Lusaka, 1 December 2010 Public Expenditure Review Workshop

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Lusaka, 1 December 2010

Public Expenditure Review Workshop

Outline


Macroeconomic Constraints


The Evolution of Fiscal Policy


Composition of Public Spending


Benefit Incidence of Public Spending


Conclusions


Macroeconomic Constraints


Zambia has made significant strides on the macro
economy over the last decade


Growth 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

0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010f
Real GDP Growth

(Annual

percent change)


Inflation has fallen to single digits

0
5
10
15
20
25
30
35
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010f
Annual Inflation

(
percent)


The Current Account deficit has been
reduced

-15.0
-10.0
-5.0
0.0
5.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010f
External

Current Account

(
percent of GDP)


Evolution of Fiscal Policy


Unsustainable 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

-8.0
-6.0
-4.0
-2.0
0.0
2.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010f
Fiscal Deficit

(
percent of GDP)


Evolution and Composition of Public
Spending


Overall 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

0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2002
2003
2004
2005
2006
2007
2008
2009
under spending
Actual
Budget
Composition of Public Spending


Education remains the largest sector


Spending on transport (roads) has accelerated


Health spending, which had recovered since 2006, fell
slightly in 2009


Agriculture 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)

0
500
1,000
1,500
2,000
2,500
3,000
2002
2003
2004
2005
2006
2007
2008
2009
EDUCATION
HEALTH
TRANSPORT (ROADS)
AGRICULTURE
WATER
Poverty and Inequality


National poverty rates have fallen by a small
percentage, from 68% in 1996 to 59% in 2006


Poverty remains very high in rural areas, at 77% in
2006, compared to 84% in 1996


But it has continue to fall in the urban areas, to
27% in 2006, from 41% in 1996


In 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

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

0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Poorest
2nd
3rd
4th
Richest
Population by Consumption Quintile and Place of Residence, Zambia
2006

Rural
Urban
Benefit Incidence of Public Spending


Poverty 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
-

Education


Education is the largest sector on government
spending


Data 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

66.4

73.7

77.9

80.4

81.9

69.9

75.7

81.5

83.9

87.5

0
20
40
60
80
100
Poorest
2nd
3rd
4th
Richest
Overall Enrollment Rate of Primary and Secondary Schooling by
Consumption Quintile and Locality, Zambia 2006

Rural
Urban
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

0.5

0.8

2.4

5.8

21.0

2.7

10.8

24.3

44.6

76.8

0.6

2.4

8.2

25.0

64.0

0
20
40
60
80
100
Poorest
2nd
3rd
4th
Richest
Access to Electricity for Lighting by Consumption Quintile and Location,
Zambia 2006

Rural
Urban
Total
Benefit Incidence
-

Water


Water services are dominated by various public
-
sector and quasi
-
public institutions


Based 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

0%
20%
40%
60%
80%
100%
Poorest
2nd
3rd
4th
Richest
Source of Water Supply by Consumption Quintile, Total

River
Well-unprotected
Well-protected
Borehole
Own tap
Public/other tap
Conclusions


Zambia has achieved significant gains over the last
decade at the macroeconomic level


Despite 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