, mainly due to new
disbursements to support the budget.

22. Sir, the amount of US $635 million reported in
last year’s Budget was adjusted upwards during the
year. This adjustment was to reflect undelivered HIPC
Initiative debt relief from some of the bilateral
creditors with whom we have not yet reached agreement.

FOREIGN FINANCING

23. Mr. Speaker, in 2007, foreign financing continued
to compliment our domestic resources. In this regard,
our co-operating partners disbursed a total of US
$503.6 million. Of this amount, US $356.1 million was
disbursed as project support while US $147.5 million
was for direct budget support. Project support
comprised US $125.8 million for Sector Wide Approach
Project Support (SWAPS), US $153.6 million for project
grants and US $76.7 million for project loans.

24. Sir, on behalf of the Zambian people and, indeed
on my own behalf, I wish to sincerely thank our
cooperating partners for their continued support to
our development agenda.

DOMESTIC DEBT

25. Mr. Speaker, preliminary figures show that the
stock of domestic debt and other public liabilities
declined by 7.1 percent to an estimated K8,885.5
billion in 2007. The decrease was primarily on account
of a decline in the stock of domestic arrears to
suppliers of goods and services and the Pension Fund.

26. Sir, domestic arrears to road contractors and
other suppliers of goods and services fell by 16.5
percent to K370.5 billion while the stock of pension
arrears were reduced by 31.9 percent from K396.5
billion in 2006 to K269.9 billion in 2007.

27. Mr. Speaker, the stock of Government securities
increased by 11.6 percent to K6,966.1 billion in 2007,
compared to an increase of 25.7 percent in 2006. The
increase in the stock of Government securities was on
account of the rise in the stock of Government bonds
by 20.7 percent to K3,904.8 billion and Treasury
bills, which rose by 1.8 percent to K3,061.3 billion.
This partly reflects intensified monetary operations
by the Bank of Zambia to contain liquidity pressure
arising from the accumulation of international
reserves.

MONETARY AND FINANCIAL SECTOR DEVELOPMENTS

28. Mr. Speaker, monetary and financial sector
developments continued to be favourable during the
year. Inflation was contained within single digit,
money supply growth slowed down, commercial bank
lending rates continued to trend downwards, and the
financial sector remained sound.

29. Sir, the 2007 single digit inflation was
reflective of an appropriately firm monetary policy
stance and a favourable fiscal outturn. In addition,
the appreciation of the Kwacha against major
international currencies further dampened inflationary
pressures.

30. Mr. Speaker, preliminary estimates show that
annual money supply growth slowed to 25.9 percent in
December 2007 from 45.1 percent in December 2006. This
was largely due to the reduction in the Government
borrowing from the banking system by 21.6 percent.
However, lending to the private sector registered a
strong growth of 44.5 percent.

31. Sir, in an effort to further reduce the cost of
funds, in October 2007, the Bank of Zambia
significantly reduced the statutory reserve ratio on
Kwacha and foreign currency deposit liabilities from
14 percent to 8 percent.

32. Mr. Speaker, the composite weighted average yield
rates on Treasury bills and Government bonds rose to
13.4 percent and 15.6 percent, in December 2007 from
9.2 percent and 12.6 percent in December 2006,
respectively. This was largely due to efforts by the
Bank of Zambia to contain money supply growth and
inflationary pressures.

33. Sir, in line with falling inflation, commercial
banks’ lending rates fell to 24.4 percent in December
2007, from 27.9 percent in December 2006. However,
commercial bank interest rates remained relatively
high contrary to the Government’s expectations. Lack
of positive cooperation seems to indicate the failure
of liberalisation and market forces.

34. Mr. Speaker, in 2007, the Bank of Zambia also
continued to consolidate financial system stability by
enhancing supervision of the financial sector. As a
result, the performance of the banking sector remained
sound and was well capitalised, profitable and liquid
while the performance of the non-bank sector was fair.

35. Sir, other significant developments in the sector
during the year included the commencement of
operations by the first credit reference bureau early
in the year. It is expected that once fully
operational, the Bureau will assist in improving the
credit culture in the country. Further, the National
Payment Systems Act was enacted in June 2007.

CAPITAL MARKET DEVELOPMENTS

36. Mr. Speaker, the Lusaka Stock Exchange continued
to record impressive gains in 2007. Market
capitalization in Kwacha terms rose by 31.6 percent to
K17,206.1 billion whilst in US dollar terms it rose by
41.2 percent to US $4.5 billion.

37. Sir, the other notable development was the
Government’s introduction of longer dated bonds of 7,
10, and 15-year tenors. The introduction of these
longer dated securities will help deepen the financial
markets, by extending the yield curve and providing
benchmark rates for the market.

SECTOR PERFORMANCE

AGRICULTURE

38. Mr. Speaker, preliminary data show that the
agriculture sector grew by 2.8 percent in 2007
compared to a growth of 3.0 percent in 2006. The
slower growth in the sector was due to poor prices for
crops such as cotton and tobacco. Nevertheless, for
the second consecutive year, a food surplus was
achieved with cumulative stocks reaching 628,396
metric tonnes.

MINING AND QUARRYING

39. Mr. Speaker, the mining sector registered positive
growth in 2007, albeit at a slower rate. Preliminary
figures show that copper production increased by 1.5
percent to 523,435 metric tonnes from 515,618 metric
tonnes in 2006. However, cobalt production declined by
9 percent, to 4,229 metric tonnes in 2007 from 4,648
metric tonnes in 2006. The slow down in the metal
output was mainly on account of flooding at some of
the mines in the first half of the year.

