Documentof The World Bank FOROFFICIALUSEONLY ReportNo. 38307-ZM ZAMBIA JOINT IDA-IMFSTAFF ADVISORY NOTE ONTHE THIRD ANNUAL PROGRESSREPORT ON THE IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGY PAPER JANUARY 19,2007 Department: AFTP1 Country Management Unit:AFCS2 Region: Africa This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOROFFICIAL USE ONLY INTERNATIONALDEVELOPMENTASSOCIATION AND INTERNATIONALMONETARYFUND ZAMBIA Joint StaffAdvisoryNote onthe Third AnnualProgress Reporton the Implementationof the PovertyReduction StrategyPaper Preparedbythe Staffs ofthe InternationalDevelopmentAssociation andthe International MonetaryFund ApprovedbyHartwigSchafer (IDA) andSaul Lizondo andG. RussellKincaid(IMF) January 19,2007 I.INTRODUCTION 1. The third AnnualProgress Report(APR) on the implementationof Zambia's 2002 PovertyReductionStrategy Paper (PRSP) for 2005-2006 was submittedto the InternationalDevelopmentAssociation(IDA) andthe InternationalMonetaryFund (IMF)inDecember2006.' TheAPR comprisesthe Government's EconomicReport2005, complementedby additionalinformationonrecentpovertytrends, progresstowardthe MillenniumDevelopmentGoals(MDGs), economic developmentsandspendingonpriority poverty-reducingprograms(PRPs) in2006, andthe draft ("Green Paper") ofthe Government'smedium-termexpenditureframework (MTEF) for 2007-09. This Joint Staff AdvisoryNote(JSAN) provides an assessmentofthe implementationofthe PRSPas reportedinthe APR andoffers suggestionstowards improvingpolicyimplementation, monitoringandreportinginselectedpriority areas. 2. InNovember2006, the cabinet approvedthe FifthNationalDevelopmentPlan (FNDP) 2006-10, whichwill serve as Zambia's new PRSP.The FNDPprovidesthe basis for the MTEFandis expectedto be officially launchedinthe near future, at whichtime the staffs will preparethe correspondingJoint Staff Advisory Note. ' As discussedin the JSANo f March 2005 on the second APR, the annual Zambia Economic Report was to be expanded to become the main vehicle to report on PRSP implementation. Since the format o f the 2005 Economic Report has not yet been sufficiently expanded for it to serve as a stand-alone annual PRSP progress report, the authorities provided additional documentation to more fully addressprogress on PRSP implementation. Delays inthe official launching o f the FNDP (see paragraph 2) which was initially planned for early 2006, contributed also to this reporting gap. The FNDP would have providedgreater background on PRSP implementation. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 2 3. Policiesunderthe 2002 PRSPaimedto reducepovertythroughhigher sustainableeconomic growthin a stablemacroeconomicenvironment,greaterand more effectivespendingon povertyreducingprograms(PRPs), and a structuralreform agenda to increaseproductivityinboththe publicandprivatesectors. Inthe social sectors, the main targets ineducation were to increase both access and quality o fbasic, secondary and tertiary education by increasingenrolment and progressionrates, andby improving pupil-teacher ratios. Inhealth, the main targets were to increase substantially life expectancy, and to improve access to quality health services (for example, by increasingthe percentage o f rural households in close proximity to a health facility and by increasingthe numbero fhealthworkers). 11. MACROECONOMIC PERFORMANCEAND POLICYFRAMEWORK 4. As indicatedinthe PRSPProgressReport,Zambia's economy has continuedto performwell. Despite a drought andhigherworld oil prices, real GDP grew by a robust 5.2 percent in2005 and an estimated 6 percent in2006 (the lower bound o f the PRSP target). Miningandconstructionmade particularly strongcontributions to growthduringthisperiod. Inflation came down modestly in2005, with consumer prices registering a 15.9 percent year- on-year increase at end-year, and dropping into the single digit range in2006 for the first time inthree decades, largely owingto stable food prices. Zambia's externalposition has strengthened markedly and the accumulationo f official international reserves exceeded objectives. Recordhighcopper prices significantly improved the terms o f trade, and the HIPC Initiative andthe Multilateral Debt ReductionInitiative (MDRI)have canceled the bulko fZambia's externaldebt.The improvedeconomic fundamentals boostedconfidence in the economy, leadingto unprecedented inflows o fportfolio investment and a sharp appreciation o f the currency inlate 2005 and early 2006. While the kwacha gave up much of its earlier gains duringthe second halfo f 2006, it has remained strong overall, largely reflecting positive developments but also posing a challenge for the maintenance o f Zambia's international competitiveness. 5. Strengthenedmacroeconomicpolicieshaveplayeda key role inthe improved economic performance.Prudentfiscal policyhas gradually lowered domestic financing o f thebudget.As a result, domestic interest payments havebeen greatly reduced, providing scope for additional spending on PRPs. The more restrained recourse to domestic financing has also enabled the monetary authorities to pursuemonetary policies consistent with lowering inflation, while allowing room for adequate private sector credit growth. Lack of coordination o f fiscal and monetary policies has, nevertheless, periodically ledto significant volatility inmonetary aggregates and hampered liquiditymanagement. Inlight o f election year pressures in2006, the authorities particularly deserve credit for continued progress towards greater macroeconomic stability. 6. The policyframeworkunderlyingthe povertyreductionstrategyis to consolidatemacroeconomicstability,while improvingpublicsector managementand 3 Zambia's businessenvironment,andtherebylayingthe foundationfor achieving sustained highratesof pro-poorgrowth. While the medium-term projections inthe MTEF could have beenupdated, to be fully consistent with those elaborated duringthe recent PRGF review mission, the policy framework outlined inthe MTEFis broadly consistent with that o f the PRGF. Tax revenue will have to be higher to meet the dual objectives o f a gradual reduction inGovernment net domestic borrowing and increased spending on PRPs. Reform o f the tax system i s essential to make it more buoyant, simpler and equitable, and to make tax administration more efficient. Tax measures that would narrow the tax base should be avoided. 7. While the prospectsfor continuedstrongeconomic growthare favorable, Zambia remainsvulnerableto terms of trade shocks, particularlya sharp fall incopper pricesandvagaries of climate.Moreover, domestic debt and contingent liabilities remaina matter o f concern. Addressing overall domestic liabilities will be an important challenge for the medium term. The staffs welcome the authorities' commitment to strengthening debt management and ensuring that new borrowing does not undermine debt sustainability. 8. Goingforward, it is the staffs' view that the keyprioritiesfor macroeconomic policy should beto: a. Strengthenbudgetexecutionandother elements of publicexpenditure management.The Report highlightsthe major achievements made to date in implementing reforms but there are remaining weaknesses that need to be addressed. One notable shortcoming i s the increase incarryover o f unspentreleases from one fiscal year to the next one. In2006, such carryover made it difficult to achieve the net domestic financing targets, and more generally underminedbudget execution and monitoring. The budget cycle should be brought forward and the budget approved at the start ofthe fiscal year. Better aligning the release o ffunds to the agreed spending profiles o f line ministries would allow for more effective planning and execution o f programs and avoid the accumulation o f arrears. Improved reporting and monitoring on budget execution, inparticular inrelation to PRPs, and adherence to the commitment control system would also help inthis regard. b. Improveliquiditymanagement. Better coordinationbetweenthe Banko fZambia (BoZ) and the Ministry o f Finance andNational Planning would help to minimize volatility inmonetary aggregates and the exchange rate and facilitate liquidity management. The BoZ has untilrecently had only limited instruments at its disposal to manage liquidity. However, the November 2006 agreement to convert a substantial part o fthe BoZ's claims on Government into marketable securities should greatly facilitate the Bank's pursuit o f its monetary targets. c. Develop a comprehensivedebt managementstrategy. The staffs are supportive o f the Government's efforts to maintain debt sustainability and minimize financing costs and risks. 4 111. POVERTYREDUCTION 9. Someprogress,albeit slow, was madein2005 towardpovertyreductionandthe achievementof the MillenniumDevelopmentGoals (MDGs).The Reportcites the 2003/2004 LivingConditions andMonitoringSurvey(LMCS IV) andprovidesan updateon the statusofthe MDGs. The estimatednationalincidenceofpovertyof 68 percentin2004 was slightlyhigherthan the PRSPtargetof 65 percent,but downfrom 73 percentin 1998, so suggestinga reversalofthe pastrisingpovertytrend. The depthandseverity ofpoverty(at 36 percentand23 percent,respectively) in2004 were still quitehigh.2With regardto Zambia's progresstowardsthe MDGs, the 2005 Status Reportshows some improvements over 2003. Accordingto the Report,the targetsof universalprimaryeducation, gender equalityandwomenempowermentandfor HW/AIDS are likely to bemet as national supportis quite strong.The targets that couldpossiblybe achievedincludethose on extreme poverty, childmortality, malariaandother major diseases, andwater andsanitation.The goalsthat are highlyunlikelyto bemet are those onhunger, maternalmortality,and environmentalsustainability. 10. The data currentlyavailableis notof sufficientcoverageand quality to undertakein-depthanalyses on the transmissionof growthto povertyreduction. Staffs urgethe authorities, once again, to improvethe coverageandqualityof data(including conductingpovertysurveys everytwo years) to bettermonitorpovertydynamics, andto improveadministrativedatasystemsfor monitoringinputsandoutputs. Qualitydatathat permitsanalysesof growthto povertyreductiontransmissionas well as the transformationof public spendinginto outputsandoutcomesis importantinarticulatingadditionalmeasures andresources thatwould beneededinorder to achievethe MDGs. 11. Spendingon PWs exceededthe budgetedtarget in2005 (byjust over 1percentof GDP). Howeverin2006, weaker executionsuggeststhat the objectiveofraisingthese expendituresbyhalfof a percentagepointof GDP a year was notmet.Ithas beendifficult to monitorwhetherthe targetedincreases inPRP spendinghavebeenmet over the years. In 2005, the Governmentbroadenedthe definitionofPRPsto includenon-capitalexpenditure itemsso that the figures are not directlycomparableto PRP spendinginpreviousyears.3At that time, the Governmentalso developeda three-tier classificationsystemthat distinguishes expendituresbyhow directlythey are relatedto pro-pooractivities.The reportingand Inorderto adjust for the fact that somepeoplelie far belowthe povertyline it is necessary calculatethe `poverty gap' or what is alternativelyreferredto as the `depth' ofpoverty. This measure gives a greater weight to the poorestofthe poor.Alongsimilar lines, the `severity' ofpoverty (or the `squaredpoverty gap') attaches evengreaterweightto the poorestof the poor. Extremepoverty is measuredby taking a lowerpoverty line that reflectsthe minimumrequirementsof food spendingandexcludessome ofthe items includedinthe national `basic' poverty line. Under the narrowerdefinition,PRP spendingmet the targetedincrease in2004, but not in2003. 5 monitoring o f PRPs could be improvedby regularly publishingPRP spending under the three-tier classification system. IV. SECTORAL POLICIES Economicsectors 12. Promotinggrowthinlabor-intensivesectors-such as small-scaleagriculture and miningandtourism-has hadonly modest successto date. The authorities shouldbe commended for fully financing the agriculture relatedpoverty reduction programs that included out-grower schemes, small holder irrigation, land development, livestock restocking and animal diseases control. However, the fertilizer support (subsidized) program that absorbs significant resources i s not well targeted as it reaches less than ten percent o f intendedbeneficiaries. Inaddition, diversification o f the miningsector (towards small-scale mining) continuedto be limitedpartlybecause o fdifficulties inaccessing investmentfunds. 13. The growthrateof the tourismsector doubledin2005 despiteconstraintsrelated to infrastructure,the regulatoryframework, andhighoperationalcosts. This growth was largely a result o f increased international marketing o f Zambia through the Visit Zambia 2005 campaign, which has since been extended until2009. The outlook for the sector i s promising, andthe enactment o f a Tourism and Hospitality Act in2007 should streamline the licensingprocedures, which will contribute to reducing the cost o f doing business inthe sector. Currently, Zambia ranks 102 out o f 175 countries inthe Doing Business Survey. 14. Inview of Zambia's vulnerabilityto drought,the staffswould encourage the authoritiesto expediteimplementationof the NationalIrrigationPlan(2006-2011). As staffs recommendedinthe JSAN on the second PRSP progress report, it i s important that the authorities re-evaluate the composition o f agriculture expenditure, which i s heavily tilted towards recurrent expenditures.Given the importance o f improved agricultural productivity inpovertyreductionandimprovedfood security, increasedinvestment ininfrastructure, livestock diseases control, research and extension are important inreversing the declining yieldsper hectare (especially indrought years). Staffs are concerned that the subsidized fertilizer and inputpack programs that have since increased to 60 percent o fthe market price inthe current (2006/07) farmingseasonarenot the most effective means for dealingwith chronic food insecurity inthe rural areas as the system is open to abuse. 15. The energysector experiencedsome challenges in2005. Although the rehabilitation program for hydro-power stations marginally increased total electricity generation by 1.3 percent, the country experienced widespread power load shedding and the volume o f electricity exports declinedby about 50 percent. As part o fthe on-going commercialization o f ZESCO (the electricity power utility), a cost o f service study to determine the economic cost o f supplyingpower to various categories o f customers was initiated. To further rural poverty reduction programs, the newly created Rural Electrification Authority (REA) implemented32 additional rural electrificationprograms while 53 were on- 6 going. Giventhe risingdemand for electricity, investment inelectricity generation i s imperative. Social sectors 16. Gainswere madeinprimaryeducation.Enrollments increased by over 13 percent during2005 compared to 2004. Inaddition, over the same periodthe gender balance improved infavor o f girls ineach district; the gender parity index stood at 0.95 for 2005. Nevertheless, wide disparities interms o f gender balance remain among provinces. The same i s true for gross enrollment rates. It i s important to focus inthe next PRSP on how to decrease such imbalances amongprovinces. The Government was able to improve the provision o f education materials, but still faces serious challenges with regardto pupil- teacher ratios. Followinga cleaningup o f the payroll figures, 8,500 new teachers were hired in2006. While improvedenrollment inprimary education poses serious challenges for the quality o f education as measured bypupil-teacher ratios, the Government should also plan for increased enrollment in secondary and tertiary education as these pupils move through the system. 17. The situationsurroundingteacher educationhasimprovedbut recruitment remainsa challenge.An increase inenrollment inteachers' colleges, as well as graduation, o f over 31percent was recorded in2005 compared to 2004. The challenge continues to be on hiringandretainingqualified teachers, especially inrural andremote areas. 18. Inthe healthsector, improvementswere recordedinimmunizationand availability of drugsand marginalimprovementswere recordedin some health outcome indicators. An importantpolicyinitiative in2005 was the introduction o ffree Anti-Retroviral (ARV) drugs. At the end o f 2005,42,000 patients received ARVs, up from 15,000 patients in2004. Malaria, which remains the leading cause o f morbidity and mortality, witnesseda declining incidencerate due to a combination o f preventive and curative measures. The staffs commendthe authorities on the improvements made and stress the needto remain vigilant indealing with the HIV/AIDS and malariapandemics. Similar improvements have been made with regard to child immunization, which increased to 90 percent in2005 compared with 80 percent in2004. 