* Donors may freeze Zambia budget support over graft
* Government could be forced to raise some taxes
* Education and health sectors might be worst hit
By Shapi Shacinda
JOAHANNESBURG, Oct 5 (Reuters) - Some Western donors may withhold key financing for Zambia’s 2010 budget due to claims the government is being soft on corruption, officials said on Monday.
Analysts and a senior Treasury source involved with budget preparations said donor concerns about corruption, and a change in the fiscal cycle, had raised fears that Zambia might be forced to announce higher taxes in Friday’s budget to try to plug a likely funding gap.
The Treasury official told Reuters that some Western donors — who provide around 25-30 percent of the southern African country’s budget — have not made firm commitments for next year’s budget support.
“Some donors are willing to provide funds for the 2010 budget but others are reluctant so far,” the Treasury source said on condition of anonymity.”
“This might create a financing gap and the option could be to raise taxes or cut some expenditure,” the official said.
Donors are unhappy that the government blocked prosecutors from appealing former president Frederick Chiluba’s acquittal on graft charges, and following the exposure of theft of health aid.
In January, Zambia presented a $3 billion budget for the financial year to March 2010, but has since changed the budget cycle to calendar years.
The Oct. 9 budget will be for the 2010 calendar year, with funding for the three overlapping months now being included in the new budget.
However, the change, along with the concerns about corruption, may also cause difficulties in that some donors may not be ready to commit money.
Zambia already has relatively high taxes with personal income tax around 35 percent and value added tax at 16.5 percent, leading to regular complaints from workers.
Last week, Zambia accused Western donors of inciting protests to force the state to appeal against Chiluba’s acquittal. He had been accused of stealing public funds.
The acquittal created controversy in the southern African country, and former colonial power Britain, civic and opposition leaders accused the government of reneging on an anti-corruption campaign launched in 2002 by late president Levy Mwanawasa.
Some donors froze $33 million in aid in June after it emerged that Health Ministry officials had stolen $5 million of ministry funds.
Finance Minister Situmbeko Musokotwane declined to say whether he would cut or raise some taxes in the 2010 budget.
“Well, I can’t say that now because it is next week (that I will present the budget),” Musokotwane told Reuters in Cyprus last week.
Prominent Lusaka-based economic analyst Chibamba Kanyama told Reuters that holding back aid could harm the economy.
“A lot of capital and social projects in education and health may not be funded and this may cause a serious crisis to the country,” Kanyama said.
“The government has not shown seriousness in fighting corruption, which is a major concern for donors,” he said. (Reporting by Shapi Shacinda in Johannesburg, additional reporting by Michele Kambas in Limassol, Cyprus)