CONSTRUCTION

40. Sir, preliminary data indicate that the
construction sector continued to register positive
growth of 13.3 percent in 2007, slightly lower than
the 14.4 percent recorded in 2006. The favourable
performance in the sector continues to be driven by
construction of residential housing, investments in
the mines, road construction and other civil works,
reflecting strong economic growth and rising incomes.

MANUFACTURING

41. Mr. Speaker, the manufacturing sector recorded a
positive growth of 3.4 percent. This growth was
broad-based with increased value addition in most of
the sub-sectors. However, the growth was lower than
the 5.7 percent recorded in 2006. This was mainly on
account of the negative growth in the textiles and
leather sub-sector.

TOURISM

42. Sir, the performance of the tourism sector was
encouraging. The number of tourists coming into the
country is estimated to have increased by 6.4 percent
to 805,059 in 2007. This resulted in an increase in
room and bed occupancy, number of beds and employment
levels. In turn, the sector’s earnings increased to an
estimated US $188 million from US $177 million in
2006.

ENERGY

43. Mr. Speaker, the energy sector faced a number of
challenges related to the supply of electricity and
petroleum products in the face of increased demand.
Electricity generation increased marginally to 9.7
million megawatt hours from 9.6 million megawatt hours
in 2006. This was due to the power rehabilitation
works being undertaken by ZESCO. In the petroleum
sub-sector, supply was generally reliable despite the
shutdown of the INDENI Oil Refinery for rehabilitation
works. The move by the Government to allow oil
marketing companies to import finished petroleum
products eased disruptions in supply.

TRANSPORT AND COMMUNICATIONS

44. Mr. Speaker, the transport, storage and
communications sector continued to perform positively,
with output increasing by 22.5 percent compared to
22.1 percent in 2006. A robust expansion was recorded
in all the sub-sectors, except for rail transport,
which recorded negative growth, mainly on account of
the poor state of the rail infrastructure.

SOCIAL SECTOR DEVELOPMENTS

EDUCATION

45. Mr. Speaker, in 2007, the Government recruited and
placed 10,600 teachers in various schools in the
country. This was augmented by a countrywide
distribution of textbooks and other school requisites.
In addition, the Government continued with the
programme of rehabilitation and construction of class
rooms and teachers’ houses. In this regard,
construction of 31 high schools commenced
country-wide.

46. Sir, the Government also enrolled a total of
452,974 pupils in grade one, a 2 percent increase from
the previous year. In relation to gender, more female
children accessed education in the first grade than
their male counterparts.

47. Mr. Speaker, with regard to tertiary education,
the Mulungushi University was established as the third
public university in the country. In addition, the
Government continued with the programme of
rehabilitation and development of infrastructure
across the country. This programme included works at
the University of Zambia, Copperbelt University,
Evelyn Hone College and trades training institutes.

48. Sir, this is a true demonstration of the
Government’s commitment to improving the standard of
education for the future generation.

HEALTH

49. Mr. Speaker, the focus of the Government in 2007
was to provide access to quality health care. In this
regard, the Government abolished user fees in 54 rural
districts and recruited over 1,100 frontline medical
personnel.

50. Sir, in addition, the Government continued with
the programme of infrastructure rehabilitation and
development. An x-ray theatre and maternity wing were
completed at Samfya whilst construction works for the
new hospitals in Chadiza and Mumbwa reached an
advanced stage. Other programmes included the
construction of 33 health posts in various districts
across the country. Further, the Cancer Disease
Hospital was commissioned and has currently over 300
patients on treatment. This number is expected to rise
to 1,800 patients this year as more patients become
aware of the availability of the facility.

51. Sir, the provision of essential drugs and medical
supplies was scaled up in 2007 with Medical Stores
Limited making 83.5 percent of its deliveries on time.
However, there is an urgent need to institute
effective measures to safeguard medicines and hospital
equipment once they are delivered to health
institutions.

HIV/AIDS

52. Mr. Speaker, the HIV/AIDS pandemic continues to be
a major challenge as it mostly affects the productive
age groups. In 2007, the number of cases diagnosed
increased to 30,960 from 29,515 in 2006.

53. Sir, the Government continued to make headway in
ensuring that more of our people living with HIV/AIDS
have access to anti-retroviral therapy. In this
regard, a total of 137,000 patients accessed free
anti-retroviral therapy countrywide compared to 75,000
in 2006.

STRUCTURAL REFORMS
54. Mr. Speaker, the Government continued to implement
reforms under the Public Expenditure Management and
Financial Accountability (PEMFA), Public Service
Management (PSM), Financial Sector Development Plan
(FSDP) and the Private Sector Development (PSD)
Initiative. With regard to PEMFA, progress has been
made in providing the required environment and
resources for the reforms. In 2007, the key milestones
included the following:
(a) The IFMIS Solution provider came on board and the
design and implementation of the system started;
(b) Data collection for the economic census commenced.
This will improve the National accounts statistics
compiled annually; and
(c) Three provincial offices for the Auditor-General’s
Office were constructed and completed in Solwezi,
Mongu and Kasama to increase audit coverage.