19. Despitethese improvements,the humanresourcecomplementinthe social sectors remainsinadequateand requiresurgentattentionby the authorities. The shortfall inpersonnel i s particularly worrisome, especially for specialty doctors, nurses and paramedics. A comprehensive human resource plan to increase staff levels over the medium term has been developed and i s expected to be incorporated inthe next PRSP. 7 V. THESTRUCTURAL REFORM AGENDA 20. Althoughthe Reportstates that structuralreformswere ontrack in2005, most PrivateSector Development(PSD) relatedreformsremainoutstanding.The structural reforms continuedto focus on improving public expenditure management, financial sector development, the investment climate for the private sector, and the performance o fpublic utilities. However, the staffs are concerned that most o fthe PSD reform actionplans have yet to be implemented. Inthis regard, the international gateway has not been liberalized (i.e., reducingthe license fee from about US$12 million to an international average o f less than US$500,000); labor regulations still remain problematic despite the issuance o f a new statutory instrumenton minimumwages and conditions o f employment early in2006; and business licensing has not yet beenstreamlined - especially the complex licensing procedures intourism. 21. During2005, the Governmentfinalized the preparationof the PublicService Management(PSM) component of the PublicService ReformProgram(PSRP). The PSM program has four elements (right-sizing, pay reform, service delivery improvement and payroll management) and the overall objective i s to strengthen the effective management o f public sector employees to improve their performance andthat o f the ministries and other public institutions. Enhancing the delivery and quality o f public service, as well as creating an appropriate institutional environment for reducingpoverty, are some o f the key objectives o fthe program. 22. The PublicExpenditureManagementandFinancialAccountability(PEMFA) reformprogramwas launchedinJune 2005 andbaselinebenchmarkswere established. Initially, overall performance scores on public financial management were quite low; only one component scored highly, namely aggregate revenue outturn compared to the approved budget. Encouragingly, after lengthy delays, the contract for the installation o f the integrated financial management and information system (1FMIS)-a key PEMFA objective-was signed inlate 2006. Other objectives include enhancing the existing financial management system to strengthen reporting while IFMIS i s being piloted and then rolled out to all ministries, and issuingregulations and revisedaccounting manuals for the new Finance Act. Implementationo f the PEMFA reform program was affected by delays inestablishing the secretariat and the finalization o f the 2006 work plans. With these issues now addressed, staffs and the authorities expect the pace o f progress to pick up. 23. Financialsector policiesare focused on expandingfinancialintermediationand access to financialservices inbothurbanand rural areas. This involves developing a well functioning rural financial system, developing broad and deep primary and secondary bond markets, and strengthening banking and non-bank financial institutions. While progress has been made inthese areas duringthe first phase (2005-06) o f the Financial Sector Development Plan, the resolution o ftroubled state-owned financial institutions has made little headway. 24. The privatizationofthree state-ownedenterpriseswas completedin2005 (Kafue Textiles o f Zambia Limited, Monarch Zambia Limitedand Zambia Seed Company Limited). 8 Also the agreement on the sale o f 49 percent o f the share o f Zambia National Commercial Bank was finalized inlate December 2006. VI. CROSS-CUTTING ISSUES 25. The 2005 performanceon cross-cuttingissuesof gender,social protection, governance,HIV andAIDS, and environmentwas mixed. While Government's efforts to mainstream gender in its policies andprograms continued, the number o f women indecision making positions remained very low. With regardto social protection, some programs were implementedthrough the Public Welfare Assistance Scheme (PWAS), Peri-Urban Self Help (PUSH) and the Micro-Bankers Trust (MBT). Other social protection measures for HIV/AIDS included mitigation and coping activities, such as home based care and providing free ARVs. Both the funding and target beneficiaries for PWAS increased in2005, as did the volume o f MBT disbursement and the number o f poor and vulnerable people who accessed micro-credit. 26. On governance,the Report statesthat the Government continues to undertake major reforms to the constitution, as well as inthe areas o fhuman rights, transparency, accountability, the administration o fjustice, and democratization. The staffs commend the authorities for publishinga timeline for the completion o f the on-going constitutional review process, which has important implications for public expenditure management reforms since the public finance andbudgetorganic law is underwritten bythe RepublicanConstitution. Stalled constitutional reform has preventedplannedimprovements to the budget cycle. 27. Environmentmanagementremainsone of the mostchallengingcross-cutting issues. Solid waste (domestic, industrialandhospital) that give riseto landcontamination is a major environmental issue. In2006, the miningindustry's adverse environmental impact- especially water contamination-reached crisis point on the Copperbelt. Staffs would liketo urge the authorities to strengthen their environmental regulatory framework and put inplace appropriate mitigation and sanctions regimes. VII. MONITORING AND EVALUATION 28. The consolidationof the various monitoringand evaluation(M&E) unitsinthe MinistryofFinanceandNationalPlanninginto a single unithas helpedinstitutionalize M&EintheMinistry.During2005 intheprocess ofpreparingthe FNDP, the M&E Unit received further technical assistance and increased its training o f other Government agencies and Sector Advisory Groups (SAGS)inthe results andmonitoring and evaluation frameworks. Consequently, the FNDP has better defined key performance indicators compared to the PRSP/TNDP. Staffs expect that the continuing work on FNDPresults and monitoring and evaluation frameworks will provide a sound basis for monitoring outputs and impacts/outcomes duringthe implementation o f the FNDP. 9 VIII. CONCLUSIONS AND RECOMMENDATIONS 29. The Government shouldbe commendedfor progressmadeinimplementing some recommendationsofthe previousJSAN. Quarterly reports on budget execution have been issuedon a timely basis, but the format o f the reports and coverage should be improved to enhance transparency. The ceiling on Government net domestic financing was met in 2005 and efforts were made to meet the target for 2006. With regardto diversifying the economy, progress has been more limitedas implementation o f structural reforms has laggedbehind. The FNDPandthe formation o fthe new Zambia Development Agency provide an opportunity to reinvigorate the Private Sector Development Initiative, particularly as regards to the priority areas o frestructuring the telecommunications sector, streamlining licensing requirements, and reducingthe cost o f labor regulations. 30. Staffs recommendthat improvingthe low social andhumandevelopment indicatorsrequiresmorethanjust improvementsin resourceallocations.Inparticular, the low absorptive capacity inthe form o f inadequate availability o f humanresources inthe public sector has become a bindingconstraint that needs to be urgently tackled. 3 1. The Governmentshouldimprovepolicyimplementationto resolve some ofthe bindingconstraintsto highergrowththat is key for povertyreduction.As noted inthis JSAN, a number o fpolicy pronouncements spanning key sectors o f the economy have not been implemented. Inparticular, the record o f implementingmeasures for private sector development i s poor. Implementationof the structural reform agenda more broadly will be critical to achieving sustainable highrates o f economic growth andpoverty reduction. Government should renew efforts to strengthen implementationo f its poverty reduction strategy through not only improved M&Emechanisms, but also through ensuring feedback mechanisms to policy makers suchthat adjustments can be timely taken into consideration. 32. Staffs strongly recommendthat the nextPRSPbe officially launchedsoon. Since the PRSP/TNDP closed in2005, Zambia has had no formal PRSP. It i s imperative that the FNDPbe formally putinplace soon. Moreover, as recommended inthe JSAN for the last PRSPprogress report, staffs urge the authorities to expand the coverage o fthe Government's annual economic report to provide a timely comprehensive review of PRSP implementation. As such, the economic reports would facilitate greater monitoring andnational dialogue regarding Zambia's policy framework for reducingpoverty. ZAMBIA Annual PRSP ImplementationProgressReport2005 2006 - MINISTRY OF FINANCE AND NATIONAL PLANNING PLANNINGAND PLANNINGMANAGEMENTDEPARTMENT P.O. BOX 50062 LUSAKA TABLE OF CONTENTS 1.1 INTRODUCTION................................................................................................... - 2 - 1.2 - 2 - MACROECONOMIC PROGRESS2005 ................................................................ THE MACROECONOMIC FRAMEWORK 2007-2009 ......................................... 1.3 - 3 - 1.4 - 3 - BUDGET PERFORMANCE................................................................................... - 4 - OVERAL POVERTY REDUCTION PERFORMANCE......................................... 1.5 1.6 SELECTED SECTORPERFORMANCE*.............................................................. - 5 - 1.6.1 Agriculture ...................................................................................................... - 5 - 1.6.2 Tourism ........................................................................................................... - 5 - 16.3 Miningand Quarrying ......................................................................................... - 6 - 1.6.4 Manufacturing ................................................................................................. - 6 - 1.6.5 Transportand Communications ....................................................................... 1.6.6 Education......................................................................................................... -- 67 -- 1.6.7 Health.............................................................................................................. - 7 - 1.6.8 Water and Sanitation........................................................................................ - 8 - 1.7 POVERTY TRENDS .............................................................................................. PROGRESSINTHE MILLENIUMDEVELOPMENT GOALS............................. -- 8 - 8 - 1.8 1.9 CONCLUSION....................................................................................................... - 8 - - 1 - 1.1 INTRODUCTION This report i s a comprehensive analysis of the poverty reduction programmes for 2005. The report covers major poverty trends, the implementation of the MillenniumDevelopment Goals (MDGs) strategies and the MediumTerm ExpenditureFramework (MTEF) 2007 -2009 based on the FifthNational Development Plan (FNDP) 2006-2010. For detailed analysis o f poverty reduction trends during this period refer to the Economic report 2005, the Medium Term Expenditure Framework (MTEF), the Millennium Development Goals (MDG) report and for 2006 releases see Appendix 1. The documents are attached. In the case o f 2006 no detailed monitoring and evaluation reports have been received and as a result what i s being reported i s from the financial side without a detailed analysis at the output and outcome levels. This will be done in the first quarter of 2007 as more data is made available. Although, the PRSP officially ended in 2004, the poverty reduction programmes were carried over into the TNDP and now, the FifthNationalDevelopment Plan 2006-2010 as mentionedabove. 1.2 THE MACROECONOMIC FRAMEWORK 2007-2009 In terms of macroeconomic indicators, in the medium term, government will focus on the following within the context o f the FNDP; (a) accelerate pro-poor economic growth; (b) stabilize inflationto single digit; (c) achieve financial and exchange rate stability; and (d) sustain a viable balance o fpayments and external anddomestic debt position. In achieving the above, the macroeconomic Targets and Strategies during the period 2007- 2009, Government aims to: (a) Achieve real GDP growth o f at least 6 percent a year; (b) Bringdown end-year inflation to not more than 5 percent; (c) Limit domestic borrowing to 1.0 percent o f GDP in 2007, and 0.5 percent o f GDP in2008 and2009; and (d) Increase the coverage o f official gross international reserves to at least 2.0 months o f imports in 2007 and 2.4 months in 2008 and 2009 (For details refer to attached MTEF) This is premised on the assumption that there will be continued investments in mining, manufacturing, agriculture and energy sectors among others due to positive macroeconomic environment and public sector reform policies. The reform policies include the Private Sector Development Action Plan (PSD) and the Public Expenditure Management and Accountability (PEMFA) Reforms. In 2006, negotiations with the contractor on the Integrated Financial - 2 - Management and Information System (IFMIS) were concluded and received approval from the World Bank. Further, the contract on IFMIS was signed on 15th November 2006 with the initiation o f the pilot taking place by the end of January, 2007. On the PSD, the major milestone i s the expected operationalisation o f the Zambia Development Agency in2007. 1.3 MACROECONOMIC PROGRESS2005 Duringthe period under review, the Zambian economy improved considerably and performed well at the macroeconomic level. Annual Real GDP growth was at 5.4 percent at end December 2005 compared to 4.9 during the same period in 2002 and averaged 4.7 for the . period 2002-2005. The average GDP was up from an annual average o f 2.2 percent in the preceding four years. Growth exceeded the 4 percent target previously identified in the PRSP/TNDP. Per capita income grew at 2.3 percent annually. These positive growth trends were largely due to several factors including favourable globe economic conditions and the overall impact o f the economic reforms that started in the early 1990s. Among others, sectors that accounted for this growth were miningand construction. Duringthe period under review, a number of capacity buildinginitiatives were undertaken. In addition, Government deliberately engaged stakeholders inthe development process and inthis light, Sector Advisory Group (SAGS) were formed as part o f the monitoring framework. Itwas also under this period that saw Government introduce the Medium Term Expenditure Framework (MTEF). The Medium Term Expenditure Framework (MTEF), which employs a longer term perspective in budgeting and links budgeting and planning, was introduced in 2003. This has since opened up the budget systems to public scrutiny. The budgetwas also re- classified to an Activity Based Budgeting (ABB) system in 2004, thereby enhancing transparency. 