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Mwanakatwe downplays IMF deal in her first financial policy reform announcementBy Mirriam Chabala on 23 Feb 2018
Minister of Finance Margaret Mwanakatwe says government is strengthening institutional and legal frameworks that will boost transparency in debt contraction, reduce accumulation and address perceptions surrounding the country’s original debt figure.
And Mwanakatwe has clarified that contrary to assertions that government is anticipating challenges in servicing debt, Cabinet and the Ministry of Finance are working on modalities to restructure the country’s debt and that preparations for the repayment of Eurobonds were underway.
Meanwhile, Mwanakatwe says she will continue engaging the International Monetary Fund (IMF) with respect to debt management and implementation of government’s Economic Sustainability Growth programme (ESGP).
In a statement issued yesterday on the performance of the country’s economy in 2017 and a general outlook on 2018, Mwanakatwe noted some potential risks to the economy in 2018 which included relatively high lending rates and uncertain weather patterns that might impact negatively on electricity generation and agricultural activities.
“Government has developed a Medium Term Debt Strategy while regular debt sustainability analysis will be undertaken. On debt management, the government will continue to enhance debt management capacities and transparency. In this regard, government will prioritize the slowing down of debt accumulation and address perceptions around debt numbers by strengthening institutional and legal framework that will boost transparency in debt contraction. To this end, government will be re-energising the engagement of stakeholders that are cardinal to improving debt dynamics and related economic fundamentals to support these reforms,” Mwanakatwe stated.
“I will now clarify the position of Cabinet and the Ministry on the restructuring of debt. This issue is unfortunately being misinterpreted that government is anticipating challenges in servicing its debt. As announced in the 2018 budget address, the government has commenced preparations to address the repayment of its Eurobonds through the operationalization of a sinking fund. Part of the process involves addressing liquidity risks at the time of refinancing of the Eurobonds. As part of prudent risk management, government decided to reposition some flows falling due during the period of the Eurobonds, by engaging some creditors that may be open to pushing this period forward. We are not contemplating any stock re-profiling but just the flows that fall due in the period of the repayments. China being a natural first creditor and accounting for 28% of our debt was a natural creditor to have a discussion with.”
Mwanakatwe emphasised that it was incumbent upon government to tell citizens the truth in a democratically elected government.
“May I emphasize that Zambia does not intend to and will not default on its obligations. Only creditors that will be amenable to the proposal will be engaged and this will be on the basis of willingness. As part of the broader strategy, the Government has since put in place a team of officers from the Bank of Zambia, Ministry of Finance and Ministry of Justice to undertake work that will determine exactly what form of strategy will be adopted for the repayment/redemption of Eurobonds. The work will be completed by the end of the 1st quarter 2018. As a democratically elected government, we owe it first to the Zambian people to tell them the truth not just about the debt government contracts on their behalf, but also about the state of the economy in general. Transparency in the management of public finances will therefore be key for us to win both the public trust, confidence of international financiers trading in government instruments and investors,” she stated.
And regarding the programme with the IMF, Mwanakatwe stated that government was committed to continuing its engagement on a programme with respect to debt management.
“The government is also developing a financing profile that is aimed at addressing our economic development aspirations without compromising debt sustainability, in an effort to bring the debt levels to moderate risk of debt distress over the medium term from high risk of debt distress. And once our new strategy has been completed, I will be engaging the IMF to obtain their concurrence.”
Meanwhile, Mwanakatwe who projected a positive economic outlook for 2018, expressed concern that there were some potential risks which included relatively high lending rates and uncertain weather patterns that might impact negatively on electricity generation and agricultural activities.
GDP growth in 2017 was largely driven by positive performance in manufacturing, mining and agriculture sectors, GDP growth continued on a positive trajectory but despite being positive, preliminary data shows that growth is expected to be lower at 3.7 per cent than the above 4 per cent earlier projected. Inflation was contained within the band of 6-8 per cent that was set at the beginning of the year. End of 2017 inflation closed at 6.1 per cent, the lowest in over thirty years. Fiscal Performance: Preliminary numbers show that the fiscal deficit was below the budget target of 7.0 per cent of GDP at 6.1 per cent. Economic performance in 2018 is expected to remain positive supported by a stable macroeconomic environment and implementation of various policy, structural and legal reforms under the Economic Stabilization and Growth Programme (ESGP),” Mwanakatwe explained.
