Zambia’s external debt shoots by $1.5bn 10 months

Commerce minister Margaret Mwanakatwe during the Zambia public and private dialogue in Lusaka-picture by Tenson Mkhala

Minister of Finance Margaret Mwanakatwe says Zambia’s reconciled debt stock is currently at US$8.7 billion.

And Mwanakatwe says government will resume talks with the IMF in the next two weeks after carrying out a debt sustainability exercise that will give the current debt parameters.

Meanwhile, Mwanakatwe also explained government’s decision to introduce and enforce new taxes.

Mwanakatwe’s predecessor Felix Mutati told parliament in June last year that Zambia’s debt stock was $17.2 billion dollars but the ministry quickly issued a retraction saying it was a slip of the tongue as the minister meant $7.2 billion.

However, Zambians were not convinced that Zambia’s debt was only $7.2 million and MMD faction leader Nevers Mumba wrote several letters to the Ministry of Finance demanding a clear breakdown of the country’s debt saying he believed it stood around $17 billion as Mutati had stated. his letters, however, were not responded to.

But at a media briefing on the state of the economy today, Mwanakatwe attributed the increase in debt stock to the reclassification of the US$500 million fuel debt that was reconsolidated in the external debt.

“Zambia’s reconciled debt stock is currently at US$8.7 billion. The larger part of the increase due to the reclassification of the US$500 million fuel debt that was reconsolidated in the external debt. Domestic debt stood at K50.9 billion at the end of the first quarter while arrears were K12.7 billion as at end 2017,” Mwanakatwe said.

And Mwanakatwe said government was still undertaking a debt sustainability exercise before the way forward with the IMF could be determined.

“The point of discussion with regards to the IMF programme is the issue of debt management. We are currently carrying out a detailed debt sustainability exercise that will give us the current debt parameters and the path we may have to take going forward. This will be completed in the next two weeks on which basis we can take the discussion with the IMF forward and find a settlement,” she said.

Meanwhile, Mwanakatwe explained government’s decision to introduce new taxes.

“In recognition of Government’s need to finance the various development programmes, Government is implementing several policy and structural reforms under the Economic Stabilization and Growth Programme (ESGP). The ESGP emphasizes the need for the country to finance its development agenda from domestic resources, while reducing external dependence. This Government recognizes that financing its development programmes from debt and hand-outs from cooperating partners is not sustainable. The country has immense domestic revenue opportunities yet to be fully tapped. Zambia has for years relied, for its domestic revenue, on a few sectors and tax types, a situation which is one of the constraining factors to higher growth and shared prosperity. This must not continue if poverty has to be effectively tackled. Government has to respond to such low levels through strengthening compliance and broadening the tax base. While doing so, Government will continuously and as appropriate, review its tax regime so that it does not disrupt economic activities,” she said.

“Government endeavors to ensure fair taxation while at the same time raising sufficient resources to deliver public services including up-scaling social protection programmes. For instance, on Social Cash Transfer, beneficiaries have increased to 700,000 in this year’s budget from 590,000 in 2017. The trend is similar to other social protection programmes. This is in addition to scaled up public investments in education, health and physical infrastructure. For sustainability, these programmes must rely on domestically generated resources. Relying on domestic resources will also avoid increasing the debt overhang on our future generation. We have to be responsible for our own development and everyone has the obligation and ability to contribute by meeting their tax obligations to support Government’s initiatives. Meanwhile, Government will ensure that the ordinary and poor Zambians are insulated from any reforms that may erode their livelihood. It is important to state that the higher the compliance levels, coupled with a broadened tax base, the higher the chance that Government will over time, reduce the tax burden on a few tax payer and make taxation equitable.”

Mwanakatwe, however, cast a positive economic outlook for the remainder of 2018.

“We expect continued positive growth and macroeconomic stability in 2018 with GDP growth projected above 4 percent. This is premised on positive performance in the agriculture, mining, construction and manufacturing sectors. Inflation is expected to remain within the projected single digit target range of 6-8 percent. Consistent with the fiscal consolidation stance, the Government is working towards the end-year fiscal deficit target of not more than 6.1 percent of GDP on a cash basis. In addition, to support macroeconomic stability, government will continue to undertake measures aimed at maintaining debt sustainability,” said Mwanakatwe.

         

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