1.4 OVERAL POVERTYREDUCTIONPERFORMANCE During the period under review, releases against the budgeted o f poverty reduction programmes (PRPs) improvedinboth release as per budget and overall allocation in the total budget. InDecember 2005, there was a total o f K2.571 trillion PRP funding released against a budgetary allocation o f K4.339 trillion while by Novermebr 2006, a total of K2.249 trillion was released. In2006, against a budget o f budgeted K2.542 trillion representing 88.5 percent. For Reference, see Appendix 1. The major beneficiary in 2006 was Electoral Commission for coopoparate image building and voter registration. Others are Ministry o f Energy and Water Development covering rain Water Harvesting and Spring Development, RehabilitatiodConstruction of Earth dams and Rural Water and Road infrastructure. On the Social Sectors, under Health, the major beneficiaries were Health Systems Management and Infrastructure development while in the Education sector, the major beneficiaries were Distance Education, Various Poverty Reduction Programmes (PRPs), Infrastructure Development and Personal Emoluments. The positive performance in terms o f releases indicates that the policy interventions inplace are working towards poverty reduction. - 3 - 1.5 BUDGET PERFORMANCE Total capital expenditures in2005 were estimated at K2,789.6 billion or 8.5 percent o f GDP in 2005. Domestically financed capital expenditures amounted to K565.1 billion against a budget allocation o f K488.5 billion. This was above allocation by 15.7 percent. Out o f the total o f 1365.1 billion released for capital expenditures, 42.4 percent went towards poverty reduction programmes and 28.9 percent to the Road Fund. Inparticular, releases toward the Road Fund were above target by 82.0 percent due to higherthan targetedcollections on fuel levy. Total PRP allocations in 2005 were K4,208.4 billion, representing 44.8 percent o f the total budget. O f this amount, K1,849.1 billion was to be domestically financed. As at end-2005, domestically financed PRP expenditures amounted to K2,062.4 billion, which was 12 percent higher thanprogrammed. A total of1~1,763billionwas disbursed towards social sectors in2005. This represented 25.4 percent o f the total domestic budget and 51.6 percent o f the discretionary budget. In comparison to the 2004 levels, this reflected an improvement interms o fpercentage o f discretionary budgetby 14.9 percentage points. However, there was a slight decline o f 0.5 percentage points interms o f share o ftotal domestic budget. Releases to the education sector amounted to K1062.6 billion and was above budget allocation by 16.3 percent. As a percent o f the domestic and discretionary budgets, releases to the education sector were 15.3 percent and 31.1 percent, respectively. The discretionary share in 2005 was much higher than the 22.7 percent in 2004. The main focus in 2005 was on increasing the number o fmedical personnel as well as instituting retention schemes as a way o f retaining frontline personnel. Releases towards the economic sectors in 2005 amounted to K1,023.6 billion, which was 14.7 percent o f the total domestic budget and 29.9 percent o f the discretionary budget. The transport and communication sector, received the largest share amounting to K478 billion or 43.4 percent o f the total releases to the economic sectors and 6.3 percent o f the total domestic budget. Most o f the releases under transport and communication were ear marked for road works. The agricultural sector received K352.3 billion or 5 percent o f the total national budget. (Refer to attached Economic report 2005) - 4 - Table 1.0 2005 Funding to Sectors as a Percentage of Total Domestic Budget and DiscretionaryBudget Sector 2005 Total 2005 Total Releases Releases as % Releases% Domestic Releases as % of of Total of Total Energy 23.5 22.3 94.9 0.4 0.5 -~ __...____ Building and Construction 97.9 82.4__ __._____ 84.2 .- _.. _ __ __- -__ 1.4-. 1.8 Commerceand_. _Trade _ _ _ .-....-- .---__ ....-_-.._ ----- - -.- - _________- 49.4 __--42.0 85.0 0.7 0.9 Environment - i_-- 0.4 _3_ ~ -_- __ -- .__ __-- 86.3 - - 0.3 .__ --- - -- - -.. ..- .__...... . __. __ .. 23.4 __20.2 __ .-. -._ - Other* . ._.. ..-.- ' 2476- 15.7 63.8 I 0.3 0.3 TotalEconomic Sectors 1,I01.7 1,023.6. 92.9 17.0 21.8 Social Sectors Education __ -.--_.-. . __ - - . --.. __ 913.5 . .- .- - -.._--, 1,062.6 - ______ - __._.___ _ 116.3 -.. -17.6 ' 22.6 - __._ Health .. . . 432.0 _.480.0 _ _ 111.1 __ ._ - 8.0 - 4 - 102- _. . Water and Sanitation 78.9 32.4- ,. 41.I -0.5. 0.7 . . - Social Safety Net 93.3 .-- 89.7 .--.-- 96.I - - 1.5 1.9 Disaster Relief 6.7 52.3 780.6 0.9 1.o 1.1 Other 42.6 46.7 109.6 0.8 Source: Ministry of Finance nnd National Planning * includesdomesticallyjinanced expenditures and direct budget support, excludingforeign funds that do notflow through the budget. 1.6 SELECTED SECTOR PERFORMANCE* 1.6.1 Agriculture In 2005. a total of K346.4 billion was released against a total budget of K352.3 billion representing a 98.3 percent release to the sector (see Table 1.0) These funds covered the Fertilizer Support Programme, Outgrower Schemes, Livestoock Development and Provision o f small credit to small scale farmers. 1.6.2 Tourism In2005, the performance ofthe tourism sector was above average. There was ariseinthe numbero fvisitors andprivate sector investments. Inaddition, the numbero f flights into the country also increased. * For detailed analysis see the attached Economic Report 2005 - 5 - The Tourism sector, registered a growth o f 12.1 percent in2005 compared to 6.4 percent in 2004. Growth inthis sector was on account o f increased visitor arrivals. This was as a result o f enhanced marketingactivities by boththe Government and the private sector. The number o f international visitors to Zambia in2005, thus increased by 26.2 percent from 649,900 to 515,000 in2004. In2005, the single largest majority ofinternational visitors to Zambia were inthebusiness sector which were estimated at 265,197 or 40.9 percent o f the total arrivals. Inregardto the numbero ftourists visiting the country's mainnational parks, the figures increased by 13.8 percent in2005 to 61,400 from 53,978 in2004. Duringthe year, visits by local tourists to the national parks rose by28.2 percent to 19,436 from 15,157 in2004. Onthe overall, the number o finternational visitors increasedby 8.1 percent to 41,964 from 38,821 in2004. 16.3 Mining and Quarrying Mining and Quarrying sector in 2005 grew by 2.8 percent while in 2004 it grew by 13.5 percent. This growth in the sector was mainly due to an increase in both copper and coal production, coupled with expansion in productive capacity. The continued high copper prices on the world market also stimulated investment in the sector. Duringthe same period, Copper production rose by 9.6 percent compared to the 20.5 percent growth o f 2004. The price o f copper on the London Metal Exchange (LME) rose to U S $2.20 per pound inthe last quarter of 2005. 1.6.4 Manufacturing In2005, the manufacturing sector grew by 3.8 percent compared to 4.7 percent in2004 and this growth was mainly attributed to the food, beverages and tobacco sub-sector. Apart from the textile, leather and basic metal products sub-sectors, all the other sub- sectors o f manufacturing registered growth. In line with the Private Sector Development (PSD) reforms, Government in 2005 set up the institutional framework for the implementation o f the PSD Reform Action Plan. 1.6.5 Transport and Communications Duringthe period under review, the Transport and communications sector registereda growth o f 8.5 percent compared to 6.4 per cent the previous year. This growth was as a result o f performance in the road and air transport, and communications sub-sectors. During2005 also, the government continued to address the transport infrastructure deficiencies through the road maintenance and rehabilitation programme o f all trunk and main roads. During the period under review, Government also approved the National Transport Policy in order to address fragmentation in the road transport sector. The policy advocates for the establishment of three new road sector agencies. - 6 - Inaddition, Government in2005 Government approved the Information and Communications Technology (ICT) Policy and reviewed the Telecommunications Act o f 1994 owing to the current developments inthe sub-sector. 1.6.6 Education Inthe education sector, Government continued to record major successes at both output and outcome levels. Budgetary releases to the education sector as a share o f the discretionary budgetincreased to 22.6 percent in2005 from 19.7 percent in2003. In2005, the education sector continuedmarkedpositive progress in2005, especially inaccess, retention and completion at the basic school level. The gender parity at basic school level also improved significantly. However, due to limited classroom space at high school level access remained low compared to the basic school level In order to remove barriers to the sector, Government continued to with the Free Basic Educationpolicy. Inaddition, interventions were put inplace to removebarriers to education for Orphans and Vulnerable Children (OVCs) and Children with Special EducationalNeeds (CSEN). During the review period, total pupil enrolments at the basic school level (Grade 1-9), increased by 13.1 percent to 2,848,357 in 2005. The male enrolments accounted for 21.1 percent by increasing to 458,329. This accounted for 51.2 percent o f total enrolments. On the other hand, female enrolments rose by 14.1 percent to 1,390,028 and accounted for 48.8 percent o f total basic school enrolments. The gender parity ratio at the basic school level improved from 0.93 in2004 to 0.95 in2005. Interms ofbasic Schools, these increasedby 18.2 percent to 7,543 and out ofthis total, 4,969 or representing 65.9 percent were run by Government. For public university education, the country's total enrolments increased by 14.7 percent to 12,900 in2005 from 11,245 in2004. In total, enrolments at the University o f Zambia (UNZA) and Copperbelt University (CBU) increased by 13.4 percent and 18.2 percent, respectively. Interms offunds, atotal ofK13.8 billionwas disbursedunderthe PRPsandthe majority ofthe PRP funding in 2005, amounting to K6.9, billion was disbursed for the construction o f teacher's rural houses. The other programmes supported were bursary schemes and community schools accounting for K3.4 billion a K1.4 billion, respectively. 1.6.7 Health In2005, the major achievement was to introduce free Anti-Retroviral (ARV) drugs. This was done to meet the target o frolling ARVs to a population o f 100,000 patients by the end o f 2005. Inaddition, akeypolicydevelopment was the introduction ofthe National Health Services Act andthe repealing o f the Radiation and Ionizing Acts inorder to strengthen health care service delivery. Ininfrastructure development, a total 37 rural health posts were under construction in 2005. Work also commenced on the rehabilitation and extension o f 20 rural health centers that were - 7 - awardedcontracts in2004. Currently, there are a total o f 1,210 health centres out o fwhich 973 are inrural areas and 237 urbanareas. 1.6.8 Water and Sanitation Based on constructed and rehabilitated water and sanitation facilities, in 2005 access to safe water supplies in Zambia was estimated at 86 percent o f the population inurban areas and 37 percent o f the population inrural areas in2000. As for sanitation, the estimated coverage i s 33 percent for urban areas in 2000 and 4 percent for rural areas. Inaddition, upgradingo f squatter compounds in per-urban areas, and the rehabilitation o f urban water supply programmes was achieved under Drought ReliefProgramme. This increased access to safe water supply. 1.7 PROGRESSINTHE MILLENIUMDEVELOPMENT GOALS Inanattemptto achieve the MillenniumDevelopment Goals (MDGs) Government commenced a process to localize the MDGtargets so that they can conform to the local socio-economic and institutional capacity o f the country. The PRSP/TNDP implementation and now the Fifth National Development Plan 2006-2010 is the official Development agenda that Government intendsto use to achieve the MillenniumDevelopment Goals (MDGs) targets. Indicators over the PRP period, 2002 to 2004, showed that Zambia had the potential to attain some o f the MDGs by 2015. Among the possible MDGS that can be attainable are the Reducing under - five mortality rates, halting and reversing the spread o f HIV/AIDs as well as halting and reversing the incidence o f malaria and other major diseases. For details, see attached MDG report. 1.8 POVERTY TRENDS Inthe terms ofpoverty trends, the LivingConditions Monitoring Survey (LCMS) IV of2004, as much as 68 percent o f the population fell below the national poverty line. Earningless than K111, 747. Poverty levels slightly fell in 2004 compared to 1998 when poverty stood at 73 percent. Poverty inrural and urbanareas declined by 5 percent and 3 percent respectively. The incidence o fpoverty inthe rural areas fell from 83 percent in 1998 to 78 percent in2004, while poverty in urban areas declined to 53 percent from 56 percent in 1998. (For details, refer to LCMS 2004) 1.9 CONCLUSION In a bid to continue fighting the scourge of poverty, Government, in consultation with cooperating partners and other stakeholders has formulated the Fifth National Development Plan 2006-2010. The theme in the FNDP i s "Broad Based Wealth and Job Creation through Citizenry Participation and Technological Advancement"; while the strategic focus is "Economic Infrastructure andhumanresources development". - 8 - Appendix 1 SunimarisedPRP Releases2006 02 OFFICE OF THE VICE PRESIDENT ProgrammeName Budget Release Balance % Co-ordination o f Disaster Management Programmes 172,371,550 206,82 1,479 -34,449,929 119.99% Disaster Response 203,980,000 222,536,665 -18,556,665 109.10% Monitoring and Evaluation o f Disaster Management 102,542,500 95,148,555 7,393,945 92.79% Programmes Multi-Disciplinary Extension for Settlers 41,000,000 38,079,640 2,920,360 92.88% Scheme Establishmentand Resettlement 65,250,000 54,246,95 1 11,003,049 83.14% Scheme Infiastmcture Development 164,500,000 80,000,000 84,500,000 48.63% Stock Piling 304,137,7 10 6,179,156,123 -5,875,018,413 2031.70 YO Vulnerability and Risk AssessmentProfiling 583,303,908 583,303,906 2 100.00% Head Total 1,637,085,668 7,459,293,319 -5,822,20 7,652 455.64YO 05 ELECTORALCOMMISSION ProgrammeName Budget Release Balance % Corporate Image Building 156,375,000 215,250,000 -58,875,000 137.65% Review o f the Electoral and General Legislation 101,575,000 8,714,583 92,860,417 8.58% Voter Registration 20,614,030,000 20,614,030,000 0 100.00% HeadTotal 20,871,980,000 20,837,994,583 33,985,417 99.84% 11 ZAMBIA POLICE - MINISTRY OF HOMEAFFAIRS ProgrammeName Budget Release Balance % Crop and Livestock Farming 160,284,602 181,791,217 -21,506,615 113.42% Implementationo f Various Poverty ReductionProgrammes 7,000,000,000 6,775,000,000 225,000,000 96.79% HeadTotal 7,160,284,602 6,956,791,217 203,493,385 97.16% 13 MINISTRY OFENERGYAND WATER DEVELOPMENT ProgrammeName Budget Release Balance % Bio-hels 403,237,697 301,6 18,849 101,618,849 74.80% Biogas 58,500,000 58,500,000 0 100.00% Dissemination o fInformationon Improved Cook stoves 94,750,000 53,756,416 40,993,584 56.74% Energy Exploration and Installation 600,910,2 13 450,910,2 13 150,000,000 75.04% Gel Fuel 55,O 10,000 30,315,000 24,695,000 55.11% Gender Mainstreaming 30,600,000 20,075,000 10,525,000 65.60% Groundwater Monitoring and Exploration 622,891,533 463,701,535 159,189,998 74.44% Gwembe-TongaDevelopment Project 56,857,33 1 40,357,331 16,500,000 70.98% HIV/AIDS Awareness 25,000,000 17,708,334 7,291,667 70.83% Liquified Petroleum Gas (LPG) 89,750,000 61,552,083 28,197,917 68.58% MainstreamingHIV/AIDS inWater and EnergyProjects 7,644,866 4,919,614 2,725,252 64.35% Managementof Petroleum Sector 298,837,500 191,418,750 107,418,750 64.05% Mini-Hydro 380,000,000 99,612,500 280,387,500 26.2 1% Monitoring and Evaluationof EnergyProjects 332,912,500 276,826,166 56,086,334 83.15% Monitoring and Evaluationo fWater Projects 272,450,000 220,564,583 51,885,4 17 80.96% Nasangaand Luena Farming Block(Boreho1es and Wells) 253,320,000 253,020,000 300,000 99.88% NationalRural Electrification Master Plan 18,000,000 9,833,333 8,166,667 54.63% NationalWater Master Plan 68,250,000 37,125,000 3 1,125,000 54.40% North-Westem Infrastructure Development 150,000,000 128,490,74 1 21,509,259 85.66% Petroleum Reserves 87,950,875 87,950,875 0 100.00% Rain Water Harvestingand Spring Development 212,500,000 212,500,000 0 100.00% RehabilitatiodConstruction ofEarth Dams 4,695,585,109 4,695,585,109 0 100.00% Rural Water (Borehole, Well) and FarmBlocks 1,405,648,954 1,386,786,955 18,861,999 98.66% Rural Electrification Master Plan 84,100,000 71,418,056 12,681,944 84.92% Rural Water (Drought EmergencyProgramme) 434,795,000 434,795,000 0 100.00% Rural Water (Northern ProvinceGroundwaterDevelopment) 231,047,650 231,047,650 0 100.00% Solar Energy 483,000,000 483,000,000 0 100.00% StrengtheningofHydrologicalNetwork 664,273,500 664,273,499 1 100.00% Support ofHIV/AIDS Activities 33,483,620 16,741,810 16,741,8 10 50.00% Supportto Institutions 13,810,797,978 12,197,078,970 1,613,7 19,008 88.32% UNIDO/GEF Project 1,085,750,000 63,590,750 1,022,159,251 5.86% Water ResourcesAction Program 100,000,000 100,000,000 0 100.00% Water ResourcesQuality Monitoring 354,456,150 234,764,883 119,691,267 66.23% Wind Energy 191,750,000 45,875,000 145,875,000 23.92% Zambia Gender and EnergyNetwork (ZGEN) 41,125,000 38,125,000 3,000,000 92.71% Head Total 27,735,185,476 23,683,839,004 4,051,346,473 85.39% 14 MINISTRY OFMINESAND MINERALDEVELOPMENT Programme Name Budget Release Balance % Mineral Exploration and ResourceSurvey 389,501,025 183,9 15,868 205,585,157 47.22% HeadTotal 389,501,025 183,915,868 205,585,157 41.22% 15 MINISTRY OF HOMEAFFAIRS Programme Name Budget Release Balance % HIV/AIDS Awareness andARVs at Work Place 212,030,378 147,897,732 64,132,646 69.75% PersonalEmoluments 1,475,689,918 238,577,567 1,237,112,351 16.17% PrisonFarms 1,065,000,000 404,250,000 660,750,000 37.96% PrisonInfrastructure Improvement 5,509,935,2 15 4,709,737,630 800,197,585 85.48% Head Total 8,262,655,510 