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The Concept of Fiscal Space and Its Applicability to the Development of Social Protection Policy in Zambia

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The Concept of Fiscal Space and Its Applicability to the Development of Social Protection Policy in Zambia ESS Extension of Social Security The concept of fiscal space and its applicability to the development of social protection policy in Zambia Luca Aguzzoni ESS Paper N°28 Global Campaign on Social Security and Coverage for All International Labour Office Social Security Department Geneva Copyright © International Labour Organization 2011 First published 2011 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: [email protected] . The International Labour Office welcomes such applications. Libraries, institutions and other users registered with reproduction rights organizations may make copies in accordance with the licences issued to them for this purpose. Visit www.ifrro.org to find the reproduction rights organization in your country. ILO Cataloguing in Publication Data The concept of fiscal space and its applicability to the development of social protection policy in Zambia / Luca Aguzzoni; Social Security Department, International Labour Office. - Geneva: ILO, 2011 xiv, 72 p. ISBN: 978-92-2-125349-5 ;978-92-2-125350-1 (pdf) International Labour Office; Social Security Dept social protection / social security / social expenditure / fiscal policy / social security financing / Zambia 02.03.1 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications and electronic products can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. Catalogues or lists of new publications are available free of charge from the above address, or by email: [email protected] Visit our website: www.ilo.org/publns Printed in Switzerland Contents Page Acknowledgements ........................................................................................................................... vii Abbreviations .................................................................................................................................... ix Executive summary ........................................................................................................................... xii 1. Introduction ............................................................................................................................. 1 2. Literature review ..................................................................................................................... 2 2.1. Social protection in low-income countries ................................................................... 2 2.1.1 Advantages and disadvantages of investment in social protection ..................... 3 2.2. The concept of fiscal space ........................................................................................... 5 2.3. The African economy ................................................................................................... 6 2.4. The creation of fiscal space: Policy options ................................................................. 8 2.4.1. Official development assistance ......................................................................... 9 2.4.2. Domestic revenue mobilization .......................................................................... 9 2.4.3. Deficit financing ................................................................................................. 15 2.4.4. Reprioritization and efficiency of expenditures ................................................. 16 3. Case study: Zambia ................................................................................................................. 17 3.1. Social cash transfers in Zambia .................................................................................... 18 3.2. The SP package ............................................................................................................. 19 3.3. Country characteristics ................................................................................................. 22 3.4. The Zambian economy ................................................................................................. 23 3.5. Creating fiscal space in Zambia .................................................................................... 29 3.5.1. Official development assistance ......................................................................... 29 3.5.2. Domestic revenue mobilization .......................................................................... 33 3.5.3. Deficit financing ................................................................................................. 42 3.5.4. Reprioritization and efficiency of expenditures ................................................. 50 3.6. A policy proposal .......................................................................................................... 54 3.6.1. Creating fiscal space: Concrete strategies .......................................................... 55 3.6.2. Scaling up social protection expenditure ............................................................ 57 4. Conclusions ............................................................................................................................. 61 Appendix ........................................................................................................................................... 63 Bibliography ...................................................................................................................................... 69 The concept of fiscal space and its applicability to the development of social protection policy in Zambia iii List of tables Page Table 1. Overall taxation and contributions by category in sub-Saharan Africa: Changes over time .................................................................................................................................. 12 Table 2. Social cash transfer pilot schemes in Zambia .................................................................. 18 Table 3. The social protection package: Estimated costs of benefits for 2009 .............................. 20 Table 4. Non-traditional exports, 2003–2008 (US$ million) ........................................................ 27 Table 5. The Joint Assistance Strategy for Zambia (JASZ): Cooperating Partner financing commitments, 2006–2010 (US$ millions) ...................................................................... 32 Table 6. Official development assistance grants received, 2005–2008, and projections, 2009– 2012 (ZMK billions) ....................................................................................................... 32 Table 7. Tax arrears, 2007 and 2008 ............................................................................................. 38 Table 8. Revenue generation from mining, 2005–2010 ................................................................ 39 Table 9. Informal sector tax revenues, 2007 and 2008 (ZMK billion) .......................................... 40 Table 10. Zambia’s external debt stock, 2003–2008 (US$ millions) .............................................. 45 Table 11. External debt service, Government of Zambia, 2003–2008 (US$ millions) ................... 46 Table 12. Total public debt, 2005–2011 .......................................................................................... 47 Table 13. Debt Burden Thresholds under the Debt Sustainability Framework ............................... 48 Table 14. Financing projections, 2009–2012 .................................................................................. 49 Table 15. Government expenditure as a percentage of GDP, 2005–2010, IMF projections ........... 51 Table 16. Government expenditure as a percentage of GDP, 2009–2012, MTEF projections ....... 53 Table 17. Sources of additional fiscal space, 2010–2016 (percentage of GDP) ............................. 56 Table 18. Macroeconomics assumptions ......................................................................................... 63 Table 19. Structure of the Zambian tax system ............................................................................... 64 Table 20. Fiscal framework in Zambian Kwachas .......................................................................... 65 Table 21. Fiscal framework as a percentage of GDP ...................................................................... 66 Table 22. Macroeconomic
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