Will we experience inclusive growth ?

This article is also available on the Financial Insight Zambia website*

The rhetoric for the 2018 budget is “Accelerating fiscal fitness for sustained inclusive growth, without leaving anyone behind”. The Minister of Finance stated that one of the key macro-economic objectives of 2018 amongst other things, include a GDP growth of 5%. Subsequent, the IMF presented their IV report to the board and the fund praised the growth trajectory of Zambia and governments collective efforts to lift the economy out of its rescinding period experienced over the previous two years.  The IMF projected  the GDP growth for Zambia to be at 4.5% for 2018 .

So the question being pondered upon, is whether these projected growth levels will be felt by the poorest of people or will we as a nation “leave some behind?”. Growth is necessary for poverty reduction but growth in itself is not enough, it should be inclusive for it to be robust and sustainable. Therefore, the question posed in this article is what is Inclusive Growth? —And have we as a nation implemented the necessary structures to make sure we carry the entire population on this growth wave.

If the Government is to “leave no one behind” the government needs to increase on its social expenditure. Social spending increases average opportunities available for the population and dictates how opportunities are shared among the population. Inclusive growth is therefore based on the premise that growth within an economy should create opportunities that are evenly distributed to the population. Social expenditures such as spending on education and health are important for fostering inclusive growth and are closely linked to poverty reduction. Macro-financial stability in particular, inflation risks, credit to private sector as well as financial inclusion are critical for promoting inclusive growth.

Education is considered a primary weapon for the fight against poverty as it promotes social mobility. It is therefore imperative that Zambians have access and equity to it. The budget for 2018 fiscal year allocated K 11,561,643,204 to Education which is only 16.1% of the total budget. There are two dimensions by which an economy can measure whether the education system is indeed serving an end. One is through average access to education by school-age children over time and across the country. The other is through distribution of educational opportunities across different socioeconomic and income groups. Research suggests that less- well households benefit more from education as reflected in the shift of welfare curve. However, government has allocated 5% of education fund to student loans and scholarships. Commendable efforts by the government include support from the World Bank targeting to provide educational support to 16,000 girls from extremely poor households in 16 districts. One of the four pillars the budget is premised on is “Enhancing Human Development” and this includes development in health and education skills development. Similarly, health was allocated a measly 9.5 % of the budget ( K 6,781,558,820)of which goes  drugs and medical supplies, health infrastructure and medical equipment. For Education and Health to meet its intended goal of social mobility, it is vital for it to be accessed to the lower end of the income distribution.

Marco-financial stability is cardinal for inclusive growth. Lower inflation goes hand-in-hand with more inclusive growth and better poverty reduction outcomes. Zambia has managed to curb inflation down to an average of 6.8% in 2017 from higher teens in 2016. The poorer population are usually more affected by inflation as their purchasing power is completely diminished, thereby widening the poverty gap.  Credit to private sector has been repressed by high interest rates in Zambia and if it should make a meaningful impact credit should be permeated to much needed entrepreneurs in the various sectors. Efforts by the government include Agricultural and Industrial Credit Guarantee Scheme to facilitate credit to small and medium enterprises. Under the Woman’s Development Program; government intends to empower about 30, 000 women with productive grants and micro credit countrywide in 2018. With financial inclusion and deepening of the financial sector, the government continues to make strides with policies to promote a well-developed, competitive and an inclusive financial system with the intention of efficient resource mobilization and access of financial services to relatively poorer households.

Inclusive growth is a social welfare opportunity function and dictates the pace and distribution of economic growth. For Zambia to truly not “leave anyone behind” it needs to boost social expenditure and ensure equal access. Therefore, inclusive growth should foster with it, a bigger middle class and an efficient re-allocation of resources. Ultimately, inclusive growth should reflect changes in the size and distribution of wealth in the country. Robust inclusive economic growth is imperative for strong government revenue growth which will drastically reduce the need for government borrowing whilst ensuring adequate fiscal space for developmental spending and social sector spending.

Muma N’gambi

Economist/Investment Analyst

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