5,500,462,928 2,762,192,582 66.57% 18 JUDICIARY ProgrammeName Budget Release Balance % Adjudication 70,285,714 35,142,857 35,142,857 50.00% ConstructionofCourtBuilding 178,848,000 89,424,000 89,424,000 50.00% ConstructionofCourt Infrastructure 97,500,000 97,500,000 0 100.00% ConstructionofNew Court Building 82,978,871 67,464,365 15,514,506 81.30% Court Circuiting 871,094,031 351,528,202 519,565,829 40.35% CourtCircuits 130312,494 65,763,886 65,048,608 50.27% CourtRehabilitation 275,662,02 1 171,972,779 103,689,242 62.39% Gender/HIV/AIDS Awareness 11,932,000 1,988,667 9,943,333 16.67% Gender/HIV/AIDS Awareness 111,890,000 34,969,722 76,920,278 3 1.25% HIV/AIDS Awareness 42,225,000 14,002,778 28,222,222 33.16% ProcurementofCourt Building 642,100,000 642,100,000 0 100.00% Purchaseand Distribution o fARVs 33,256,000 16,628,000 16,628,000 50.00% Rehabilitation ofCourtInfrastructure 150,000,000 50,000,000 100,000,000 33.33% RehabilitationofCourt Building 720,641,358 128,292,69 1 592,348,667 17.80% Rehabilitationofcourt infrastracture 390,372,500 210,372,500 180,000,000 53.89% Rehabilitationo fCourt Infrastructure 100,000,000 100,000,000 0 100.00% RehabilitationofCourt Infratructure 100,000,000 100,000,000 0 100.00% RehabilitationofHighCourtBuilding 34,285,714 17,142,857 17,142,857 50.00% HeadTotal 4,043,883,703 2,194,293,304 1,849,590,399 54.26% 20 LOANSAND INVESTMENTS LOCALGOVERNMENTAND HOUSING - ProgrammeName Budget Release Balarice % Central ProvinceRural Water SupplyProgramme 227,008,466 227,008,466 0 100.00% Central ProvinceUrbanWater SupplyProgramme 837,500,000 1,737,500,000 -900,000,000 207.46% EasternProvinceWater SupplyProgramme 190,000,000 190,000,000 0 100.00% EstablishmentofMunicipal HousingBonds 2,251,800,000 1,911,800,000 340,000,000 84.90% IntegratedLocal DevelopmentPlanning 171,400,000 171,400,000 0 100.00% LusakaUrbanRoadsProgramme 500,000,000 21,000,000 479,000,000 4.20% MineTownships ServicesProject 775,000,000 775,000,000 0 100.00% National RuralWater Supply Programme 898,691,500 911,191,500 -12,500,000 101.39% North-WesternProvinceRural Water Supply Programme 385,005,000 385,005,000 0 100.00% Preparation o f Regional Development Plans 422,020,000 136,100,000 285,920,000 32.25% Seven Townships Water Supply (North Western Province) 70,500,000 70,000,000 500,000 99.29% Support to the Water Sector ReformProgramme 44,940,000 7,000,000 37,940,000 15.58% UrbanMarkets Development Programme 800,000,000 150,000,000 650,000,000 18.75% Water Sector Programme Support 703,000,000 200,000,000 503,000,000 28.45% HeadTotal 8,276,864,966 6,893,004,966 1,383,860,000 83.28% 21 LOANSAND INVESTMENTS - FINANCEAND NATIONAL PLANNING ProgrammeName Budget Release Balance % Projects 48,437,275,225 4,473,000,000 43,964,275,225 9.23% Recapitalisation, Investments and GovernmentInstitutions 92,308,507,669 165,628,148,000 -73,3 19,640,33 1 179.43% Road Infrastructure Development 81,807,140,002 86,606,498,444 -4,799,358,442 105.87% Routine Maintenance(Road Fund) 175,320,000,000 170,756,519,894 4,563,480,106 97.40% Rural Development Programmeand Road Rehabilitation 60,978,000,000 10,221,702,803 50,756,297,197 16.76% Techno-Economic Feasibility Studies and Designs 10,250,000,001 3,000,000,000 7,250,000,001 29.27% HeadTotal 469,100,922,897 440,685,869,141 28,415,053,756 93.94% 26 MINISTRY OFINFORMATIONAND BROADCASTINGSERVICES ProgrammeName Bridget Release Balance % Development and CommunicationResearch 425,824,088 351,357,42 1 74,466,667 82.5 1% Information, Dissemination and Developmental Issues 1,767,448,841 758,450,229 1,008,998,612 42.91% HeadTotal 2,193,272,929 1,109,807,650 1,083,465,278 50.60% 29 MINISTRY OF LOCAL GOVERNMENTAND HOUSING Programme Name Budget Release Balance % ConstituencyDevelopment Fund 9,000,000,000 9,000,000,000 0 100.00% Council Annual Estimates 150,95 1,492 53,443,300 97,508,192 35.40% Housing Development 4,927,389,434 4,158,523,729 768,865,705 84.40% NationalRuralRoads Programme(National FeederRoad) 60,000,000 50,421,770 9,578,230 84.04% Operation and Maintenanceo fRoad RehabilitationEquipment 772,800,000 231,407,74 1 541,392,259 29.94% Road Rehabilitation for Local Authorities 545,000,000 545,000,000 0 100.00% Support to Peri-urbanWater Supplies 257,150,000 257,150,000 0 100.00% HeadTotal 15,713,290,926 14,295,946,541 1,417,344,385 90.98% 31 MINISTRY OFJUSTICE Programme Name Budget Release Balance % Governance 1,550,000,000 1,020,944,742 529,055,258 65.87% HeadTotal 1,550,000,000 1,020,944,742 529,055,258 65.87% 33 MINISTRY OF COMMERCE,TRADE AND INDUSTRY Programme Name Budget Release Balmce % Support to Small andMediumEnterprises(SMEs) 260,000,000 162,500,000 97,500,000 62.50% HeadTotal 260,000,000 162,500,000 97,500,000 62.50% 37 MINISTRY OF FINANCE AND NATIONALPLANNING Programme Name Budget Release Balance % District PlanningandBudgetingProcess 589,000,000 589,000,000 0 100.00% Constructionof an Office Block 2,000,000,000 1,272,727,273 727,272,727 63.64% CoordinatingActivities of Sector Advisory GroupsPDCs 503,400,000 503,403,800 -3,800 100.00% Co-ordinationofMillennium Development Goals(MDG) 131,750,000 113,817,296 17,932,704 86.39% Activities Economic PerformanceMonitoring 367,525,000 345,400,174 22,124,826 93.98% EconomicSectorManagement 323,750,000 311,920,049 11,829,95 1 96.35% Highly IndebtedPoor Countries (HIPC) Expenditure 357,846,122 357,846,122 -1 100.00% Monitoring Highly IndebtedPoor Countries (HIPC) Audits 66,750,000 66,750,000 0 100.00% HumanDevelopmentIndicators 116,275,000 116,275,000 0 100.00% Monitoring and Evaluation 994,309,632 943,02 1,650 51,287,982 94.84% National andInternationalConferences 137,962,500 137,962,500 0 100.00% National DevelopmentPlan (NDP) 2006 - 2010 822,500,000 5,822,500,000 -5,000,000,000 707.90% National Long-TermDevelopmentVision For Zambia 832,500,000 832,500,000 0 100.00% National PopulationPolicy 238,240,000 241,169,603 -2,929,603 101.23% Public InvestmentProgramming 179,600,000 144,072,591 35,527,409 80.22% ResearchandDevelopment 242,550,000 252,568,941 -10,018,94 1 104.13% Head Total 7,903,958,254 12,050,934,999 -4,146,976,746 152.47% 46 MINISTRY OF HEALTH Programme Name Budget Release Balance % CapacityBuilding 1,963,586,942 1,459,883,239 503,703,704 74.35% District HealthSystemsManagement 5,535,729,139 5,074,4 18,374 461,3 10,765 91.67% GeneralAdministration 20,737,8 16,933 29,6 15,546,353 -8,877,729,420 142.81% HealthService Delivery 71,830,722,868 68,749,241,152 3,08 1,48 1,716 95.7 1% Health Systems Management 30,859,959,993 46,371,356,459 -15,511,396,466 150.26% InfrastructureDevelopment 89,004,554,241 48,405,778,898 40,598,775,343 54.39% Personal Emoluments 294,02 1,418,465 302,112,173,475 -8,090,755,O 10 102.75% Supportto Institutions 37,580,511,029 47,455,506,155 -9,874,995,126 126.28% Training o fHealth Workers 5,463,043,495 5,007,789,869 455,253,626 91.67% HeadTotal 556,997,343,105 554,251,693,974 2,745,649,131 99.51Yo 51 MINISTRY OF COMMUNICATIONS AND TRANSPORT ProgrammeName Budget Release Balance % Meteorological Observationand Establishmento f 270,696,000 129,130,000 141,566,000 47.70% Meteorological Stations Monitoring o fPoverty ReducingProgrammes 112,500,000 55,000,000 57,500,000 48.89% New Railway Development 4,557,886,552 1,555,000,000 3,002,886,552 34.12% Policy Co-ordination 638,750,000 426,5 16,634 212,233,366 66.77% Rehabilitationo f Airports 5,754,842,765 9,083,742,765 -3,328,900,000 157.85% Waterways Management 1,550,000,000 1,050,000,000 500,000,000 67.74% HeadTotal 12,884,675,317 12,299,389,399 585,285,918 95.46% 65 MINISTRY OFSCIENCE,TECHNOLOGY AND VOCATIONAL TRAINING - ProgrammeName Budget Release Balance % Construction o f TEVET Institutions 1,770,300,000 1,770,200,000 100,000 99.99% Procurement o f Equipment for Training Institutions 3,150,000,000 3,149,736,667 263,333 99.99% Rehabilitationo f ResearchInstitutions 800,000,000 400,000,000 400,000,000 50.00% Science and Technology Development 1,376,244,892 1,058,000,000 318,244,892 76.88% Supply o fresearchequipment 500,000,000 500,000,000 0 100.00% Head Total 7,596,544,892 6,877,936,667 718,608,225 90.54% 68 MINISTRY OFTOURISM, ENVIRONMENT AND NATURAL RESOURCES Programme Name Budget Release Balance % District Community Environmental Committees Support 441,884,7 15 398,779,252 43,105,463 90.25% Forestry Extension and Management 4,023,601,000 967,068,444 3,056,532,556 24.03% HIV/AIDS Awareness 88,096,180 88,096,180 0 100.00% Tourism Sector Development Programmes 4,457,184,000 702,684,000 3,754,500,000 15.77% Head Total 9,010,765,895 2,156,627,875 6,854,138,020 23.93Yo 76 MINISTRY OF SPORT,YOUTH AND CHILD DEVELOPMENT ProgrammeName Budget Release Balance % Children and Youth Empowerment Programme 2,300,050,000 2,300,050,000 0 100.00% FamilyLife Education 208,500,000 186,415,857 22,084,143 89.41% Focus on Youth Sport 248,458,750 219,472,663 28,986,087 88.33% HIV/AIDS Awareness 17,812,500 17,812,500 0 100.00% OVC/HIV/AIDS 186,260,000 103,998,612 82,261,388 55.84% Skills Training and Youth Empowerment 6,000,000,000 5,824,648,891 175,351,109 97.08% Sports for All 118,978,650 118,978,650 0 100.00% Stadium Infrastructure Development Support 1,000,000,000 100,000,000 900,000,000 10.00% Supervision and Inspectiono f Youth Programmes and 255,333,125 159,952,081 95,381,044 62.64% Projects Supportto Institutions 492,000,000 453,257,5 13 38,742,487 92.13% Head Total lOJ2 7,393,025 9,484,586,768 1,342,806,257 87.60% 77 MINISTRY OF DEFENCE Programme Name Budget Release Balance % Hiv and Aids 177,151,250 73,813,021 103,338,229 41.67% Production 569,463,936 427,097,952 142,365,984 75.00% HeadTotal 746615,186 504910,973 245,704,213 67.09% 80 MINISTRY OF EDUCATION Programme Name Budget Release Balance % Bursaries Committee 68,931,001,934 71,794,606,625 -2,863,604,691 104.15% Curriculumand Assessment 11,683,353,813 9,650,682,560 2,032,67 1,253 82.60% DistanceEducation 1,028,207,509 724,343,626 303,863,883 70.45% General Administration (High School Education) 18,111,250,592 16,384,224,372 1,727,026,220 90.46% General Administration (Sector Plan Implementation) 447,166,533 379,414,028 67,752,505 84.85% General Administration (Tertiary Education) 4,458,807,628 4,003,190,060 455,617,569 89.78% Grants tp pre schools 131,136,902 111,267,675 19,869,227 84.85% Implementationo fVarious PovertyReductionProgrammes 8,175,076,587 5,152,773,985 3,022,302,602 63.03% Infrastructure Development 32,292,046,827 39,6 17,999,085 -7,325,952,258 122.69% Personal Emoluments 696,086,439,999 405,882,088,253 290,204,35 1,747 58.3 1% Procurement Management 681,081,906 471,626,239 209,455,666 69.25% Special Issues 1,437,059,895 1,103,057,523 334,002,372 76.76% Sundry Services 13,607,587,720 9,527,397,121 4,080,190,599 70.02% Support to Institutions 103,177,282,074 113,814,194,199 -10,636,912,125 110.31% Support to Institutions (Basic Education) 25,970,338,014 22,035,438,307 3,934,899,708 84.85% Supportto Institutions (Free Basic Education) 11,599,247,046 9,853,024,762 1,746,222,285 84.95% Teacher Educationand Specialised Services 2,207,828,765 1,612,480,407 595,348,358 73.03% HeadTotal 1,000,024,913,745 '12,117,808,826 287,907,104,919 11.21% 85 MINISTRY OF LANDS ProgrammeName Budget Release Balance % FarmBlock Development and LandManagement 440,086,875 274,699,605 165,387,270 62.42% HIV/AIDS Awareness 44,664,110 44,664,110 0 100.00% Land Alienation 180,400,000 104,444,444 75,955,556 57.90% Land Development Fundand LandPolicy Review 3,928,001,027 2,775,351,584 1,152,649,443 70.66% Mapping 778,350,000 578,715,433 199,634,567 74.35% Surveying o fProperties 904,25 5,000 694,096,898 210,158,102 76.76% Head Total 6,275,757,012 4,471,972,074 1,803,784,938 71.26% 87 ANTI-CORRUPTION COMMISSION Programme Name Budget Release Balance % CommunityEducation 711,685,000 434,946,976 276,738,024 61.12% HeadTotal 711,685,000 434,946,976 276,738,024 61.12% 89 MINISTRY OFAGRICULTURE AND COOPERATIVES Programme Name Budget Release Bdlarice % Co-operative Education and training 27,115,188 26,611,175 504,013 98.14% Development o f Cooperatives 30,850,000 15,518,333 15,331,667 50.30% Livestock Development and Veterinary Services 46,550,000 21,162,500 25,387,500 45.46% Seed Inspectionsand Sampling 158,38 1,820 72,728,03 1 85,653,789 45.92% Veterinary Servicesand Livestock Development 66,625,000 39,799,721 26,825,279 59.74% Agri-Business and Marketing 1,511,976,127 863,79 1,001 648,185,126 57.13% Agric Business and Marketing 20,825,000 10,411,500 10,4 13,500 50.00% Agricultural Development Programmes 11,445,970,027 3,183,330,065 8,262,639,962 27.81% Agricultural InformationServices 143,000,000 135,850,000 7,150,000 95.00% Agricultural Research 1,000,000,000 111,116,667 888,883,333 11.11% Animal DiseaseControl 1,532,695,200 1,454,490,800 78,204,400 94.90% Aquaculture Development 470,229,338 252,827,910 217,40 1,428 53.77% Commercialisation o f Agricultural Land-FarmBlocks 5,549,149,456 616,568,829 4,932,550,627 11.11% CommunityRadio 295,140,000 49,595,000 245,545,000 16.80% Co-operative Education and Training (PRP) 329,097,500 95,758,125 233,339,375 29.10% Coordination of Seedprograms 20,2 12,460 14,158,324 6,054,136 70.05% Cordon line 50,000,000 50,000,000 0 100.00% Crop Diversification 26,87 1,825 2,239,3 19 24,632,506 8.33% Crop Production and Husbandry 54,020,000 38,926,25 0 15,093,750 72.06% Crop Production, Agric. Extension and Land Management 286,100,000 5 1,494,640 234,605,360 18.00% Crop Production, Extension and LandManagement 6,207,886,012 2,754,9 15,277 3,452,970,735 44.38% Development o f Co-operatives 28,375,000 13,630,000 14,745,000 48.04% District Agricultural Coordination 2,752,8 13,171 1,469,737,441 1,283,075,730 53.39% District Agriculture Coordination 26,125,000 14,287,500 11,837,500 54.69% Early Warning and Food SecurityReporting 3,400,000 1,199,196,666 -1,195,796,66635270.49% FarmInstitutes and Farmer Training Centres 85,000,000 15,416,666 69,583,334 18.14% Fertiliser Support Programme 188,590,145,000 188,590,145,000 0 100.00% FishProductionand Conservation 71,090,000 31,188,332 39,901,668 43.87% Fisheries Co-Management 455,998,340 130,917,108 325,081,232 28.71% Fisheries Development 1,471,13 1,611 652,175,216 818,956,395 44.33% Fisheries Sub Sector Co-ordination 17,812,500 8,333,147 9,479,353 46.78% FruitNursery Development 78,355,8 17 64,618,317 13,737,500 82.47% Gender Mainstreaming, HIV/AIDS and EnvironmentalIssues 88,800,000 52,800,000 36,000,000 59.46% HIV/AIDS Awareness Programmeat Work Place 10,854,963 8,793,920 2,061,043 81.01% HIV/AIDS Mitigation 156,390,000 96,695,000 59,695,000 61.83% InfrastructureRehabilitation 245,580,000 225,580,000 20,000,000 91.86% IrrigationDevelopment Fund 1,086,375,000 131,750,000 954,625,000 12.13% Livestock Development and Veterinary Services 50,455,066 16,096,469 34,358,597 31.90% Livestock Development and Veterinary Services 1,578,967,325 697,598,309 881,369,O 16 44.18% Livestock Outgrower Schemes 458,257,500 155,406,250 302,851,250 33.91% Livestock Productionand DiseaseControl 61,750,000 35,090,000 26,660,000 56.83% Livestock Productionand Veterinary Services 1,411,403,898 728,861,019 682,542,879 51.64% Livestock Restocking and Monitoring 218,715,2 19 20,409,7 11 198,305,508 9.33% MarketingInformationand Infrastructure Development 30,600,000 14,326,190 16,273,810 46.82% National Agricultural Information Services 1,25 1,869,329 722,208,045 529,661,284 57.69% Out Grower Schemes 1,700,000,000 751,666,665 948,333,335 44.22% Peri-urbanirrigation development 343,750,000 59,010,417 284,739,583 17.17% Personal Emoluments 9,763,824,135 8,430,433,528 1,333,390,607 86.34% Poverty ReductionProgrammes 65,23 1,000 31,810,333 33,420,667 48.77% Rehabilitationand Maintenanceo f College 119,185,000 22,217,500 96,967,500 18.64% Research, Adoption and Promotion o f Small-Scale Equipment 47,483,399 27,748,964 19,734,436 58.44% (Farm Power and Mechanisation) Rural InvestmentFund 1,000,000,000 848,484,849 151315,151 84.85% SeedMultiplication 124,375,000 70,4 13,798 53,961,202 56.61% Smallholder Irrigation Schemes 283,685,192 113,508,983 170,176,209 40.01% Strategic FoodReserves 50,000,000,000 140,000,000,000 -90,000,000,000 280.00% Support to Community Action Plans 668,576,000 144,803,784 523,772,216 21.66% Technology Development and Dissemination 268,757,161 87,446,920 181,3 10,241 32.54% Vetenerinary Services and Livestock Development 334,823,700 46,388,970 288,434,730 13.85% Veterimary Services and Livestock Production 8 1,275,000 37,493,152 43,781,848 46.13% Veterinary and Livestock Development 100,262,300 30,587,500 69,674,800 30.5 1% Veterinary Sanitary 8,861,855 3,799,108 5,062,747 42.87% Veterinary Services and Livestock Development 434,075,000 223,588,540 210,486,460 51.51% Water Resourcesdevelopment for Irrigation 117,250,000 70,041,667 47,208,333 59.74% Women inImgationand Water ResourcesManagement 205,346,204 175,043,174 30,303,030 85.24% Zambia Namibia AgriculturalProductionJoint