FINANCE Minister Dr Bwalya Ng’andu says the issuance of bonds will not worsen the Zambia’s current debt position because they are long term.
And Dr Ng’andu says Zambia is poised to save about K3.7 billion from the G20 debt service suspension initiative.
Meanwhile, Dr Ng’andu says the Ministry of Defense has been included in the supplementary budget because government wants to explore ways of producing bullets locally, rather than importing them.
Dr Ng’andu was speaking when he virtually presented a K15.1 billion supplementary budget to the parliamentary budget committee chaired by Mbala PF member of parliament Mwalimu Simfukwe.
Of the proposed amount, K5.7 billion is set to go towards domestic debt service obligations and K5.5 billion will be allocated towards expenditures drawn from the COVID-19 bond.
“The excess expenditure budget stands at K15.01 billion. I would now like to bring out the proposed expenditure allocations contained in this excess expenditure. Chairperson, you may wish to note that K5.7 billion or 38 percent of the excess expenditure will be dedicated to domestic debt service obligations primarily on increase in the interest rates on domestic borrowing as well as corresponding increase in the stock of domestic debt. Expenditures amounting to K5.54 billion or 37 percent of the total expenditure will be allocated to expenditures drawn from COVID 19 bond. Chair, as you may be aware, government through the Bank of Zambia issued a COVID bond of K8 billion, the maturity profile of the bond is expected to be at least five years and the amortised from year seven on the basis of first in first out to encourage basically quick subscription to the bond. The proceeds will go towards domestic players in business where government owes small and medium enterprises and also in loans and guarantees to small and medium enterprises. You may wish to note that only K5.5 billion of the Covid bond will be supplemented,” Dr Ng’andu said.
And in response to a question from UPND Kapiri mposhi member of parliament Stanley Kakubo on whether the bonds being issued had a bearing on the country’s debt position, Dr Ng’andu said the bonds being issued had a long maturity rate which gave the country some time to manage them when they matured.
“On the domestic debt, there is still room and provision that is available under the both bonds as well treasury bills which are available. And this particular instance, we have gone specifically for bonds and I did mention that these are long term bonds. Long term, maturity here we are looking at seven, up swinging as high as 15 years. So if you take that together with the kind of measures we are taking in terms of trying to reduce the current debt, I think by the time we will be getting to the fifth year or so, we should be in a better position to manage that debt stock with the existing debt situation at the time. If we had contracted short term debt, it would probably, we would have a problem because it would then exacerbate, if you like the liquidity situation but given that they are long term in nature, I think they will give us the space that we will be able at the same time to manage the debt situation before we get to that point,” he said.
He said given the current debt distress, government was not engaging in external borrowing.
“In terms of domestic borrowing, I think the issue around borrowing first is that the debt stress situation that we are experiencing has been occasioned primarily by external debt as opposed to internal debt specifically. I think we are all aware that as far as external debt is concerned, we have stopped borrowing externally. At the same time we are currently negotiating with the view to get some relief in that space. So as far as external debt is concerned, we are not touching,” he said.
Meanwhile, Dr Ng’andu said the Treasury expected to save K3.7 billion from the G20 debt service suspension initiative if the country benefited from the initiative.
“The treasury has made an assumption that we will benefit from the G20 debt service suspension initiative. Savings amounting to K3.7 billion are anticipated to be accrued from this initiative. Loans and investments has a budget allocation of K18.2 billion of which K6.2 billion has been released to date leaving a balance of K11.8 billion. It is in this regard that K5 billion is proposed to be declared as saving under head 21. So if we summarise this, I can say head 99, which is external debt service will be realising the amount of K3,718, 889, 146.34 and head 21, loans and investments, we will realise 5 billion and that gives us a total of K8,718,889,146.34,” he said.
And in breaking down expenditure, the Minister said the ministry planned to spend about K700 million on the defense and security wings following internal and external challenges the country faced this year.
“Chairperson, our country has faced challenges both internally and externally and therefore I am proposing to spend K719 million on defence and security wings. This amount is primarily used to modernise the services for our men and women in uniform,” said Dr Ng’andu.
“Chair, I think there are some things that probably are difficult to explain bearing in mind that this is on public radio but obviously we have had issues on Congo border that we have had to keep on end of alertness and then internally here, in the more recent past we have had issues if gassing and so on. So there are certain issues to do with security that require a response. It’s difficult for me to get into the actual details unless we are in camera.”
When asked why the Ministry of Defence was getting a substantial part of the supplementary budget, Dr Ng’andu said government was consideration the local production of bullets and uniforms.
“The gateway is being capitalised deliberately by us so that it is able now to manufacture bullets so that we don’t have to import, we don’t have to rely on importation of bullets. That’s just one example of the effort to try to make various items in the country. I do take the criticism that maybe we need to look at the whole issue of manufacturing uniforms for the military, for the police, this is something that is currently under discussion and we are trying to identify how we can create capacity and capability within the country to do that. One of the projects being worked on is the former Mulungushi textiles in Kabwe, it is as a potential project we can develop and can be able to bring what the chair was proposing. It’s something we are not oblivious to, it’s something that we think is important, the foreign exchange we earn, I think we can use it more appropriately and stop importing things that we necessarily don’t need to import,” said Dr Ng’andu.