55. Mr. Speaker, under the Financial Sector
Development Plan (FSDP), the Government launched the
Rural Finance Programme last year to improve access to
financial services particularly in the rural areas.
The programme will be private sector driven.

BUDGET PERFORMANCE IN 2007

56. Mr Speaker, the overall budget outturn in 2007 was
strong despite challenges in the execution of capital
projects. Preliminary figures indicate that total
resources mobilised, including borrowing to cover the
budget deficit, amounted to K10,720.1 billion. Of this
amount, revenues and grants accounted for K10,176.1
billion while K544.0 billion or 1.2 percent of GDP was
borrowed. Total expenditure releases at K10,720.1
billion accounted for 89.7 percent of the Budget. An
amount of K8,794.1 billion or 81 percent of the total
expenditure releases were directed towards current
expenditure while K1,926.0 billion or 19 percent was
absorbed by capital expenditures.

57. Sir, domestic revenue collections at K8,522.1
billion were above target by K405.0 billion or 5
percent. Higher company tax and import VAT receipts
largely accounted for this performance. Grant receipts
from cooperating partners amounted to K1,654.1
billion, out of which K581.9 billion was direct budget
support. Direct Budget Support receipts were above
target by 10 percent, reflecting the support that this
Government continues to enjoy from our cooperating
partners.

58. Mr. Speaker, due to the slow absorption by the
Ministries, Provinces and other Spending Agencies, the
2007 Budget allocations could not be disbursed in
full. This was, in part, a reflection of capacity
constraints within spending agencies and contractors
in the private sector, delayed procurement, and
structural factors associated with the Budget cycle.

59. Mr. Speaker, for domestically financed
expenditures, General Public Services accounted for
the largest share at 36.6 percent, followed by the
social sector at 33.8 percent and Economic Affairs at
14.5 percent. Other functions accounted for the
balance.

60. Sir, General Public Service releases, which are
primarily activities of an operational nature for the
general running of Government, amounted to K3,487.3
billion, representing 93.5 percent of the target. Of
this amount, K959.5 billion went towards the payment
of domestic and external debt, reflecting the
Government’s commitment to meet its debt obligations.

61. Mr. Speaker releases towards the economic affairs
function amounted to K1,384.4 billion, representing
98.3 percent of the target. Of this amount, K1,175.0
billion or 84.9 percent went to Agriculture, Forestry,
Fishing, and Transport.

62. Sir, these releases covered the following main
programmes; the Fertiliser Support Programme,
Strategic Food Reserve Programme, Food Security Pack,
Farm Mechanisation and Irrigation Fund. Other
programmes included the construction and
rehabilitation of roads, for which K419.8 billion was
released.

63. Mr. Speaker, total releases to the social sectors
amounted to K3,220.7 billion, representing 99.2
percent of the target. Out of this amount, Education
accounted for 54.4 percent, Health 24.9 percent,
Housing and Community Amenities 9.2 percent and Social
Protection 8.2 percent.

PART III

ECONOMIC AND SOCIAL POLICIES FOR 2008

Macroeconomic Policies for 2008

64. Mr. Speaker, having stabilised the macroeconomic
environment, the key challenges are to transform these
positive developments into improved living standards,
more jobs and sustained broad based economic growth.

65. Sir, these developments have already started
impacting on poverty levels. The statistics from the
Living Conditions Monitoring Survey of 2006 indicate
that poverty levels dropped to 64 percent in 2006 from
68 percent in 2004. The statistics also show that
during this period, urban poverty dropped from 53
percent to 34 percent whilst there was an increase in
rural poverty from 78 percent to 80 percent.

66. Mr. Speaker, these facts challenge us to
consolidate the measures that have led to the
significant reduction in urban poverty and to redouble
our efforts to arrest and reduce the high levels of
rural poverty. I want to assure you, Sir, that the
Movement for Multi-Party Democracy (MMD) Government
stands ready to meet this challenge. An immediate
programme for this year is the rehabilitation of the
damaged rural roads which will be done once we receive
the road equipment in March. This should open up the
rural areas for more and viable investments to uplift
the living standards of our people.

67. Sir, the dramatic decline in urban poverty has
taken place during the period in which annual economic
growth has consistently been above 5 percent.
Therefore, achieving higher levels of economic growth
is an important weapon in the fight against poverty.
Further, the execution of the Budget needs to be
improved. This is particularly relevant with respect
to the programmes that focus on the development of the
rural areas.

68. Mr. Speaker, against this background, the
Government’s macroeconomic objectives for 2008 are to:
(a) achieve real GDP growth of at least 7 percent;
(b) bring down end-year inflation to no more than 7
percent;
(c) limit domestic borrowing to 1.2 percent of GDP;
and
(d) maintain the coverage of gross international
reserves at no less than 3.6 months of import cover.

69. Mr. Speaker, attaining the growth objective in
2008 demands that the private sector must play a
stronger role in economic development. It is also
imperative that Zambians, through the Citizens
Economic Empowerment Programme, participate fully in
the various economic activities. In addition,
availability and access to credit will need to be
enhanced. On our part as Government, we will continue
to focus on implementing structural reforms and
providing infrastructure so as to lower the cost of
doing business.

FISCAL POLICIES

70. Mr. Speaker, the objective of the Government in
2008 is to continue to consolidate fiscal discipline
by maintaining lower levels of borrowing and prudent
budget execution. This will entail improved cash and
treasury management, enhanced domestic resource
mobilisation and effective coordination with the
monetary authorities.