Venture 872,500,000 95,000,000 777,500,000 10.89% HeadTotal 296,042,190,636 356,226,041,624 -60,183,850,988 120.33% 90 OFFICE OF THE PRESIDENT LUSAKA PROVINCE - ProgrammeName Budget Release Balance % Community Development 33,465,341 35,624,608 -2,159,267 106.45% EducationImprovement 2,737,663,O 15 681,44 1,440 2,056,221,575 24.89% Electrification o fForestry Compound 50,000,000 50,000,000 0 100.00% Entrepreneurship Training - AllDistricts 209,772,334 101,193,083 108,579,251 48.24% Extension Services - AllDistricts 145,700,000 88,473,146 57,226,854 60.72% FeederRoad RehabilitatiodConstction 999,415,166 999,415,166 0 100.00% Fish Out Grower Scheme 208,730,335 35,560,862 173,169,473 17.04% Forestry Protection 69,158,788 69,158,787 1 100.00% Gender Mainstreaming 66,925,000 25,096,876 41,828,124 37.50% HealthImprovementProgamme 1,394,995,402 207,236,301 1,187,759,101 14.86% Livestock ImprovementProgramme 42,620,870 42,620,871 -1 100.00% Monitoring and Evaluation 108,765,000 50,120,206 58,644,794 46.08% Monitoring and Evaluation o f District Programmes and 221,775,000 80,860,206 140,914,794 36.46% Projects Resettlement ofDisadvantagedPersons 40,496,067 18,3 11,571 22,184,496 45.22% Resettlement ofDisadvantagedPersons - All Districts 142,000,000 53,249,999 88,750,001 37.50% Resettlement o f Street Children 22,032,480 14,892,324 7,140,156 67.59% Resettlement Scheme Infrastructure Development 364,362,156 91,090,537 273,271,619 25.00% Supportto Institutions 127,488,201 116,864,184 10,624,017 91.67% HeadTotal 6,985,365,155 2,761,210,169 4,224,154,986 39.53% 91 OFFICE OF THE PRESIDENT COPPERBELTPROVINCE - ProgrammeName Budget Release Balance % Bio-Diversity Conservation 285,443,684 230,326,536 55,117,149 80.69% Development Co-ordination 60,955,000 61,203,543 -248,543 100.41% Child Welfare Development 47,839,932 36,5 17,709 11,322,223 76.33% Copperbelt Support Programme 673,154,110 524,908,080 148,246,030 77.98% Cultural Promotion 38,295,000 27,906,875 10,388,125 72.87% Drillingand Rehabilitationo fBoreholesin all Districts 1,057,012,500 679,770,833 377,241,667 64.3 1% Education Services 466,000,000 220,000,000 246,000,000 47.21% Establishment o f the Provincial Planning Database 31,000,000 30,266,666 733,334 97.63% Gender Development 30,395,000 25,99 1,750 4,403,250 85.51% Health Services 873,992,320 666,996,160 206,996,160 76.32% HIV/AIDS and Gender 186,810,882 193,577,898 -6,767,015 103.62% Infrastructure Development 110,000,000 98,5 16,667 11,483,333 89.56% Integrationof PopulationIssues 17,870,000 12,763,167 5,106,833 71.42% Land Resettlement Programme 502,000,000 256,103,334 245,896,666 5 1.02% NationalFeederRoadsRehabilitation 1,987,500,000 1,326,458,333 661,04 1,667 66.74% ProvincialCommunity Development Programme 179,896,000 154,885,349 25,010,651 86.10% ProvincialInfrastructureDevelopment 1,112,500,000 784,625,000 327,875,000 70.53% ProvincialPhysicalDevelopment 254,375,000 190,435,112 63,939,888 74.86% Social DevelopmentProgramme 14,567,500 11,773,958 2,793,542 80.82% HeadTotal 7,929,606,928 5,533,026,969 2,396,579,960 69.78% 92 OFFICE OF THE PRESIDENT CENTRAL PROVINCE - Programme Name Budget Release Balanee % Animal Draught Power 100,000,000 100,000,000 0 100.00% EquipingCommunities through Selfhelp Projects 50,000,000 50,000,000 0 100.00% Feeder Roads 1,200,000,000 1,200,000,000 0 100.00% Fish Farming 80,000,000 80,000,000 0 100.00% Girl Child Education 310,000,000 70,000,000 240,000,000 22.58% Hammer Mills 63,373,750 49,290,695 14,083,055 77.78% HIV/AIDS Mainstreaming 50,625,000 33,958,333 16,666,667 67.08% Improvemento fHealth Services 671,500,000 100,000,000 571,500,000 14.89% Inspectionof Smallholdings and Farms 81,250,000 50,934,774 30,315,226 62.69% IrrigationDevelopment 100,000,000 100,000,000 0 100.00% Land Resettlement Programme(Infrastructure Development) 1,255,705,000 655,705,000 600,000,000 52.22% Land Resettlement Programme(Schemes Establishmentand 82,282,500 82,282,500 0 100.00% Resettlement) Monitoring and Evaluation 31,578,184 22,221,684 9,356,500 70.37% Out o f School Youth Development 5,900,000 4,15 1,853 1,748,147 70.37% Procurement of Motor Vehicle for Payroll Collection and 250,000,000 250,000,000 0 100.00% Revenue Monitoring Provision of Non-Formal Education 60,000,000 60,000,000 0 100.00% Rehabilitationo f Government Buildings 102,663,281 72,244,53 1 30,418,750 70.37% School Provisions 131,500,000 131,500,000 0 100.00% Skills Training For Gender 100,000,000 100,000,000 0 100.00% Sustainable Management & Utilisation o fNon -Wood Forestry 150,000,000 150,000,000 0 100.00% Product Sustainable Management and Utilization o fNonWood Forest 200,000,000 100,000,000 100,000,000 50.00% Products HeadTotal 5,076,377,715 3,462,289,3 71 1,614,088,345 68.20% 93 OFFICE OF THE PRESIDENT NORTHERN PROVINCE - ProgrammeName Budget Release Balance % Adult Literacy 43,478,000 16,620,158 26,857,842 38.23% Bee Keeping 94,396,875 7,866,406 86,530,469 8.33% Development Control and Monitoring 106,594,008 5 1,614,801 54,979,207 48.42% Food Security Pack 12,881,250 1,073,438 11,807,813 8.33% Gender and Development 66,116,000 23,442,357 42,673,643 35.46% Hydrological Survey 279,956,000 119,546,667 160,409,333 42.70% Improvement of Health Services 1,000,000,000 788,078,623 211,92 1,377 78.81% Infrastructure Development 740,000,000 504,613,755 235,386,245 68.19% Land Resettlement 299,376,000 106,242,167 193,133,833 35.49% Rehabilitationo f Canals 500,000,000 161,699,426 338,300,574 32.34% Rehabilitationo f Feeder Roads 2,153,000,000 2,153,000,000 0 100.00% School Provisions 700,000,000 470,566,476 229,433,524 67.22% School RehabilitationProgramme 600,000,000 50,000,000 550,000,000 8.33% School Requisites Programme 240,000,000 35,000,000 205,000,000 14.58% Water Management 816,508,100 299,110,842 517,397,258 36.63% Water Resources Allocation 163,160,000 127,839,770 35,320,230 78.35% HeadTotal 7,815,466,233 4,916,314,885 2,899,151,348 62.90% 94 OFFICE OF THE PRESIDENT WESTERNPROVINCE - ProgrammeName Budget Release Balance % Animal Disease Control 150,000,000 150,000,000 0 100.00% Forestry Conservation 90,000,000 90,000,000 0 100.00% Improvemento f Security Infrastructure 195,000,000 55,000,000 140,000,000 28.21% Improvementto HealthServices 1,828,717,569 96,717,569 1,732,000,000 5.29% Infrastructure Development 250,000,000 250,000,000 0 100.00% Maintenanceand Rehabilitationof Public Buildings 533,680,000 533,680,000 0 100.00% MonguTownship Electrification 200,000,000 200,000,000 0 100.00% Monitoring and EvaluationPRP Projects 500,000,000 500,000,000 0 100.00% Roads Rehabilitation (Feeder Roads) 1,203,834,431 1,203,834,43 1 0 100.00% Vegetation Control 156,387,000 156,387,000 0 100.00% Water Supply 657,000,000 387,000,000 270,000,000 58.90% Weather Reporting and Forecasting 40,000,000 40,000,000 0 100.00% Youth Training 63,000,000 61,045,454 1,954,546 96.90% HeadTotal 5,867,619,000 3,723,664,454 2,143,954,546 63.46% 95 OFFICE OF THE PRESIDENT EASTERNPROVINCE - Programme Name Budget Release Balance % Animal Disease Control 400,000,000 400,000,000 0 100.00% Construction o f Offices, Houses, Borehole DrillingEquipment 166,250,000 13,854,167 152,395,833 8.33% Control of Crop Diseases 202,8 18,600 202,818,600 0 100.00% Development of Infrastructure 830,729,6 10 830,92 1,6 14 -192,004 100.02% Development Planning and Project Coordination 609,272,085 50,7 18,750 558,553,335 8.32% Forest Protectionand Management 161,000,000 157,233,303 3,766,697 97.66% HIV/AIDS 100,000,000 100,000,000 0 100.00% Maintenanceo f Roads 675,801,500 532,344,884 143,456,6 16 78.77% Maintenanceo f Airports 471,681,019 234,806,426 236,874,593 49.78% Maintenanceo fTraining Centres 85,168,7 12 85,168,7 12 0 100.00% Rehabilitationo fRoads 3,179,377,628 3,178,377,668 999,960 99.97% Rehabilitation of Schools 300,000,000 300,000,000 0 100.00% Rehabilitationo fTerminal Buildingsand Staff Houses 51,496,000 51,496,000 0 100.00% Resettlement Schemes 356,O10,000 118,158,666 237,85 1,334 33.19% SchoolProvisions 700,000,000 285,714,286 414,285,7 14 40.82% School Requisites 200,000,000 200,000,001 -1 100.00% Social Welfare Protection 30,2 15,934 13,614,531 16,60 1,404 45.06% Head Total 4519,821,088 6,755,227,606 1,764,593,482 19.29% 96 OFFICE OF THE PRESIDENT LUAPULAPROVINCE - Programme Name Budget Release Balance % Infrastructure Development 746,420,266 746,420,266 0 100.00% Alienation o fLand for Agriculture and Tourism Development 35,685,000 22,762,037 12,922,963 63.79% purposes. Beekeeping 59,649,375 59,649,375 0 100.00% Bio-diversity and Watershed Conservation 75,053,250 75,053,250 0 100.00% Co-ordination o f Pre-schools and Orphanage Centres 30,626,000 30,626,001 -1 100.00% Forest Protectionand management 247,986,499 247,986,499 0 100.00% Functional Literacy 44,177,500 24,257,291 19,920,209 54.91% Gender Disaggregated Data ,Analysis and Production 4,500,000 4,500,000 0 100.00% Groundwater development 451,198,750 451,198,750 0 100.00% HIV/AIDS and Gender Development 28,607,000 28,607,000 0 100.00% Improvement to Health Services 800,000,000 800,000,000 0 100.00% Maintenance o f Canals 360,060,000 360,060,000 0 100.00% Maintenance o fFeeder Roads 2,222,203,223 610,183,602 1,612,019,62 1 27.46% Management and Regulation o fthe FishIndustry 125,625,000 125,625,000 0 100.00% Management o f Aerodromes 50,180,000 26,681,667 23,498,333 53.17% Management o f Air fields 20,140,000 11,438,333 8,70 1,667 56.79% Monitoring and Evaluation o fPoverty Reducing Programmes 27,450,000 19,062,500 8,387,500 69.44% Oil Palm Outgrowers Scheme 405,957,500 405,957,500 0 100.00% Plantation Establishment and Management Programmes 85,053,574 85,053,575 -1 100.00% Rehabilitation and Maintenace o fRoads 53,600,000 29,466,667 24,133,333 54.98% Rehabilitationo f Schools 376,750,000 378,395,833 -1,645,833 100.44% Scheme establishment and Land Resettlement 76,874,000 76,874,000 0 100.00% School Provisions 450,000,000 450,000,000 0 100.00% Settlement and Placement o f Youth Graduates 45,730,000 9,271,667 36,458,333 20.27% Street Children Empowerment 66,338,975 72,136,462 -5,797,487 108.74% Support to Institutions 40,000,000 37,000,000 3,000,000 92.50% Survey Services 33,831,639 22,836,861 10,994,779 67.50% Water Management 64,48 1,250 64,48 1,25 1 0 100.00% Weather Reporting and Forecasting 22,467,300 11,872,275 10,595,025 52.84% HeadTotal 7,050,646,101 5287,457,658 1,763,188,443 74-99Yo 97 OFFICE OF THE PRESIDENT NORTH-WESTERNPROVINCE - Programme Name Budget Release Balance % Agriculture Support 77,522,833 1,66 1,396 75,861,437 2.14% Bee-keeping Development 90,459,357 90,459,357 0 100.00% Construction o f ofice block 38,520,000 710,000 37,810,000 1.84% Ground Water Development 267,750,000 274,687,500 -6,937,500 102.59% Improvement to Health Services 147,339,888 147,339,888 -1 100.00% Infrastructure Development 2,754,585,193 2,754,585,193 0 100.00% Land Resettlement Scheme 244,3 75,000 564,174,999 -3 19,799,999 230.86% Monitoring and Evaluation 12,500,000 12,500,000 0 100.00% Provision o f Basic Infrastructure 153,625,000 153,624,999 1 100.00% Rehabilitationo fKabompo Bee-keeping Centre 59,950,000 59,950,000 0 100.00% Rehabilitationo f Roads 2,707,678,374 2,574,592,375 133,086,000 95.08% Rehabilitationo f Schools 147,339,888 147,339,888 -1 100.00% School Provisions 418,939,707 4 18,939,708 -1 100.00% HeadTotal 7,120,585,239 7,200,565,303 -79,984064 101-12YO 98 OFFICE OF THE PRESIDENT SOUTHERNPROVINCE - ProgrammeName Budget Release Balance % Roads Rehabilitation(Feader Roads) 1,200,000,000 1,200,000,000 0 100.00% Construction o fL o w and Medium Cost Houses in 240,000,000 240,000,000 0 100.00% Chirundu,Itezhitezhi,Kamngdaand Muyumbwe Construction o fMedium Cost Houses 150,000,000 150,000,000 0 100.00% Coordination and Monitoring o fYouth Development 27,500,000 16,296,295 11,203,705 59.26% Programmes Employment Exchange on HIV/AIDS Related Cases 26,100,000 14,680,000 11,420,000 56.25% Gender and HIV/AIDS Programmes 20,000,000 10,222,221 9,777,779 51.11% HIV/AIDS Awareness 152,441,471 77,988,862 74,452,609 51.16% Informationand ResearchCentre for Children (Early 63,275,000 63,274,999 1 100.00% Childhood Case and Development Intergrated Small-Scale Fish Farming 685,000,000 535,000,000 150,000,000 78.10% IrrigationDevelopment 1,600,000,000 1,600,000,000 0 100.00% Land Acquisition for Resettlement 39,3 80,000 39,380,000 0 100.00% Land Alienation 260,000,000 160,000,000 100,000,000 61.54% Latrine Construction 100,000,000 100,416,667 -416,667 100.42% Livestock Restocking 1,100,000,000 1,104,166,667 -4,166,667 100.38% Monitoring 64,834,000 31,632,027 33,201,973 48.79% Monitoring and Evaluation o fPoverty ReducingProgrammes 264,400,000 184,675,207 79,724,793 69.85% Monitoring Poverty ReducingProgrammes inDistricts 62,500,000 21,759,259 40,740,741 34.81% MonitoringPoverty Reduction Programmes 160,000,000 160,000,000 0 100.00% Non-formal Education and Skills Training 119,410,000 91,607,497 27,802,503 76.72% Plot Allocation inResettlement Schemes 27,000,000 27,000,000 0 100.00% Provision o fBasic Infrastructure inResettlement Schemes 128,600,000 178,600,001 -50,000,001 138.88% Rehabilitationand Construction o fHealth Centres and Posts 500,000,000 350,000,000 150,000,000 70.00% Rehabilitationof 1st and 2nd Level HospitalInfrastructure 600,000,000 300,000,000 300,000,000 50.00% Rehabilitationof BottomRoad 1,790,000,000 1,000,000,000 790,000,000 55.87% Road Construction in Resettlement Schemes 81,550,000 20,202,083 61,347,917 24.77% Water Infrastructure Development 316,000,000 126,333,333 189,666,667 39.98% Water Supply to Resettlement Scheme 135,000,000 8,333,333 126,666,667 6.17% HeadTotal 9,912,990,471 7,811,568,451 2,101,422,020 78.80% Grand Total 2,542,495,247,699 2,249,308,838,283 293,186,409,416 88.47% Republico f Zambia Economic ort 2005 Ministryof FinanceandNationalPlanning The economy continued to expand in 2005, indicative o f the benefits o f improved macroeconomic management and also the pay-off from a range o f structural reforms that Government has been implementing in the last decade. All sectors o f the econoniy registered growth. The tcrtially sectors, especially construction and commercial services, were, however, the maindrivers o f growth duringthe year. Agricultural and miningoutput slowed on account o fthe effects o fthe partialdrought inthe case of agriculture, and some temporary setbacks such as fuel disruptions and labour disputes in the case o f mining. Favourable external sector conditions, especially the high metal prices, also contributed to positive economic performance. Metal exports roseto recordhighsduringthe year while exports ofnon- lmditionalproductsalso continuedtoperformwell. Macroeconomic conditions were favourable and supportive o f growth. Inflation declined to its lowest level intwo decades, while the Kwachaappreciated quitc sharply against major currencies during the year on account o f a strong external sector and increased foreign investor participation in domestic portfolio inflows. The sharp gain inthe kwacha, however, raisedconcerns among some exporters as the adjustment process inthe goods andinputsmarketslagged, thereby, resulting inerosiono fincomes. A major milestone duringthe year was the country's accessionto the CompletionPoint under the HeavilyIndebtedPoor Countries (HIPC) Initiative. This resulted insignificant cancellationso fZambia's debt by various creditors. Consequently, the debt stock fell to US $4.5 billion from US$7.1 billionat end 2004. The reliefprovided as a resultofthe easingoftlie debtburdenhelpedinraising spending inthe vital growth and poverty reduction programmcs. Zambia is also eligible for further debt relief under the Multilateral Debt Relief Initiative. When fully effected during the course o f 2006, the African Development Bank, the IMFandthe World Bank are expected to cancel 100percent o fthe debts owedto them. This shouldresultinthe country's debt falling to lessthan IJS $1 billionfromUS$4.5billionatend- 2005. However, the continued increase inthe domestic debt stock and other liabilities is worrisome, and requires major attention. Inthe socialsectors, theproblemo fshortages ofessentialhumanresourcesinhealthandeducation remainedthe major challenge. Inhealth, for instance, all categories o f staffwere estimated at less than SO percent of the reconmended operational capacity, with the worst hit category being that o f nurses and otherparamedics. Moving forward, growth shouldbe much stronger in 2006 to at least 6 percent. This is predicated on a recovery inagriculture, higher inineral production and also the recent investments made across key sectors such as tourism and conmiercial services. However, as Ihave indicated inthe past, this country requires inuchhigher growth rates ifsubstantial progress i s to be madetowards reaching the MDGtarget o fhalving 1990poverty by 2015. To raise and sustainhighgrowth rates, the structural reform agenda in the areas o f public expenditure management, financial and private sector development has to be accelerated so as createthe necessaryconditions to support higher economic growth rates. These reforms willindeedtake center stage inthe coming years. Situnibeko Musokotwant: (Dr) SECRETARYTO THE TREASURY ~oREw:)rt.D ...................................................................................................................................... i XL'.CrI,Ol?tlZI.. ECC)Nf.