“Growth is projected to remain positive while inflation is expected to be low and in single digit while the fiscal deficit will be maintained within budgeted levels. However, some of the potential risks for 2018 include relatively high lending rates and uncertain weather patterns that may impact negatively on electricity generation and agriculture activities.”
Further, on monetary policy, banking and external sectors, Mwanakatwe noted that banking sector conditions had continued to be sound and satisfactory in 2017 while liquidity conditions largely improved with the easing of monetary policy.
“A slight reduction in lending rates was recorded at 24.6 per cent as at end 2017 from 29.49 0 per cent in 2016. Lending rates are still prohibitively high and posing challenges for enhanced business activities. The Government will work with the Bank of Zambia (BOZ) to institute targeted measures and engagements with the banking sector to meaningfully start to achieve lower rates in 2018. The Kwacha remained relatively stable against the major convertible currencies. The Kwacha trade against the US Dollar in 2017 averaged K9.99 per US$. The current account deficit narrowed to US$760.3 million in 2017 from US$1.037 billion in 2016. International foreign reserves in 2017 were recorded at US$2.1 billion,” she observed.
And on policy, legal and structural reforms, the minister envisaged a positive economic outlook in 2018, adding that the medium term would be anchored on key reforms being undertaken by government under the Economic Sustainability Growth Programme (ESGP).
“The need to sustain economic and fiscal governance, through maintenance of price stability for sustaining macroeconomic stability and fiscal fitness is paramount and necessary ingredient for growth, employment creation and poverty reduction. In this regard fiscal and monetary policy coordination will continue to be strengthened. Government will step-up fiscal reforms to ensure fiscal consolidation is fully attained. Government will continue to enhance domestic revenue mobilization and expenditure restraint to attain a 3 per cent of GDP fiscal deficit by the end of the medium term. Key to expenditure restraint is to concentrate on completing ongoing projects as outlined in the ESGP and emphasised by President Edgar Lungu,” Mwanakatwe stated.
“Other major policy reforms that must continue are in agriculture and energy. In the agricultural sector, government is committed to resolving the teething challenges of the implementation of the e-voucher. Further, the e-voucher has given us an opportunity that will allow us to have a benchmark for graduating of farmers in future. In the energy sector, reforms in both the energy and electricity sub-sectors, will continue in 2018 and beyond. These include full migration to cost reflective prices and sustenance thereafter, Government disengagement from importation of finished petroleum and commingled products. These will help anchor the fiscal and ensure efficiency in service delivery thereby enhancing economic performance.”
Mwanakatwe also disclosed that the Treasury had developed a monitoring framework to ensure early finalization and implementation of the national land titling programme, installation of fiscal registers and monitoring system for excise duties in telecommunications.
And in order to reposition the State Owned Enterprises, Mwanakatwe stated that government through the Industrial Development Corporation would continue working on ascertaining long term sustainability of assets with the view to improve contribution of state owned enterprises to the country’s development.
Meanwhile, Mwanakatwe stated that government would embark on the reformation of a number of legal bills for effective service delivery in the country.
“Legal reforms form a cornerstone of effective service delivery for any country. In this regard, reforms, such as those in the Public Financial Management will continue, among them; the Zambia Public Procurement Act (ZPPA), Insurance Bill, Bank of Zambia Bill, Deposit Protection and Pensions and Social Security bill, planning and budgeting, loans and Guarantee (Authorization) Act. And government will ensure the enactment of the new Public Financial Management Act during the current sitting of Parliament in 2018. Procurement reforms will continue to control wastage and overpricing. The amendment of the law will be undertaken to introduce reference pricing, expert estimates for works and services and enhance preferential contracting for locals,” stated Mwanakatwe.
About Mirriam Chabala
Mirriam Chabala is a Zambian journalist who covers current affairs and writes in-depth feature articles on social issues.
Email: mirriam [at] diggers [dot] news
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