BUDGET EXECUTION

71. Mr. Speaker, in 2008, the Government will improve
capacities of Ministries, Provinces and other Spending
Agencies to evaluate and implement capital projects on
time.

72. Sir, the budget for 2008 is being presented one
week before the end of January. This breaks our past
tradition when the budget has been presented in
February. This demonstrates the resolve of the
Government to quicken the implementation of project
execution. As we plan to improve the capacities of
Ministries, Provinces and other Spending Agencies in
project implementation, I wish to appeal that this
august House also breaks a record by approving the
estimates by end of February 2008.

DEBT AND AID POLICIES

73. Mr. Speaker, the Government’s long-term debt
management objective will be to raise adequate levels
of financing at minimum cost and risk. In addition, we
will pursue strategies to ensure that the national
public debt is maintained at sustainable levels over
the medium to long term.

74. Sir, with respect to domestic debt, the Government
will place emphasis on settlement of domestic arrears,
specifically to the Public Service Pension Fund and
suppliers of goods and services. On the external debt
front, the Government’s strategy will be to source
external funds, when required, on concessional terms
and ensure that any new borrowing does not undermine
debt sustainability. The Government will also
intensify efforts to consolidate the legal framework
governing the contraction and management of debt.

75. Mr. Speaker, the Government adopted the Aid
Management Policy in 2007. The objective of the Policy
is to ensure that the country has a clear, systematic
and well co-coordinated approach to acquire, utilize
and manage aid. This will involve regular reporting,
monitoring and evaluation of the aid to ensure
effective implementation of the Fifth National
Development Plan. Through the Joint Assistance
Strategy with our cooperating partners, we shall be
receiving aid in a coordinated fashion and in a manner
that will reduce the transaction costs of such aid to
Government.

MONETARY AND FINANCIAL SECTOR POLICIES

76. Mr. Speaker, the overriding objective of monetary
policy in 2008 will be to maintain single digit
inflation for a third consecutive year. In this
regard, a key challenge will be to enhance
coordination between fiscal and monetary policies so
as to effectively manage liquidity and maintain
macroeconomic stability.

77. Sir, financial sector policy in 2008 will remain
focused on maintaining financial system stability and
on developing and deepening the financial sector. With
regard to financial system stability, the Bank of
Zambia will introduce risk based supervision. In
addition, the Government will continue with the
recapitalisation of state-owned non-bank financial
institutions so as to enhance the stability of the
financial system.

78. Sir, the external sector environment is projected
to remain favourable and the foreign exchange market
is expected to remain relatively stable. This will
support the attainment of the foreign reserve target.
However, external shocks such as high oil prices and
adverse weather conditions are likely to present a
challenge in attaining the inflation and reserves
objectives.

KEY SECTOR POLICIES AND INTERVENTIONS

ECONOMIC SECTORS

AGRICULTURE

79. Mr. Speaker, agriculture remains a key sector for
the nation’s economic development. The focus in 2008
will be on improved cash crop production, livestock
and fisheries development. Programmes that enhance
crop production such as the Fertilizer Support
Programme and irrigation development will continue to
be supported. In livestock development, key programmes
will include active disease monitoring and control,
and restocking of livestock.

80. Mr. Speaker, under fisheries development, the key
strategy is to ensure compliance with fisheries
regulations so as to reduce the depletion of fish in
our main water bodies. In addition, aquaculture
development, especially by women, will be encouraged.

MINING

81. Mr. Speaker, investment in the mining sector, on
the back of the high global commodity prices, has been
an important engine of economic growth for Zambia.
This investment has involved not only the
establishment of new mines but has also attracted
additional investments in mineral exploration, with
very promising results.

82. Sir, in 2008, the role of the Government in the
mining sector will continue to be that of providing an
enabling environment for private sector led
investment. In this regard, as announced by His
Excellency the President during the opening of the 2nd
Session of the 10th National Assembly, the Government
will be introducing a new fiscal and regulatory
framework for the mining sector.

83. Mr. Speaker, the mining sector under this
framework will begin to adequately contribute to the
advancement and the social and economic welfare of the
people of Zambia. At the same time, the new regime
will secure an appropriate return on investment by
mining companies. The additional revenues arising from
the new mining tax regime will be set aside and a
clear and transparent mechanism for their utilisation
will be established.

84. Sir, the proposed framework will also ensure
transparency in the accounting and utilisation of
mineral revenues and also protect the rights of all
those investing in the mining sector.

85. Sir, another major policy intervention in 2008
will be to review the Petroleum (Exploration and
Production) Act of 1985. Recent developments in this
area have highlighted the inadequacy of this
legislation in securing our national interests in the
sector. The objective is to lay the groundwork for the
eventual prospecting and production of oil.

TOURISM

86. Mr. Speaker, the Government will continue to
undertake infrastructure development in the sector so
as to improve accessibility to tourist destinations.
In addition, resources will be made available to
enhance the sustainability and conservation of
Zambia’s wildlife and its eco-systems. In particular,
in 2008, we will begin the recapitalisation of the
Zambia Wildlife Authority so as to improve its
operations.

87. Sir, investment by both domestic and foreign
investors will also be enhanced by implementing the
provisions of the new legislation with respect to the
tourism sector. The legislation provides for the
creation of a one-stop shop to licence investors in
the sector, and thus reduce the cumbersome licensing
procedures.