~),ll"r*................................................ 1 C'IltZPTER:! DEVELOPMESTS 1NTHEDOMESTIC EC'ONOM............................................. 5 f'f:RFORMAx('k: ................................................................................. 1 '? 1 .) 2 x'ioui: I'AI C'kiAI'TER 6 AG K1CI..!L LLIRE ................31 CHAPTEli.7 MININC,; AND($l.l:ZRRYIKCi StiC:TOR C:t-iAP'TER9 ENERGY C'11AI"I'ER 10 .MANUf'tlC'I'UKINC C1IAPTER 1 I TIUNSPCIRTANI1C0hlMENIC"4'TIONS CH.4X"T'f~.312 1311ILlfINCANDC;ONS'I'K1.!C:I'IC>N.................................................................... 49 (.: i IAPER. Ii EI:~ci(J~Z'I'IONANI) ~ A I XN(i......................................................................... N ,5 I K 14 f-ll:;AI<'rH ................................................................................................................ 59 C'ItrZl'TIiR I 5 C~IiNT)I:,K.~\NI)T)tVl~L(31'R?I:,h". ...................................................................... 63 P - Y16~ ~OCIAI..riw-riiclmi~ ...................................................................................... 65 AND f'OLl<~lE!$IN2006.......................................... '67 due to the continuedweak dorncstic deniandand thc euro area's lack o f domestic resiliencc to rowth in the global economy continued external shocks. Domestic demandinSpainand although at a slower rate. Output Francewas strongwhile itwasweak inGermany incrcased by 4.3 percent in 2005 and Italy. In the case of Italy, this was comparcdwith 5.1 percentin2004. The United compounded by ncgativc contribution from States of Arrierica (USA) and China, where exports. Inflationary pressures in the euro area growth remained robust, led the global easeddue to the continuedweakness indomestic expansion. Long-run interest rates continued to demand. Headline inflation remained above 2 be low around thc world, though volatile, while percent, reflectingthe impact o fhigher oilprices. global equity markets remained resilient I-Iowever, core inflation slowcd down supported by strong corporate profits. World significantly. On the fiscal side, the euro area trade also expandedbut at a slower rate, due to deficit was 3.0 percent o f GDP in 2005 with reduced world economic activity. Commodity deficits in France, (ierinany, Greece, Italy and pricescontinuedto surge, especiallyfor oil. Portugal cxpccted to exceed the 3.0 pcrcent of GDP limit. In contrast to the Euro area, Japan's Doeloitrricrits inIndustrialOoiintrics economyregainedmomentumwith GDPgrowth esttniatedat2.0percent. 2. Gross DomesticProduct(GDP) growth in industrial countries slowcd down in 200.5 to a Ut.!elapnients in Enrcrging 3larhets projected2.5 percentcomparedto 3.3 percentin andDevelopitipCoontries 2004. This was largely due to reduced GDP growthintheUnitedStates, owingtothenegative impact of I-lurricanc Katrina and higher fuel 5. GDP growth in Enicrging Markets and priccs. Movements in industrial country Developing Countries was estimated at 6.4 currencies varied. The USA and Canadian percentin2005 comparedto 7.3 percentin7004. dollars appreciated modestly, while the yen and This slow down reflected the impact of high oil the euro depreciated. The depreciation of the pricesandothercommodity pricechanges aswell cur0 reflected increasing unfavourable short- as trade andcountry-specitic factors. Consunicr term interest rate difkrentials and growing pricesincreasedmarginallyto 5.9percentin2005 politicaluncertaintiesinEurope.Theuncertainty from 5.8 percentin2004, reflecting the impactof was due to the rejection ofthe EuropeanUnion's oilprices. constitutioninFranceandthc Netherlands. 6. In emerging Asia, GDP growth was 3. On the external side, the USA current projected to average over 7.0 percent in 2005, account deficit was over 6.0 percent of GDP in driven by sustained export growth and amarked 2005. This was driven by higher oil prices and pick up in domestic demand. This was continued relatively strong doniestic demand. underpinned by supportive macroeconomic GDP growth, however, remaincd solid in the policies and financial market conditions. USA, underpinned by strong income growth. However, regional disparities increased steadyimprovementsinlabourmarketconditions markedly with growth in China and India andasupportivefinancial marketenvironmentas remaining strong, at 9.0 and 7.1 percent, wellasrisinghouseprices. respectively. Growth in the rest of the region, however, slowed down reflecting the impact of 4. In the euro area, real GDP in 2005 was higheroil pricesandproblems inthe information projectedat 1.2 percentcomparedto 2.0 percent technologysector. in 2004. The slow down ingrowth was largely Source: World Economic Outlook. International Monclary Fund, September 2005 Note: Real effective cxcliange ntes are assumed10 remain constant at thc levels prevailing duringJuly R-Augimt 5, 2005. lSimple average of spot prices 0fU.K.Brent, Dtibai and West Texas Intermediate crude oil. Tile average price ofoil 111 US. dollars a barrel was $37.76 in2004;thc assumcd price is $5423 in 200.5, 2Six-month rite for the United State and Japan. Three-month rate for the ewo area *: Projections 0 E''4CI.0 PMEN S IN T HE G1.93A!. EC 0 N 9 !V Y 7. The regional current account surplus driven by shatp increases in crude oil. The declinedtnodcstlyto 3.7 pcrcentofGDPin2005 average spot price of cnidc oil incrcascd to US from4.1pcrccntofGDPin2004. Mowcvcr,thcrc S54.2perbarrelfromUS $37.8 perbarrelin2004 were sharp differences across the region with and reacheda high of $65 per barrel during the China having a marked increase in the current course ofthe year. The increase inoil prices was account surplus of6.0 pcrccntofGDP, reflecting due to strongergrowth in crudeoil consumption, sustaincdrapid growth inmanufacturingexports shortfiills in supply by non-OPEC countries and along with a sharp slow down inimport growth. expectationsoffuture tightnessinthe market. In Elsewhere,such as in SouthKorea and Taiwan, addition, crude oil priceswere affectedby short- weaker current account positionswere recorded termshockssuchasHurricaneKatrinathathitthe on account ofhigher oil prices. slowcr growth in Gulfcoast ofthe UnitedStates. information tcchnology exports and exchange rateappreciation. 12. The non-energycommodity pricc index in 2005 rose by 9.0 percent in U.S dollar terms coinpared to 18.5 percent in 2004, led by metal andfoodpriccs. Metalpricesroseby9.0percent, 8. GDPgrowthinthisregionwas 4.8 pcrcent largelyreflectingrobustdemandfor construction in2005 compared to 5.4 percent in2004. This and manufacturing products in the USA and outturn largelyreflectedaslowdowningrowth in China. The price of copper, which is Zambia's Nigcria whcrc oil production neared capacity major export commodity. rosc by 20.0 pcrccnt (see table 1.2). Growth for tlic region was and reached an all tinic high of $2.2 per pound. underpinnedby strongglobal demand, improved This increasc was as a result of an expansion in domestic macroeconomicpolicies,progresswith world deniandparticularly from China. Uraiiiutn stnictural reform3 and rcduced armed conflicts. prices increased by 44.0 pcrccnt compared to The improved macrocconoinic policies also 60.0 percent in 2004, duc to continued demand translatedinto the lowest inflation for the region arisingfromconstnictionofnuclear reactors. in 30 years. Growth in oil-importing countries, although favourtable, slowed down as a result of 13. The prices of agricultural raw materials high oil prices. However, some non-oil prices fell by 1.O percentdue to supply outpacing commodity prices such as cotton dcclincd, global demand. Softwood prices dccliiied by therebynegativelyaffectingcottonexportcrs. about 14.0 percent in 2005 after increasing by about 15.0 percent in 2004. Increasedharvests 9. Oil producing countries in thc region contributedto thereductionintimber prices. 'Thc continued to bcncfit from high oil prices with strong weight of timbcr in thc indcx obscured Angola, Chad and Equatorial Guinea registering growthincottonandrubberprices. Cottonprices largeincreasesinoutput. Forinstance,RealGDP rose by 5.0 percent owing to strong Chinese in Angola increased by 14.7 percent in 2005 demand. Similarly, rubber prices increased by cornparcdto 11.1perccntin2004. However,real 33.0 percent because of highcr oil prices, which GDPinNigeriaslowed sharplyto 3.9 pcrccnt in raised synthetic rubber priccs and temporary 2005 from 6.0 percent in 2004, explained by a supply disruptions of natural rubber restricted reductioninoilproduction. substitution. 10. Growth in SouthAfrica was 4.3 percentin 2005 comparedlo 3.7percent in2004, supported by a moderate expansionary fiscal stance. However, inflation rose sharply to 3.9 percent from 1.4percentin2004. 14. Sustained p w t h in the global economy continuedto put upwardpressureon commodity priccs. This dcvelopincnt impacted both positively and negatively 011 the Zambian II. The overall indexofprimarycommodity economyin2005. Global oilpricesresultcd into prices increased by 29.0 pcrccnt in US dollar sharp increascs in domestic fucl prices for the ternis during the periodJanuary to August 2005, largerpartoftheycaras wellas importbillfor DEVELOPMENTS IN 'THE GLOBAL ECL?NOMY Table 1.2: SelectedAfrican Countries: RealCDP, Consumer Prices and Current Account Balancc, 2003-2005 H %.8 . 11. 6. SourLe The World kconomic Outlook,InternntionnlMonetary Fund, Septcmber. 2005 1 AXlIlUdl WCPdgtJ. 2 Includes Giants ?,Includes * Chuduiid Maiiritania inthis ttihlc Projccted petroleum products. The increase in metal C) ut h ok prices, particularly for copper, contributed to the growth in metal earnings. Similarly, the rise in 15. Expansion in the global economy i s prices of agricultural raw materials impacted expected to continue in 2006 and will still be positively on Zambia's non-traditional exports, driven by the USAand China. In this regard. the which are largely primary agricultural products. demandand prices o fraw materials arc expected Consequently, earnings from nonmetal exports to remain high in 2006. However, further increasedby 17.7percent in2005. increases in energy prices could slow down growth, particularlyfor oil importers. 71. The overall inacroecononiic environment improved in2005, with inflation reducingto 15.9 heperfoimanceofthe domestic economy percent from 17.5 percent in 2004. The in2005 wasfavourable. RcalGDPgrowth appreciation ofthe Kwacha inthethirdquarter of was 5.1 percent with an expansion in the year assistedinmitigating the impact of the almost all the sectors o f the economy. The rise infood andoilprices. which would have had macroeconomic environment improved with a11 adverse effect on inflation. The Kwacha inflation and interest ratcs declining. Inaddition, appreciated by 26.4 percent against the USdollar tlic Kwacha apprcciatcd against all thc major in2004 comparedto adcprcciationof 1.Gperccnt currencies. in 2004 and closed tlic year at K3,425.16 to a dollar. The decline in inflation was also assisted 17. The external scctor remained strong with by the reduction in money supply froin 30.3 both exports and aid inflows increasing. The percent in2004 to 0.4percentin2005. value o f exports continued its upward trend increasing by 17.7 percent due to growth inboth 22. During the review period, interest rates themetal andlion-metal sectors.As aresult. gross slightly declined. The commercial banks' international reserves incrcased to 1.8 months of weighted average lending base rate declined by importcover from 1.3 months ofimportsin2004. 2.2 pcrccntage points to 27.6 in Ucccnibcr 2005 However, the current account (excluding Grants) froni 29.8 percent in Decenibcr 2004. Thc deficit worsened to 11.9 percent in2005, largely downturn in interest rates can be annbuted to a due to the dctcrioration in the nct income and reduction intheinflation ratc. financial accounts HS well as sharp increase in imports. 23. Domestic borrowing in 2005 was 1.8 percent ofCDP, which was 0.7 percentagepoints 18. Budget performance was also satisfactory above the end-year target o f 1.6 percent. This in2005. Domestic borrowing reduced slightly to outtuin was necessitatedby the need to liquidate 1.8 pcrccnt of GDP from 1.9 percent in 2004 somc o f thc domestic arrears, especially to road while spending on Poverty Reduction contractors. Comparatively, the lcvelo fdomestic Prograninies (PRPs) was significantly scaledup. borrowing as a ratio of GDP reducedslightly to 1.8 pcrccnt of GDP compared to I.9 pcrccnt of 2.1 Macroeconomic Situatiofiin2005 GDPin2004. 19. Government's macroeconomic policy 24. Zambia's external sector position in 2005 objectives were: (i) attainingreal GDP growth of was generally sound. The external debt stock at least 6.0 percent; (ii) containinginflation to no declined by 36.1 percent to US $4.5 billion in morc than 15.0 percent; (iii)limiting domestic 2005 from US $7.1 billion at end-2004. The borrowing to 1.6percent o fGDP; (iv) increasing reductio11inthc debt stock was duc to asccnsion gross international reserves to no less than 1.3 o f the country to the Completion Point underthe months o f import cover; and (v) raisingspending Hcavily indebted Poor Countries (HlPC) towards povcrty reducing programmes to 13.0 initiative. percent of' GDP or 42.0 percent of the total budget. 25. Totalnierchandise exports grewto arecord high o f US $2.1 billion. However, imports also 20. Preliminary data indicatcs that the rosesharply rcsulting inthe shrinking ofthe trade economy gcw by 5.1 pcrccnt, which was lower surplus to US$59millionfroin US$82 million in than the target of 6.0 percent and the 5.4 percent 2004. Despitethetradebalancebeingpositive, growth attained in 2004. The slow down in growth was mainly due to reduced growth inthe major sector of manufacturing, agriculture and mining. Real GDP Money Supply Growth (annual% change) Inflation (end period) Interest rates(December values) Source Ministry of Finaiice andNational Planning The net services and income accounts through the out-grower scheme programme and deteriorated, resulting in a widening o f the the continued investment into the production of current account deficit to 11.9 percent of GDP in these crops. Overall, the agiiculture forest and 2005 from 10.7percentin2004(sce table2.1). fishing sector contributed 14.0 percent to total GDPin2005. Domestic Output 30. Value added in the mining and quarrying 26. Preliininary dataindicates that realGDPin sub sector increasedby 2.8 percent inreal terms constant 1994 prices increasedby 5.1 percent to compared to a growth oE 13.9 percent in 2004. K3,153.5 billion from K2,999.2 billion in 2004. The decline inoutput was dueto a deceleration in Growth WBS mainly driven by the secondary and copper production and a reduction in cobalt tertiary sectors(see table 2.2). production. Copper production rose by 9.2 percent in 2005 to 466,799 Mt. In comparative 27. Output in the agriculture, forestry and terms, growth in 2005 was lower than in 2004 fisheries sector increased by 2.8 percent in real when production increasedby 70 .O percent. This tenns compared to 4.3 percent in 3004. This was slow down was primarily causedby low-grade largely due to dampened production o f food oil recoveries at the major mining companies, crops, particularly for maize, sorghum andmillet particularly inthe first halfof the year as well as as a result o f apartial drought experienced inthe faulty smelters. Cobalt production in 2005 200412005 agricultural season. declined by 11.8 percent, largely due to the cessationo fcobaltproduction at KonkolaCopper 28. Maizeproductiondeclined by 28.6 percent Mine(KCM). to 886,187 Metric tonnes (Mt). Sorghum and millet recorded decreases in output o f 23.5 31. The Other Mining and Quarrying sub- percent and 25.6 percent, respectively, to 18,714 sector grew by 49.7 percent in 2005, mainly Mtand29,583 Mt.Productionofothcrfoodcrops driven by a rise in coal production. Coal such as cassava, rice and wheat, however, production increasedby 44.6 percent to 149,445 recorded increases. Overall, the nation had a M t in 2005 from 106,066 Mt in 2004. The favourable food balance sheet position increase was due to continuing rehabilitation o f equivalent to 214, 413 M t o f maize-meal infrastructure atthemine. equivalent. 