Finance Minister Felix Mutati says government will have to address the higher than projected budget deficits, accumulation of arrears, and increased debt levels before the IMF staff presents Zambia’s bailout request to the board in August 2017.
And the minister said in the first five months of the year, the revenue underperformed by 10 per cent compared to the budget.
Mutati was speaking in parliament this afternoon when he presented the state of the economy address and gave an update on the ongoing negotiations with the IMF.
He said although the country had made tremendous social and economic progress, risks remained high on the external side.
“Based on the need to support the external side, increase market confidence, enhance investment flows and to leverage more resources of cooperating partners, government has engaged the IMF on a possible programme. In this regard, Mr Speaker, we hosted the IMF in discussion from the 29th of May to the 10th of June. Mr Speaker, during these meetings, the government and the Fund agreed on the remaining actions needed to reach a staff level agreement on a programme that could be supported under the IMF’s Extended Credit Facility. With the required actions agreed to have the programme presented to the board in August 2017,” said Mutati.
“Mr Speaker, let me take this opportunity to emphasise that the position with regards to where we’re in our discussion, the major issues required to be addressed for us to proceed to the conclusion, mainly relate to higher than projected budget deficits, accumulation of arrears and increased debt levels.”
The minister said key policy structural measures aimed at mitigating the above challenges include reforms in the energy and agricultural sectors.
“Further, recognising the reforms may have adverse effect on vulnerable members of our society. I did state Mr Speaker, that government will scale-up the social protection programmes, in additional to increased resources that government has committed to the programme. Our cooperating partners have also augmented these resources for social protection,” he said.
On the state of the economy, Mutati said “the economic performance has rebound with inflation down to single digit, the exchange rate remaining largely stable and the GDP starting to recover”.
“GDP growth Mr Speaker, in 2017 is projected to rise to 4.3 per cent against an initial focus of 3.4 per cent. This is as a result of increased agricultural output, recovering generation for electricity and higher mining output supported by better prices and power supply. Other sectors that are supporting the growth are construction, wholesale, trade and tourism,” Mutati said.
“Mr Speaker, inflation closed at 7.5 per cent in 2016 but has now reduced to 6.5 per cent in May 2017. This was supported by the continuous ability of the exchange rate, lower food prices in view of the good harvest and improved market confidence in the country’s economic policy direction. In the external sector, the country’s current account deficit narrowed to US $257 million in the first quarter of 2017, against a deficit of US $ 574 million in the fourth quarter of 2017. This was largely explained by an improvement in the trade and income balances.”
“Mr Speaker, Zambia’s external debt stock as at the end of May 2017 increased to US $ 17.2 billion from US $ 6.9 billion in December 2016. The increase on stock was on account of new disbursements. The domestic debt stock was 38.6 billion in May 2017 compared to 33 billion in December 2016.”
The minister said the fiscal performance in the first five months of 2017 was challenging.
“Revenue underperformed by 10 per cent compared to budget. This underperformance on revenue has been on account of lower tax compliance by tax payers and delayed implementation of budget measures such as land titling, installation of fiscal devices to improve VAT collection, implementation of electronic equipment in the communication sector to improve the performance of excise duty and the introduction of a single window at entry points to reduce the turnaround times at borders and boost revenues,” said Mutati.