ENERGY

88. Mr. Speaker, addressing the looming energy deficit
is a major challenge facing our nation. In this
regard, expanding electricity generation is critical
in order to support private sector growth and to
counterbalance the expected power shortage in the
country and the region as a whole.

89. Sir, works on the Kariba-North Bank Extension and
the Itezhi-Tezhi Projects are due to commence this
year. In addition, the finalisation of the Rural
Electrification Master Plan will help identify energy
options in rural areas and provide a framework to
increase accessibility.

90. Mr. Speaker, in the petroleum sub-sector, the
Government will continue with measures aimed at
further stabilising the supply of petroleum products.
In this regard, a mechanism to supply crude feed stock
to the INDENI Oil Refinery over the next two years has
been put in place and will be fully operational this
year.

SOCIAL SECTORS

EDUCATION

91. Mr. Speaker, the Government’s focus in the
education sector will continue to be on the
recruitment of teachers and infrastructure
development. As a retention strategy, the Government
will develop a number of schemes to improve the
environment for teachers in rural areas. Further, to
increase enrolment of children in schools, the
Government will construct more classrooms both at
basic and high school levels.

HEALTH

92. Mr. Speaker, it is critical to improve the
provision of health services so as to raise and
sustain the productivity of our people. The Government
will, therefore, continue to invest in the sector in
order to improve the supply, distribution and
management of drugs and other medical supplies.

93. Sir, the Government will focus on the recruitment
of frontline medical personnel and infrastructure
development. One of the key strategies in
infrastructure development will be the expansion of
the capacity of training institutions to increase
their enrolment levels.

STRUCTURAL REFORMS

94. Mr. Speaker, implementation of structural reforms
will be stepped up in order to support
private-sector-led growth and strengthen public sector
management. The slow pace in the implementation of
structural reforms in the recent past has compromised
the ability of the Government to effectively drive the
development agenda. In addition, it has impeded the
development of the private sector.

95. Sir, implementation of the Financial Sector
Development Plan (FSDP), Public Service Management
(PSM), Public Expenditure Management and Financial
Accountability (PEMFA), and the Private Sector
Development (PSD) Initiative will be quickened. Under
the PEMFA programme, the Integrated Financial
Management Information System (IFMIS) pilot sites will
“go live” in 2008. In addition, the Treasury functions
will be strengthened in order to improve cash and
expenditure management by introducing more efficient
payment systems. This will improve overall budget
execution.

96. Sir, the Financial Sector Development Plan aims to
address weaknesses in the financial sector. In 2008, a
key milestone under this programme will be to obtain a
sovereign credit rating for Zambia. This will, among
other advantages, aid in deepening the financial
market by enhancing access to the international
capital markets by both the Government and the private
sector. In addition, the Government is reviewing
legislation in an effort to strengthen the financial
sector.

PART IV

THE 2008 BUDGET

97. Mr. Speaker, in 2008, the Government proposes to
spend a total of K13,761.4 billion or 26.7 percent of
the GDP estimated at K51,559.0 billion. Of this
amount, K9,828.4 billion or 71.4 percent will be
financed by domestic revenues while K2,278.9 billion
or 16.6 percent will be grants from our cooperating
partners.

98. Sir, the balance of 12.0 percent is the deficit of
K1,654.0 billion or 3.2 percent of GDP. This will be
financed by domestic borrowing of K618.8 billion or
1.2 percent of GDP and external financing of K1,035.3
billion or 2.0 percent of GDP.

99. Mr. Speaker, I now present details of expenditure
and revenue measures for the 2008 Budget.

EXPENDITURE MEASURES

100. Mr Speaker, expenditures under the General Public
Services, Education and Health functions will remain
high in 2008. As a percentage of the total
expenditure, General Public Services will account for
32.8 percent, Education 15.4 percent and Health
function 11.5 percent. The allocation to the Economic
Affairs function is projected at 16.7 percent while
that to Defence and Public Order and Safety is 7.1
percent and 4.2 percent, respectively.

101. Sir, the summary of the 2008 expenditure is as
follows:

GENERAL PUBLIC SERVICES

102. Mr. Speaker, under the General Public Services
function, the Government has made a provision of
K4,514.2 billion. Of this amount, General Government
Services will account for 59.6 percent, Legislation
14.5 percent, Centralised Administrative Services 11.8
percent and Executive 8.0 percent.

103. Sir, one of the key programmes under this
function is debt management. As such, the Government
has provided K720.0 billion to meet domestic and
external debt payments. A provision of K350.5 billion
has also been made for payment of arrears. This is in
line with the Government’s policy to dismantle a
substantial amount of arrears owed to suppliers of
goods and services so as to free resources for
developmental programmes. Further, an allocation of
K100.0 billion has been provided for Awards and
Compensation for payment of court judgements and
litigations against Government.

104. Sir, other key provisions include K309.4 billion
for facilitating the constitutional review process,
K103.0 billion for grants to Local Authorities and
K60.0 billion for Constituency Development Fund. A
further K90.7 billion has been provided for
contingency reserve meant to cater for unforeseen and
unavoidable expenditures. The balance will go towards
regular Government operations.