32. The performance ofthe secondary sectors 29. Production o f non-food crops such as was generally satisfactory with growth estimated cotton and tobacco, however, continued to at 9.9 percent in2005 comparedto 9.1 percent in expand in the 200412005 agricultural season. 2004. The manufacturing sector rccordcd a 3.8 Cotton and Virginia tobacco production percent increaseinvalue added to K338.0 billion increased by 7.6 percent and 58.9 percent, from K325.9 billion in 2004. In terms of the respectively. to 155,213 Mt and 23,211 Mt.This specific sub-sectorsinmanufacturing, allthe sub- development was largely due to the integrationo f sectors,exceptfor IheTcxtilcs andleather small-scale farmers into commercial production Figure 2.1 Contributionto CDP bv Sector (Percent), 2005 Community and Agriculture, Forestry Real Estate and Personal SeMces, 7.0 and Fishing, 14.7 Business services, 9.2 [Mining and Quarrying, Financial Institutions 0.2 and Insurance, 7.5 Electricity, Gas and Restaurants, Bars and Water, 2.6 Hotels, 2.5 Wholesale and Retail trade, 18.9 Construction, 9.0 products andthebasemetalproducts, recordedan i nthe overall supply ofpetrol andkeroseneby 3.4 increase in output, particularly, the food, percent and 29.5 percent, respectively. Domestic beverages and tobacco sub-sector recorded an refining o f petroleum products during the year increaseinoutput of4.8 percent in2005 s om5.7 was characterised by constant disruptions due to percentin2004. The growthinthe sub-sector was technical faults at INDENIoil refinery. This also dueto an increaseinthe production o fgrain mill led to f L d shortages during the year which products, the expansion o f the opaquc beer an'cctedseveralsectorsofthe economy. industry and enhanced production o f tobacco products, 35. Perforniance o f the tertiary sectors remained favourable. Inparticular, growth inthe 33. Growth in the Chemicals, rubber and Restaurantsbars, and hotels sector, the proxy for plastic sub-sectorincreasedby5.1 percent, down tourism, was particularly significant 12.1percent from the 8.5 percent recordedin2004. TheWood compared to 5.0 percent in 3004. Enhanced and wood products sub-sector recorded an marketingactivities by boththe Governnient and increasein output o f 7.5 percent to K27.3 billion theprivate sector contributed to this growth. The in 2005 from K25.4 billion in 2004. The other sectors such as Wholesale and retail trade, expansion in the sub-sector i s a consequence o f Air transport, Real estate and Communications, the growth in the construction industry, which all recorded increases in output (see tables 2.2 utiliscswoodandwoodproducts. and2.3). 34. In the energy sector, ZESCO Limited 36. The performance of the financial and during the review period continued with the baillung services sector in 2005 was largely maintenanceof major generation plants underthe favourable, as evidenced by an upward increase Power Rehabilitation Project. Duc to thcse intotalassets, satisfactory capitaladequacy, asset works, there was an increaseingcncration by 1.3 conditions andearnings. The industry's net worth percent to 8,569 GWh in2005 from 8,462 GWh increased by 42.9 percent to K971.0 billion at in 2004. As for the petroleum sub-sector. the end-2005 from K679.6billiotias atend- 2004. overall supply to the market for diesel, Jet A-1 andLPGincreased.However, thcrc was a decline All thebankswereratcdstrongintenns ofcapital K7.8 billionin2004.This favourableoutturnwas adequacy and the asset condition of the sector cxhihitecl in the higher Lusaka Stock Exchange was sound, Additionally, profits for the sector (LuSE) All Share Index, which increased to increased significantly during the review period 1,240.2 in2005 from 765.8 in 2004. Inline with to K442.8billionfiomK198.7 billionin2004. this generaltrend. the number o ftrades increascd to 2,456 in 2005 from 1,993 in 2004. Thc total 37. On tlie stock market, equity activity in number of corripmulles on the stock market 2005 increased. Market capitalization rose by increasedto25 from 22 in2004. 11.O percentto closethc year at K8.6billion from TERTIARYSECTOR Taxes on Products TOTALG.D.P. AT MARKET PRICES Soiirce ('entre1 Statisticd Office * Prel~niinary DEVELOPMENTS I N THE DOMESTIC ECONOCl\' Table 2.4: CDP bs kind of Economic Activitv at Currcnt Drices (K' Billions) Wood and Wood Products Source Ccntral Statistical Officc *PIdlIlll!ld~ StructuralReforms 38. Structural reforms implerncntation was Expcnditurc manageincnt, privatc sector generally on track in 2005. The reforms investment climate and performance o f continuedto befocusedonimprovingpublic parastatals. C EV EL 0 P ME N"S IN THE D0MESTIC C 3 NI)klv Cl!AF-EE 7 Table 2.5: Status of Privatisatiun Transactions in 2005 CompanyName 1 Status he company has been resuscitated and reemployed most of its Zambia Seed Company ed to the Road Development ""IIII""I^I""XIXI_.-"------ --- - Source Zambia Pi~vatrsatio~i Agency In this regard, in June 2005 the Public: ZAMSEED. This broiiglit the total number of Expenditure Management and Financial privatised companies by 2005 to 262 out of the Accountability (PEMFA) reform programme total working portfolio o f 284. Bids were also was officially launclicd aimed at increasing received for the sale of Maarnba Collicrics awareness o f various stakeholders o f Limitcd and49.0 pcrceiit shareholding inZambia Government's efforts to improve public NationalCommercialBankPIC(see table2.5). expenditure management and accountability systems inZambia. Doinestic Debt 39. With regard to the Private Sector 41. The total domestic debt stock increasedby Development (PSD) programme most o f the 18.0 percent to an estimated K6,I 89.4 billion at efforts were on, the preparation o f the ICT bill. end-2005 compared to K5,246.4 as at end-2004. which will among other things, pave the way for Thedebt stock in2005 was 19.0percent ofGDP the liberalization o f the international comparedto 20.2percent in2004.The increasein telecommunications gateway; approval o f the the nominal stock ofdebt in2005 was largely on Labour and Social Security`s Action Plan to account o f an expansion in the stock of reduce the costs o f separation packages; and Government securities, the Bank o f Zambia approval oftlieMinistry ofTourismEnvironnicnt kwacha bridge loan to Government and awards and Natural Resources` Action Plan to reduce and compensations. The stock or Government complex licensing procedures in tourism. The securities increasedby 28.5 percent to K3,242.9 other was the development o f an action plan to billion i n 2005 from K2,522.6 billion in 2004. red11ce adiiiinistriitivc barriers; and the Borrowing from the tinancia1 sector increased development o f an action plan for the partly to facilitate the reduction o f domestic introductionofmunicipalhousinghonds. arrears, especially ior road contractors. Consequently, the stock o f domestic arrears 40. During 2005, a total o f thrce enterprises reducedby 1 1.8 percent to K509.3billionin2005 were privatised, nanicly Kafuc Textiles of from K577.4 billionin2004 (see table 2.7). Zambia Limited. Monarch Zambia Limited and 'Table 2.6: Domcsticdebt (In K'Billions),2003-2005 S o w ~ eClirirwy of'I'innnce uid Vattonal Planning 0EV EI_. Pb;l E1.1 S IN Til E D0MEST iC 4 C 3NC M'" 0 - 3.0 Overview target o f K5,511.5 billion. This favourable performance was largely attributed to higher udget performance was satisfactory as collections in taxes on inconic and domestic both revenues and expenditures were goods and services (See table 3.1). Personal within target. As a result, the budgct incoine tax rcmaincd the single largest delicit was within projection Icvels. In addition, contributor to total tax revcnues at 36.0 pcrccnt budget execution itnproved, with relcascs to followed by import kalue added tax at 18.0 individual line ministries as a percent o f budget percent(seefigure3.1). allocationbeinghigherthan in7004. 47. Total Income tax collections In2005 were slightly abovc target by 1.5 percent with collections amounted to U , 4 6 I.7 billion. This 43. The overallfiscal policyobjectives in2005 was on account of higher collection o f arrears were to suppott macro economic stability and an under Pay As You Eatn (PAYE) and ncw expansion ineconomic growth. Inthis rcgard, thc recruitmcnts o f teachcrs by the Government. key fiscal targets were to contain domestic Further, the requirement o f tax clearance government borrowingto 1.6 percento fGDPand certificates led to an increase in the number of to raise spending towards growth enhancing and people registering for tax purposes in the poverty reductionprogrammes to 13.0percent o f company tax bracket. Personal income tax GDPor42.0percentofthetotalbudget. collections remained the singlc largcst contributor to both income taxes and total taxes. RevenuePerformance Collections in this tax category amounted to K1,96X.2 billion (scctablc3. I). 44. Total revenues and grants amounted to K7,743.7 billion in 2005, representing 23.7 48. Collections from Mineral Royalty stood at percent of GDP compared to 25.2 percent in K39.2 billion, which was far above target ofK4.1 2004. Ilomestic revenues in 2005 accounted for billion in 2005. The exceptional performance in 72.9 percent o f the total while the remainder o f royalty collections was due to the coming on 27.1 was infomi offoreigngrants(scctable 3.1). strcani o f big mining companies likc Konkola Copper Mines (KCM) in the mineral royalty Domestic l t e ieiiiie bracket after the expiry o f concessions that were awarded to thcni through the dcvclopinent 45. Total domcstic rcvcnuc collections in2005 agrccmcnts. amounted to K5,643.2 billion. This was below targetbyK79.1billionor 1.4percent.Asaratioof 49. Medicallevy collections for the yearunder GDP, domestic revenue in 2005 declined to 17.3 review were above target by 5 percent. A total o f percent from 18.3 percent in 2004. Interms o f K6.7 billion was collected against the target of contribution to total domestic revenues, the K5.9billion. majority was from tax revenues at 97.8 percent, whilenon-tax revenues andexceptional revenues contributed 1.6 percent and 0.6 percent, respectively. 50. Total collections fiom taxcs on domestic goods and services amounted to K1,390 billion Tax Ke\cnue and were above target by 3.9 percent or K52.5 billion. The positivc perforrnancc was due to 46. Total tax revenues in 2005 amounted to higherthantargetedcollections infuel levy and K5,5 18.4billionandwerebroadly inlinewith the Figure 3.1: Share o f Major 'Taxes in' M a l Revenuesin 2005 Personal Income Tax ~ 36% DomesticVAT Import Tarrifs] import VAT 12% 18% Domestic VAT, whichwas above by 92.7percent revisionofthe approved fees and fines. The non and 2.3 percent, respectively. The notable collection o f interest and principal repayments improvement in performance on hiel levy under on-lending on account o f swapping o f a collections was attributed to the revocation o fthe number o f loans under the domestic debt concessions on duty free importation by the portfolio, alba contributed to under pcrfoiniance mines, in particular, K C M . The above innon-tax collections. perfomiance o f VAT was due to lower than projectedrefunds duringthe year. LxcepiioniilKevcnuc$ Trade 'I'axes 53, Collections under exceptional revenues amounted to K36.3 billion and were below the 51. Atotalo fK1,666.2 billionwas collectedas target o f K74.9 billion by 5 1.6 percent. This was trade taxes in 2005, which was below target by due to low fertilizer recoveries and non- 4.7 percent. The below target performance was remittance o f Energy Regulation Board fees to attributed to low collections inimport and export theTreasury. tariff's. With regardto import tariffs, this was due to the domination o f imports by hydrocarbon products. The increase in hydro carbon imports was attributed to the frequent disruptions o f 54. Total foreign grants in 2005 amounted to supply from lNDENloilrefineryduringthe year. K2,100.5 billion and were above target by 3.9 In addition, the strengthening of the Kwacha percent. Dircct budget support amounted to against major currencies also contributed to K598.8 billion and was above target by 56.7 below target performance in import tariffs. percent. This was on account o f good will from Exportduties were below target mainly due to the cooperating partners, triggered by satisfactory removalo fexport dutyontimber. macro econoniic performance and good governance. 52. Non-tax revenue collections in 2005 were below target by 47.3 percent with collection amounting to K88.6 billion. T'hc lowcr than projected collections was mainly due to the non- Source: Ministry of Finance and National Plmning I<: \pt*nttitiir'es below target by 0.2 percent. The bulk of the releases were for wages and salaries, and 55. 'Iota1 cxpenditures in 2005 amounted to recurrent departmental charges (RDCs), which K8,845.7 billionor27.1 pcrcentofGDPand were stood at 40.5 percent and 23.9 percent, below target by 5.8 percent. Current expenditures respectively. Other major components o f accounted for 68.5 percent o f total expenditure expenditure were transfers and pensions, and while that on capital was 31.5 percent. Total domestic interest, which accounted for 13.1 domestically financed expenditures amounted to pcrccnt and 12.1 percent, respectively (see table K6,022.5 billion and were below the targct o f 3.2). K6.568.2 billionby 8.3 percent. 57. Total releases for wages and salaries ExpenditureBy KconomicC'lrrssificatioti amountedto K2,455.0 billionagainst aprojected figure o f K2,513.2 billion. Releases for other ClrrrerltExpcntlltIII'L' emoluments such as leave travel bcneiits were under funded on account o f over funding on 56. Budgetaryreleases for current expenditure other budgetary lines such as RDCs. This was in2005 amounted to K6,056.2 billion. This was largelyattributedto higher releases towards CHAPTER 3 arrears to suppliers o f goods and services, above target by 82.0 percent due to higher than especially to road contractors, which had been targetcd collectionsonfuel levy(seetable 3.2). outstanding for alongtime. PovertyReductionPrograinnies 58. Budgetary releases towards transfers and pensions amounted to K794.0 billionwhich was 62. Total PRP allocations in 2005 were lower than thebudget allocation o f 1207.0billion K4,208.4 billion, representing 44.8percent o fthe by 34.2 percent. A total o f K158.7 billion under total budget. O f this amount, KlJ49.1 billion this category went towards the Public Service was to be domestically financed. As at end-2005, PensionsFundasplannedatthe start ofthe year. domestically financed PRP expenditures amounted to K2,062.4 billion, which was 12 59. Total domestic interest payments in 2005 percenthigherthanprogrammed. amounted to K731.5 billion. This outturn was lower than the projected amount o f K850.0 ExpenditureByFunctionOfGoveriiinent billionby 13.9percent due to the relatively lower than projected interest rates during thc year. 63. During 2005, budgetary releasesto public External debt interest service payments administration and order and safety, accounted amounted to K130.0 billion, and was below for 53.7 percent o f the total domestic budget. projectionby 32.5 percent. This out turn was as a Releases to the social sectors and economic result o f lower interest payments attributed to sectors accounted for 29.3 percent and 17.0 debt relief attained under the HIPC Completion percent o fthe total domestic budget, respectively Point. Payments towards amortisation during (seetable 3.3). 2005 amountedto 438.9 billion Social SectorExpenditures 60. Releases for other current expenditures, which included financial restructuring, the 64. A total of K1,763 billion was disbursed Zambia RevenueAuthority (ZRA), strategic food towards social sectors in 2005. This represented reserves, fertilizer support programme and 29.3 percent ofthe total domestic budgetand37.5 constitutional posts, amounted to K442.2 billion, percent o f the discretionary budget. In as againstthebudgetallocation ofK459.1billion. comparison to the 2004 levels, this reflected an This outturn was mainly attributed to lower iinprovement in terms o f percentage o f releases toward financial restructuring o f discretionary budget by 0.8 percentage points. parastatals, which fell below target by 23.2 However, there was a slight decline o f 0.5 percent. Total releases for the strategic food percentage points in terms o f share o f total reserve, fertilizer support and input pack domesticbudget (see table 3.3). programmes were as planned for the year. However, releases for constitutional posts were 65. Releasesto the educationsector amounted to abovethcprojectedlevels onaccount o fincreases K1,062.6 billion andwas abovebudget allocation in remuneration effected during the year (see by 16.3 percent.As apercent o fthe domestic and table 3.2). discretionary budgets, releases to the education sector were 17.6 percent and 22.6 percent, CapitalExpenditures respectively. The discretionary sharein2005 was only slightly lower than the 22.7 percent in2004. 