Zambia: Budget balance remains in surplus in Jan-May

• Surplus represents about 0.2% of GDP in our calculations, much better than expected deficit
• Revenue & grants reached ZMW 63.4bn above projection thanks to higher grants, VAT and non-tax proceeds
• Expenditure is 10% below projection due to lower current spending but should rise going forward

The central government budget balance posted a surplus of ZMW 1.3bn in Jan-May, much better than the projected deficit of ZMW 9.0bn for the period, according to the latest monthly report released by the finance ministry. The surplus accounts for about 0.2% of the full-year GDP in our calculations, compared to a 1.2% deficit projection for the period. The improvement of the budget performance in Jan-May is mostly due to a ZMW 8.2bn tax revenue recorded in May.

Total revenue and grants reached ZMW 63.4bn between Jan-May, which is largely in line with the ZMW 60.6bn projection for the period, as collections from domestic revenue (particularly VAT), non-tax revenue and grants surpassed projections and offset by lower income tax. The VAT proceeds were boosted by import VAT which will further be boosted by the increased imports of electricity and food amid the ongoing drought.

Total expenditure amounted to ZMW 62.1bn, which is about 10% below the projection for the period mainly due to the under-execution of current expenditures, more specifically social spending, transfers and subsidies, personal emoluments and use of goods and services. However, these should increase as the government adopted supplementary budget to address the consequences from the severe drought, including increase in social transfers and importing additional electricity.

The original 2024 budget envisaged a deficit of 4.8% of GDP, down from actual 5.4% in 2023 (our calculation using latest GDP data for 2023). However, the government recently submitted a supplementary budget to reflect the impact of the drought which laid out additional spending and ways to finance it. The Central Bank recently in its MPC statement noted a pessimistic growth projection due to the drought, with growth for 2024 now expected at 2.3%, down from 3.9% in February and the finance ministry's 4.4% projection.