PUBLIC ORDER AND SAFETY

105. Mr. Speaker, the Government proposes to spend
K581.8 billion or 4.2 percent of the total budget on
the Public Order and Safety function. Of this amount,
K437.0 billion will be for police services. Other sub-
functions such as law courts, prisons, immigration,
passports and national registration function will
account for K144.8 billion.

106. Sir, an amount of K60.0 billion has been provided
for construction of houses for the police and K24.0
billion for prison infrastructure development and
rehabilitation. Further, in order to enhance policing,
the Government has provided K15.0 billion for the
recruitment of 1,500 police officers.

ECONOMIC AFFAIRS

107. Mr Speaker, expenditure on Economic Affairs is
projected to be K2,300.8 billion. Of this amount, the
Transport sub-function will account for 51.4 percent,
Agriculture, Forestry and Hunting 34.8 percent,
General Economic, Commercial and Labour Affairs 6.3
percent while the balance will be accounted for by
Fuel and Energy, Tourism and Mining sub-functions.

108. Sir, under Transport, the Government has provided
K1,181.4 billion. Of this amount, K1,110.7 billion is
for road construction, rehabilitation and maintenance,
K40.0 billion for the up-grading of Solwezi and Kasama
airports and K10.0 billion for the completion of the
Chipata-Mchinji rail line.

109. Sir, under the Agriculture, Forestry, Fishing and
Hunting sub-function, K185.0 billion has been provided
for the Fertilizer Support Programme to small scale
farmers to mitigate the high cost of farming inputs.
An amount of K10.0 billion has been set aside for the
Food Security Pack to assist the vulnerable but viable
rural farmers and K80.0 billion has been provided for
purchase of agricultural products by Food Reserve
Agency, particularly from outlying areas. Further, the
Government has provided K24.4 billion and K38.0
billion for fisheries development and control of
livestock diseases, respectively.

110. Mr. Speaker, out of the K145.0 billion allocated
under the General Economic Affairs function, K50.0
billion has been set aside for the Citizens Economic
Empowerment Fund to facilitate entrepreneurship
development in the country. This is in addition to
last year’s provision, which is still available with
the Fund.

111. Other programmes under the Economic Affairs
function include K23.0 billion for the
recapitalisation of the Zambia Wildlife Authority,
K21.5 billion for Rural Electrification Fund and K6.8
billion to facilitate the development of Lusaka-South
Multi Facility Economic Zone.

EDUCATION

112. Mr. Speaker, under the Education function,
Government has provided K2,118.5 billion or 15.4
percent of the budget. Some of the key activities to
be undertaken are the recruitment of teachers,
procurement of educational materials and construction
of classrooms and teachers’ houses. It is estimated
that the Government will recruit 5,000 teachers in
2008.

113. Sir, in addition K350.0 billion has been set
aside for infrastructure development. Among the major
projects will be the construction of 31 high schools
and an extra 1,500 classrooms in line with the
Government’s policy of enrolling all seven year old
children in grade one.

114. Sir, the Government will also provide resources
to upgrade infrastructure and support operations at
the newly established Mulungushi University.
Additional resources will be provided to upgrade
Nkrumah and Copperbelt Secondary School Teacher
Training Colleges so that they are able to offer
degree programmes.

HEALTH

115. Mr. Speaker, total expenditure on health will
amount to K1,586.6 billion or 11.5 percent of the
total Budget. This allocation is essential to improve
the provision of quality health care. Sir, Government
has allocated K117.5 billion for infrastructure
development. Key programmes will be the expansion,
construction and rehabilitation of district hospitals
and health centres as well as housing for the rural
medical personnel. In addition, K113.5 billion has
been allocated for the procurement of essential drugs.
Further, K24.7 billion has been provided for the
recruitment of 1,700 health workers.

HOUSING AND COMMUNITY AMENITIES

116. Mr. Speaker, the Government plans to spend K830.6
billion on the Housing and Community Amenities
function. A key element of this function is the
improvement of water supply and sanitation. In this
respect, the Government has allocated K399.8 billion
to improve access to safe drinking water, particularly
in rural and peri-urban areas. Other programmes such
as resettlement, community development, street
lighting and the administration of these programmes
have been allocated K431.0 billion.

SOCIAL PROTECTION

117. Mr. Speaker, the Government proposes to settle
all pension arrears in 2008. This will be achieved by
increasing the allocation to Social Protection to
K577.7 billion. Of this amount, K435.9 billion will be
for the complete payment of pension arrears and
meeting the current obligations to the Public Service
Pension Fund. The balance of K141.8 billion will go
towards other social protection programmes such as the
care for the aged, orphaned and vulnerable children.

REVENUE ESTIMATES AND MEASURES

REVENUE ESTIMATES

118. Mr. Speaker, over the past years, the MMD
Government has made significant progress in
modernising tax policy and administration. The
Government remains committed to establishing a
broad-based tax structure that is predictable,
simpler, fairer and efficient. This will help deliver
lower taxation levels while at the same time securing
more resources to finance development programmes.

119. Sir, in 2008, domestic revenues are projected at
K9,828.5 billion or 71.4 percent of the budget. Tax
revenues estimated at K9,133.6 billion represent 66.4
percent of the total Budget, while non-tax revenues at
K694.9 billion represent 5 percent.