61. Total capital expenditures in 2005 were The main focus in 2005 was on increasing the estimated at K2,789.6 billion or 8.5 percent o f number o f medical personnel as well as GDP.Domestically financed capitalexpenditures instituting retention schemes as a way o f amounted to K565.1 billion against a budget retainingfi-ontlinepersonnel. A t o t a 1 o f allocation o f K488.5 billion. This was above K1,449.7 billionwas releasedfor RDC's, andwas allocation by 15.7 percent. Out o f the total o f abovetarget byK76.9 billionor 5.6percent K565.1 billion releasedfor capital expenditures, 42.4 percent went towards poverty reduction programmes and 28.9 percent to the Road Fund. Inparticular, releasestowardtheRoadFundwere BUDGET PERFORMANCE CHAPTER 3 Table 3.2: Central Government Expenditures, 2005 I 2005 Variance of % Variance of Releases 1 ReleaseVs I Total Budget TOTAL EXPENDITURES 9,395.2 I 8,845.8 1 (549.4) I (5.8) CURRENTEXPENDITURES ___Wagesand &larks_ __ _____- - - 6,670.2 6,O56.2 ._ _. - - (614.0) (9.2) __ -..--. ... 2,513.2.. _- 2355.0. _ . - (38.2)- ___ Olw-Houslng allowance . . _ _ _ ___. ._. ..- .- . 86.4 86.4 __ - __i2.3)_ _ Public service retrenchment 65.7 43.9 (21.8) (33.2) Recurrent departmental charges (RDCs) 1,372.8 1,449.7 76.9 5.6 __Arrears clearance 140.9 254.3 113.4 _ 80.5 _ ~ ____ 2002 housingallowance 26.7 26.7 2003 hous!ng allowance .. - . 38.2 0.0 __ - 0.0 Suppliers of Goods and Services __Elections& Constitutiona_lLeview- __ _ _ __ . - 76.0 __ . - . 189.4 113.4 149.2 _ - - ..._ .. . 742.0.- .___ . _ _ ___ 2.5- . . . -_ 1.8 -Slate FunctionsjPublicAffairs-ZdSummits _ By_e-Elec!on_s_ _ .. _ ___ ___ .___ _ _ _ .-.- .. _ _ _ 4!_. _ _ _ 14,5 - 4.0 - - _(P_.O) .- . .- ..(O.O) . 25.0 .. ._- 39.6 . 14.6 Award and Comp~,?satlons_CCourtde~~!o~~-__. __ - 54.0- w-. _ _ _ 58.4 _- - Other RDCsi?- _.-.- __ _1,007.0 - - - 953.3 (53.6) - (5.3)- ~ -___.- __.-__-. olw PRPRDCs 345.1 84.7 -(260.4) .____ (75.5) ______ and Pensions Transfers 1,207.0 794.0 (413.0) (34.2) PensionFundand Settlementof StatutoryArrears 159.0 158.7 (0.3) (0.2) Other Transfers 8 Pensionsl2 __ ~~ 1,048.0 635.3 (412.7) (39.4) olw PRP Grants- 337.1 247.9 (89.1) (26.4) _ _I)Omestic!!%s_tt_ External Debt Interest Paid -___- - _ .__ ___....- - - - .. .-..__ .__. 850.0 - ___ . . - __ (13.9) - - - - . . 192.7 -73'5- ____--(1184- 130.0 .. - (62.7) , - _ _(32.5) - - -Other cur(enexpe$i&res- _ Financialrestructuring - ____- __ - __- - - - . _ 459.111 100.0 - -:76.8 442.2.- - .. (16.9) (23.2) .__ ___(23.2) (3.7) - ZRA __- - - __ _ _ __ _ _ Strategic FoodReserves(FRt\)_ -- - ___ -._. .- 127.0. -. 127.0.-_ . (0.0) - . 1 ___ 59.1 - . P!l-._- 160.0 - 158.5 _ ___ __ _ 2 Constitutional posts Fertil~ze~_piicesueport_c~~put 59.1 pack_(~-ipC:~Rp~ 13.0 _. .. - ..-22.8 (3.5) 9.8 J 75.5) Contingency ___ 9.6 2.8 CAPITAL EXPENDITURES 9.9 ___ 0.3 --- 2,725.0 2,789.6 64.6 2.4 -___ Domestically financed 488.5 565.1 76.6 15.7 -which: of PRP - ________ 109.0 239.5 130.6 119.8 Stadiums 5.0 3.5 (13) (30.9) __ GRZlRoad Infrastructure Projects Counterpart (Non- PRP) 100.0 60.5 (39.5) (39.5) 6.0 4.2 (1.8) (29.5) Ordinary Capital 161.1 88.9 (72.2) (44.8) - Fue!!e_vylRoad Fund) .- .____.____ . __- ___ _ 9!,q - 163.4 Ruraj_Ele_ctrifica@onFund- , ____.. - 73.4- - - -- -8?.6 .. . - 11.3 Land-__Development Fund __ - 5.1 - (6.2) . - f55.1)- .- -.- _ - .IY!,OI. Foreign Financed -__ __- __- _ -_ __ .--. . . - 6.1 (6.1) - - 2,236.5 2,224.5 -_-... -(12.0) __ (0.5) Source Ministry of Financeand National Planning BUDGET PERFORMANCE C H A P T E R 3 66. Total releases to the health sector percent o fthe discretionarybudget. The transport amounted to K480.0 billion. This was above the and communication sector, received the largest budget allocation by 11.1 percent. The budgetary shareamountingto K478.0 billionor 43.4 percent releasesto the healthsector in2005 accounted for o f the total releases to the economic sectors and 10.2 percent o f the discretionary budget and 8.0 7.3 percent o f the total domestic budget. Most o f percent o f the total domestic budget. In 2004 the releases under transport and communication releases to the health sector had accounted for were ear marked for road works. Theagricultural 11.S percent o f the discretionary budget, which sector rcccived K352.3 billion or 5.8 percent o f was higher than the2005 figure by 1.3percentage thetotaldomestic budget (see tablc 3.3). points BudgetDeficit 67. Generally in2005, all social sectors, with the exception of water and sanitation and social 69. The overall budget deficit in2005 stood at safety net, were fundedabove 100percento ftheir K1,102.1 billion or 3.4 percent o f GDP and was budget allocations. Releases towards disaster below the projected deficit o f K1,1652.1 billion relief were, however, much higher at K52.3 by 33.4 percent. The deficit was financedthrough billionagainst the allocation ofK6.7 billion. This borrowing from both domestic and external was on account o f the increased magnitude of sources. External financing was primarily relief required following the partial drought throughproject loans. experienced during the previous agricultural season. 70. Notwithstanding the positive outtum on the overall budget deficit, domestic govcmment EcononiicSectorExpenditures borrowing at K596.3 billion or 1.8 percent o f GDP was above the year target o f 1.6 percent o f 68. Releases towards the economic sectors in GDP. I t was however, slightly lower than the 1.9 2005 amounted to K1,023.6 billion, which was percent achieved in2004. 17.0percentofthe total domestic budgetand21.8 Sector 2005 Total 2005 Total Releases as Releases as % Releases % of Domestic Releases % of Budget of Total Total Budget Allocation Domestic Discretionary Allocation Budget Budget ~- Mining 12.8 i 16.4 128.1 0.3 0.3 Others*. - . - -_ - - L _ - -....._. ... .- - _ _ 3,899.7 3,235.1 83.0 -.-_I 53.7 _ _ _6i.S Total Domestic Budget 6,568.2 I - 6,022.5-* - 91.7 -- - 100.0 Total Discretionary Budget 4,567.50 4,697.7 BUDGET P E R F O R M A N C E Overview BroadMoney M onetary and financial sector 72. Preliminarydataindicatethat annual broad developments were favourable in money growth in2005 was 0.4 percent compared 2005. Thiswas reflectedinthe decline to 30.3 percent in 2004 (see table 4.1). The ininflationand commercial banks lending rates. growthin2005 was far below the annual target o f In addition, the overall financial condition and 14.8 percent. The deceleration in broad money perfomianceo fthebankingsectorduringtheyear growth was explained by the reduction in net was sound, with adequate capital as well as domestic assets. This was due to the revaluation satisfactory asset quality, earnings performance effects offoreign currency deposit liabilitiesheld and liquidity ratios. In the non-bank financial bycommercial bankswiththepublicasaresult of sector, the overall financial condition and the strengthening o f the Kwacha. The reduction performance o f the leasing sector was fair while in the Government's obligations to the thefinancial condition andperformance ofmicro International Monetary Fund (IMF) also finance institutions was satisfactory. Similarly, contributed to the deceleration in money supply the buildingsocieties sector continuedto register growth. positiveperformance. I I 2003 2004 2005' % Change . ..___ __ NET FOREIGN ASSETS --__-- - - __ ________- - - - _ ._ -...- ..- -. ... - -. _ __ _ __ - . --.. . _.... _. _ForeignAssets -- . . ... -.- - . ... - _ _ .-C ._ (ZL4Y!7L. __(lIS69.4l PW_ __ -185.7) 5,728.0 6,445.9 5,956.6 (7.6) Foreign Liabilities -L- (8,162.7) (8,415.3) (6,238.2) (25.9) DOMESTICASSETS 7,789.3 6,122.7 (21.4) DOMESTICCREDIT 4,215.1 4,766.4 5,054.4 6.0 Net Claims On General Government 2,708.8 2,512.7 2,386.9 (5.0) OTHER ITEMS NET j 2,687.5 3,022.9 1,068.4 (64.7) ________- BROAD MONEY , 4,467.9 5,819.9 5,841.1 0.4 MONETARY AND FINANCIAL SECTORS DEVELOPMENT CHAPTER 4 DomesticCredit Intlation Developments 73. Domestic credit in 2005 increased by 6.0 75. Theannual overall inflationratefell to 15.9 percent, to K5,054.4 billion from K4,766.4 percent in December 2005 from 17.5 percent at billion in2004. Net private sector credit grew by end-2004. This movement in the annual overall 7.6 percent in the year through end-December inflationrate was attributed to the drop inannual 2005 against the target o f22.3 percent, largely on non-food inflation to 14.0 percent in 2005 from accounto ftight monetary policy. 18.9 percent in 2004. The outcome was mainly due to the strengthcning o f the Kwacha against 74. On a sectoral basis, commercial banks' major currencies, as well astight monetarypolicy. domestic credit to the real estateandconstruction This decline, however, was achieved against a sectors increased by 82.1 percent and 56.3 background o f high oilprices on the international percent, respectively, while credit to the market for most o f 2005, disruptions o f he1 wholesale and retail trade sector increased by supply from the INDENI oil refinery and 41.1 percent. Domestic credit rose by 32.8 increased domestic food prices arising from a percent in the agriculture, forestry, and hunting shortfall in maize production in 20041 2005 sector.Other sectors,where remarkable increases agricultural season. Aniiual food inflation rose to were recorded includedthe transport, storageand 17.5 percent inDecember 2005 from 16.3percent communication at 26.2 percent, manufacturing at inDecember2004(see figure4.1). 26.1 percent and personal loans at 13.9 percent. However, credit to the mining and quarrying sector decreasedby6.6 percent. Figure 4.1: DevelopmentsinAnnualInflation,December2003 to December2005 10.0 4 1 - ActualAnnual Food Inflation -Actual Annual Overall Inflation.--- Actual Annual Non-Food Inflation1 Source: Central Statistical Office and Banko f Zambia Interest RatesDevelopments percentage points lower in 2005 at 17.0 percent was 2.4 percentage points lower compared to 76. During 2005, yield rates on Government 2004. However, the yield rate on the newly securities generally declined. The 91-day introduced 364-day portfolio declined by 0.2 Treasury bill yield rate declined by 1.2 percentage points from the rate recorded on its percentage points to 15.1 percent in 2005 while debut in August 2005 to 17.0 percent in the yield rate on the 182-day Treasury bill December 2005. As regards Government bonds, portfolio declined by 2.0 percentage points to the 2-year bond yield rate lost 3.0 percentage 16.3 percent in December 2005. Similarly, the points in2005 to endthe year at 19.0percent (see yield rate on the 273-day portfolio was 2.4 table4.2). a MONETARY AND FINANCIAL SECTOR DEVELOPMENTS CHAPTER 4 Table 4.2: Interest Rates Developments 79. The major sources o f foreign exchange were traditional and non-traditional exports as well as foreign portfolio inflows in Government securities and domestic corporate stocks. Inthis regard, non-residents holdings o f Government securities stood at K 315.2 billion as at the end o f WATBR December 2005. In addition, the net inflow o f foreign portfolio investments in domestic equities amounted to US $9.5 million as at November 2005 from net outflows o f almost U S $0.1millionin2004. The increase innetinflows o fforeignportfolio investmentswas underpinned by heightened confidence in the Zambian economy byforeign investors. Source Bank of Zambia Key WATBR =Weighted averageTreasurybill rate, 80. Consequently, the Kwacha appreciated ALR = Commercialbanks'~eightedaverage lendingrate sharply against major currencies. I t appreciated ASK = Commercialbanks'weightedaverage rate for mings above K100,OOO. by 26.4 percent and 32.5 percent against the WALBR =Commercidlbanks'weighteda%eragelendingbase rate United States dollar and BritishPound Sterling, respectively. Similarly, theKwacha strengthened 77. Similarly, commercial banks nominal by32.7 percent and 33.0 percent against theEuro interest rates generally declined. The weighted and SouthAfrican Rand, respectively (see figure average lending base rate (WALBR) and the 4.2). average lending rate (ALR) declined to 27.6 percent and33.9 percent inDecember2005 from 81. The average real effective exchange rate 29.8 percent and 37.1 percent inDecember 2004, (REER)index in2005 declined to 50.6 from 96.6 respectively. This movement partly reflected the in 2004. This reflected a 47.6 percent erosion of drop in annual inflation during the year. Zambia's international competitiveness. The However, the average savings rate (ASR) for decreaseinthe REER index was both on account amounts above K100,OOO andthe 30-day deposit o f5 1.7 percent decrease inthe nominal effective rate for amounts above K20 million increased to exchange rate (NEER) and 15.9 percent increase 6.1 percent and 8.4 percent compared to 5.6 inaveragedomestic inflation. Thiswas inspiteof percent and 8.2 percent in 2004, respectively. 25.7 percent rise inthe following consumer price Nonetheless, the spreadbetween the lending and index. The average NEER index decreased to deposit rates remained high, reflecting among 294.2 in2005 from 609.5 in2004 (see figure4.2). others, structural rigidities inthebankingsystem. Financial Sectordevelopmcnts Developments in the Foreign Exchange Market BankingSector Performance 78. The foreign exchangemarket in2005 was characterised by increased supply o f foreign 82. The overall financial condition and exchange. The volumes o f foreign exchange performanceofthe bankingsector duringtheyear traded inthe inter-bank market increased by 17.4 under review was satisfactory. This was percent to US $521.9 million from US $444.7 evidenced by growth in total assets, satisfactory million in 2004. Similarly, commercial banks capital adequacy, asset quality earnings and purchaseso fforeignexchangefromthenon-bank liquidity conditions. public increased by 1.6 percent to US $2,372.2 million in 2005 from US $2,334.0 million recorded in 2004. In addition, Bank o f Zambia purchases o f foreign exchange from the market amounted to US$123.6 millionin2005 from US $103.1 million in2004, representing an increase o f 19.9percent. MONETARY AND FINANCIAL SECTOR DEVELOPMENTS CHAPTER 4 Figure 4.2: Exchange Rates Developments, December 2003 to December 2005 5000.00 , 120.00 2 100.00 YY 4000.00 T! 80.00 BL 1 3500.00 60.00 Source: Bank of Zanibia Key:BoZ mid-rate=Bank ofZambiamidexchangerate REERI= Rcal Effcctivc ExchangeRateIndcx 83. The banking sector continued to be andshareholders' funds at 88.0 percent compared adequately capitalised and all banks met their to 90.0 percent in2004. minimumregulatorycapitalrequirements during the year. The industry's net worth improved by 85. Deposits in commercial banks increased 42.9 percent to K971.O billion as at 31st by less than 1.0percent to K5,499.8 billion from December 2005, compared to K679.6 billion as K5,497.8 billion at end-December 2004 and at 31stDecember 2004. All the banks were rated accounted for 71.O percent o f total liabilities and strong in capital adequacy. The primary (core) shareholder's fiinds. Demand deposits were the capital for the industryincreasedby48.0 percent largest component o f total deposits and to K895.3 billionas at 31stDecember 2005 from accounted for 66.0 percent at end-December K605.1 billion as at 31st December 2004. 2005 compared to 70.0 percent as at end- Regulatorycapitalalso increasedby41.7percent December 2004. The pre-dominance o f short- to K972.1 billion as at 31st December 2005 from term deposits was largely reflected in the short- K686.Ibillion intheprecedingyear. term nature o fthe investment profile on the asset sideofthe balancesheet. 84. The primary and regulatory capital to risk weighted assets ratios improved to 26.0 percent and 28.0 percent at end-December 2005 compared to 20 percent and 22 percent at end December 2004, respectively. The ratios remainedabovetheprudential benchmarksof5.0 percent and 10.0 percent for primary and regulatory capital, respectively. The increase in capital adequacy ratios was mainly due to net profit after tax o fK344.3 billion recorded during the year compared to K149.1 billion in 2004. Total liabilities increased by 7.8 percent to close the year at K6J13.7 billion but remained relatively the same as a percentage o f liabilities MONETARY AND FINANCIAL SECTOR DEVELOPMENTS CHAPTER 4 86. The asset quality o f the banking sector in 2005 was satisfactory. Interest earning assets represented 76.2 percent o f total assets at end- Particulars 2004 2005 %change December2005 compared to 79.0 percent at end- 200412005 December 2004. Gross non-performing loans _ interest 676.5 -. 886.6 31.I.. Interest Expenses _ Income ___ _ _ - - increased by 39.9 percent to K217.9 billion from .- 104.7 135.3 29.2 K155.8 billion in 2004 and accounted for 8.9 -Nei Interes