120. Mr. Speaker, the summary of the estimated
revenue, grants and financing is as follows:

REVENUE MEASURES

DIRECT TAXES

121. Mr Speaker, there has been an understandable
concern that the tax burden is high. As a responsible
Government, we are mindful of the burden of taxation
on our workers especially those in the lower income
groups. In order to reduce the tax burden, I propose
to revise the Pay-As-You-Earn by increasing the
non-taxable monthly threshold income from K500,000 to
K600,000. The following is the proposed
Pay-As-You-Earn regime:

122. Sir, this measure will give tax relief to workers
in formal employment earning below K4,535,000 per
month. The measure will result in a revenue loss of
K64.8 billion, which will go in the pockets of the
workers.

123. Mr. Speaker, currently, the interest paid on
mortgage for residential property is not tax
deductible. The Government fully recognises the
aspiration of most families to construct or purchase
their own houses. I, therefore, propose to allow
mortgage interest to be deductible for tax purposes to
any Zambian individual who obtains a mortgage for
residential property. It is envisaged that this
concession will encourage home ownership.

124. Mr. Speaker, I also propose to increase the low
cost housing unit capital expenditure limit for tax
purposes from K2 million and K10 million to K20
million. This is meant to encourage employers to build
decent housing units for their employees,
particularly, in the agriculture sector. This measure
will have a minimal revenue loss.

125. Mr. Speaker, in an effort to encourage savings
and streamline the collection of withholding tax on
interest earned on savings and deposit accounts, I
propose to reduce the withholding tax rate applicable
from 25 percent to 15 percent. I also propose to
abolish the exempt portion of the interest, which is
not subject to withholding tax. This measure has
minimal revenue impact.

126. Mr, Speaker, last year, this august House
approved the proposal to increase the tax credit
applicable to persons who are differently-abled from
K36,000 per annum to K144,000 per annum. The
Government believes that this increase was
insufficient. I, therefore, propose an additional
increase so that the threshold will now be K600,000
per annum.

127. Sir, I further propose to increase the allowable
deduction for any employer who employs a
differently-abled person from K500,000 per annum to
K1,000,000 per annum for each such person employed.
There will be minimal revenue loss as a result of this
measure.

128. Mr. Speaker, all the above measures will take
effect on 1st April, 2008.

CUSTOMS AND EXCISE

129. Mr. Speaker, in order to support the
manufacturing sector, I propose to reduce customs duty
on the following: (a) dyestuffs under HS code 3204,
glycerine under HS code 1502 from 5 percent to free;
and (b) mechanical horses for semi-trailers from 15
percent to 5 percent.

130. Mr. Speaker, in 2006, the Government reduced
customs duty on pancakes in order to promote the music
industry. This year, I propose to give further
concessions to the industry by reducing duty on other
musical instruments and art equipment falling under
tariff heading 32, 92 and 96 from 15 percent to zero,
and those under heading 85 from 15 percent to 5
percent.

131. Sir, the two measures above will result in an
estimated revenue loss of K2.2 billion.

132. Sir, in order to encourage local value addition,
I propose an export levy of 15 percent on the export
of copper concentrates and cotton seed. This is in
recognition of the availability of local capacity to
process these products. This measure will result in an
estimated revenue gain of K148.7 billion.

133. Mr. Speaker, all the above measures will become
effective from midnight, tonight.

VALUE ADDED TAX

134. Sir, currently books are exempt from VAT. This
means that local manufacturers of books cannot claim
input VAT and this makes local manufacturers less
competitive. I, therefore, propose to zero rate books
for VAT purposes to make the local manufacture of
books less costly. The measure will result in a
revenue loss of K1.7 billion.

135. Mr. Speaker, infant formula is a major
nutritional supplement for babies. Given that infant
formula attracts VAT, it makes the product
unaffordable to many families. I, therefore, propose
to exempt infant formula for VAT purposes. The measure
will result in a revenue loss of K2.1 billion.

136. Mr. Speaker, Zambia is becoming a premier
international tourist destination offering a wide
range of spectacular tourist activities. In order to
attract more tourists, I propose to extend the list of
zero rated supplies to include new activities such as
elephant back safaris, steam train excursions and
walking with lions. The revenue loss is minimal.

137. Sir, all the above measures will take effect from
midnight, tonight.

138. Mr. Speaker, the issue of the 17.5 percent
standard rate of the Value Added Tax is a matter on
which I have received numerous representations for
many years. I have always promised that I will respond
when the economic conditions were appropriate. As part
of the Government’s 2008 theme, which is “Unlocking
Resources for Economic Empowerment and Wealth
Creation”, I propose to reduce the Value Added Tax
standard rate from 17.5 percent to 16 percent. This is
a wealth creating measure that will give the consumers
K21.6 billion, which the Government will forego in
revenues. The measure will take effect on 1st April,
2008.

NON-TAX REVENUES

139. Mr. Speaker, I propose to lift the waiver on visa
fees under tour packages. This will level the playing
field for all tourists visiting the country. In
addition, I propose to increase the visa fees by 100
percent. The Government will raise an estimated amount
of K35.4 billion from this measure.

140. Sir, this measure will take effect at midnight,
tonight.

141. Mr. Speaker, I propose to revise the fees payable
under the Passport and Citizenship Act. For the fees
on passports, the current rates will continue to apply
until the introduction of the new passports with extra
features. This measure will result in a revenue gain
of K161.9 billion.

142. Mr. Speaker, I also propose to revise the road
user fees payable under the Road Traffic Act. This
will bring the fees to appropriate cost recovery
levels for providing these services. The measure will
result in a revenue gain of K76.3 billion and will
come into effect on 1st March 2008.

HOUSEKEEPING MEASURES

143. Mr. Speaker, I propose to amend the Customs and
Excise Act, the Value Added Tax Act, and the Income
Tax Act so as to update, strengthen, and remove
ambiguities in certain sections of tax legislation in
order to make tax administration more effective. The
measures are revenue neutral.

CHANGES TO THE MINING FISCAL AND REGULATORY REGIME

144. Mr. Speaker, in my 2007 Budget Address to this
august House, I proposed new tax measures for the
mining sector. I also informed the nation that the
Government would engage mining companies, with whom we
had signed Development Agreements, as part of the
process of introducing the new tax regime for the
mining sector.

145. Sir, given the complexity of the mining sector, a
team of experts was appointed to study this matter in
great detail. The findings of the study show that:
(a) the Development Agreements in their current form
are lopsided; and
(b) even if mining companies were to move to the 2007
tax regime, the country would still not get a fair
share from its mineral resources.

146. Sir, the Government has, therefore, decided to
introduce a new fiscal and regulatory regime in order
to bring about an equitable distribution of the
mineral wealth between the Government and the mining
companies.

147. Mr. Speaker, effective 1st April 2008, the new
fiscal regime for the mining sector will include the
following:
(a) The corporate tax rate will be 30 percent;
(b) Mineral royalty rate on base metals will be 3
percent of gross value;
(c) Withholding tax on interest, royalties, management
fees and payments to affiliates or subcontractors in
the mining sector will be at the rate of 15 percent;
(d) Withholding tax on dividend will be at zero
percent;
(e) A variable profit tax of up to 15 percent on
taxable income, which is above 8 percent of the gross
income, will be introduced;
(f) A windfall tax will be introduced to be triggered
at different price levels for different base metals.
For copper, the windfall tax shall be 25 percent at
the copper price of US $2.50 per pound but below US
$3.00 per pound, 50 percent at price for the next 50
cents increase in price and 75 percent for price above
US $3.50 per pound;
(g) Hedging as a risk management mechanism shall be
treated as a separate activity from mining;
(h) Capital allowance, that is a depreciation of
capital equipment, shall be reduced from 100 percent
to 25 percent per year;
(i) A reference price, which shall be the deemed arms
length price, shall be introduced for the purposes of
assessing mineral royalties and any transaction for
the sale of base metals, gemstones or precious metals
between related or associated parties. The reference
price shall be the price tenable at the London Metal
Exchange, metal Bulletin or any other commodity
exchange market recognised by the Commissioner
General; and
(j) Capital expenditures on new projects shall be ring
fenced and only become deductible when the projects
start production.

148. Mr. Speaker, the new mining regulatory framework
will be provided for in the Mines and Minerals Act.
The framework will also have a modern licensing system
based on transparent procedures.

149. Sir, these measures are competitive, reasonable
and balanced. The expected additional revenues, in
2008, as a result of these new measures are estimated
at US $415 million.

PART V

CONCLUSION

150. Mr. Speaker, over the past few years, the MMD New
Deal Government has delivered macroeconomic stability
and growth, removed Zambia’s debt burden and
articulated a clear long-term economic vision, with
concrete plans on how this is to be achieved. Further,
in the detailed new measures on the mining sector, the
Government has laid a firm foundation for the people
of Zambia to fully benefit from the exploitation of
their natural resources.

151. Mr. Speaker, by increasing investments in
education, health and skills in 2008, we choose to
enhance the capabilities and capacities of our people.
By increasing and encouraging investments in
infrastructure such as roads and communications, we
choose to facilitate connectivity and the movement of
goods and our people.

152. Mr. Speaker, by developing an information
exchange forum under Culture Re-modelling, we take the
vital step to freely share the rich backgrounds,
values and experiences of role models in our nation
and the immense and available opportunities. This is
with a strong belief that, the knowledge will assist
individuals to re-orient their attitudes, refocus
their actions towards results, and establish
meaningful relationships, to create wealth and build
strong communities.

153. Sir, in this year’s budget, the Government has
given fundamental tax concessions which will result in
taxpayers retaining some K100 billion in their
pockets. In addition, the Citizens’ Empowerment Fund
will have over K120 billion. Furthermore, retired
public workers will receive a total of K269 billion in
terminal benefits. To complement the above, banks and
other financial institutions will provide further
opportunities for our people to access funds.

154. Mr. Speaker, by reducing the tax burden of
individuals, clearing the domestic payments arrears,
capitalizing the Empowerment Fund and reducing the
Government’s borrowing from the banking system, we
choose to financially empower our people with funds to
engage in productive pursuits.

155. Mr. Speaker, by these deliberate and calculated
measures, the New Deal Government has chosen to create
an environment that supports individual initiatives
and ingenuity. For the first time in a generation, we
stand today, with our destiny, truly in our own hands.
Before each one of us, is the opportunity to choose
and follow, the path to future prosperity. Each
Zambian has the choice, to realise their fullest
potential by applying their God-given talents and
capabilities.

156. Mr. Speaker, by listening to, and learning from
the views, experiences and achievements of others,
whether this be, in the important area of
constitutional reform, economic excellence, or indeed,
how best to marshal our mineral wealth, together, we
choose to build a strong and prosperous One Zambia One
Nation.

157. Mr. Speaker, I beg to move.