President Edgar Lungu has effected major fiscal policy changes at the Ministry of Finance and announced new austerity measures in order to get government out of its current debt crisis situation.
In a statement released late Thursday, Finance Minister Margaret Mwanakatwe stated that the Head of State who is currently on a State Visit to Kenya, ordered cancellation of some existing loans, banned the issuance of letters of credit and guarantees to state owned enterprises, terminated financing of development project that are below 80 per cent completion and cut down on ministerial travels with immediate effect.
Mwanakatwe also emphasised that nobody else was mandated by law to sign any form of loan agreement on behalf of the Republic but herself and further banned all government officials from making public statements on economic matters and debt contraction, going forward.
“We have completed the debt sustainability analysis (DSA) and a full reconciliation of our debt stock. The DSA exercise has confirmed that we need to undertake measures to bring debt risk to moderate from the current high risk. Total public external debt as at end March 2018 amounted to US$9.3 billion from US$8.7 billion in 2017. The domestic debt stock (government securities) amounted to K53.5 billion from K48.4 billion over the same period. Let me again, emphasise that we have reconciled all the debt with all our creditors and hereby confirm the debt position,” Mwanakatwe stated.
“In order to address the pace of debt contraction and the affordability of the debt, government has undertaken to implement the following measures: (I) Indefinitely postpone the contraction of all pipeline debt until the debt is brought back to moderate risk of distress; (II) Cancel some of the current contracted loans that are yet to be disbursed to reduce the debt service outlays; (III) Undertake refinancing on selected bilateral loans, both local and external, to extend the maturity profile and attain lower costs on debt; (IV) Carry out an asset liability management exercise on the debt to ensure sustainability of cash flows; (V) Cease issuance of guarantees to commercially viable projects; and, (VI) Cease the issuance of letters of credit and guarantees to state owned enterprises that are technically insolvent until their balance sheet challenges are resolved.”
Mwanakatwe admitted that the current stock of domestic arrears, which stood at K12.7 billion as at end-December 2017, had adversely affected economic activity through elevated non-performing loans and subsequently contributed to reduced private sector financing.
“To address this, the following are the measures to be implemented: (I) All ministries to concentrate arrears dismantling to areas that will significantly reduce non-performing loans and release liquidity to the private sector; (II) Ensure that ZRA comes up with profiles to liquidate current and non-contentious vat claims; (III) The Secretary to the Cabinet to ensure that civil servants take annual leave to curtail expenditures related to personal emoluments such as commutation of days; and, (IV) The Ministry of Finance to enforce commitment controls to curb accumulation of new arrears,” she stated.
Speaking in the aftermath of the controversial failed sovereign guarantee to STAG Africa that President Lungu personally signed, Mwanakatwe addressed the elephant in the room, stressing that only the Minister of Finance was legally mandated to sign any debt agreement on behalf of the State.
“Ladies and gentlemen, another issue that I would like to clarify is the process of debt contraction in the country. Debt contraction is guided mainly by the loans and guarantees (authorisation) Act cap 366 of the laws of Zambia. Cap 366 vests powers of debt contraction in the Minister of Finance. In this respect, other than the Minister of Finance, no one has the legal powers to contract loans. Further, under Cap 349, the Minister of Finance is a corporate body, being an office that can be sued and thus on which loan obligations enforcement can be carried out,” Mwanakatwe stated.
She said given the continued spending pressures relative to expected revenues in 2018, the 2018 budget deficit was projected to be higher than the 6.1 per cent projected, adding that the financing of projects had continued to influence the deficit upwards in 2018.
“In this regard, the following revenue and expenditure measures shall be implemented in order to maintain a sustainable deficit: (I) The ministry of finance wiĺl ensure that there is strict adherence to the programmed domestic financing in the 2018 budget; (II) The ministry of finance will compel fuel importers to make declaration of fuel imports at borders to curb the problem of smuggling of fuel; (III) The Ministry of Transport and Communication will expeditiously implement the telecommunication transactions monitoring system for mobile service providers; (IV) The ministries of finance and mines and minerals development will put in place legislative measures to introduce taxation on precious metal exports; (V) The ministry of Finance will introduce electronically verifiable tax stamps on high risk imports to address the problem of smuggling; and, (VI) The ministries of justice; finance, and lands will urgently resolve all land titling issues to ensure that the planned issuance of 300,000 land titles is attained.”
On expenditure measures, Mwanakatwe announced that her ministry would not finance any construction projects that are less than 80 per cent complete.
“The ministry of finance will only fund projects that are at least 80 percent complete; In order to control the high expenditure on personal emoluments, recruitments will strictly be limited to the provisions of the 2018 budget, The management of the payroll will be moved to the Ministry of Finance by the end of June 2018 to ensure separation of duties and in order to enhance the authenticity of entries on the payroll, and to address payment of wrong allowances and ghost workers. To cut down on the cost of running government by reducing expenditures related to both local and foreign travel, and workshops, the Secretary to the Cabinet has been directed by the President to immediately issue new travel guidelines that will reduce the number of travels and the size of delegations. The ministry of works and supply will finalise the policy on government vehicles with the view to have them disposed off. This will reduce expenditures on running the government fleet,” she stated.
“The president has directed that a committee to scrutinise the quality of expenditure in ministries should be set up under the ministry of finance. The committee will allow government to take remedial measures on unnecessary expenditures for the rest of 2018 and going forward. Electricity tariffs with independent power producers will be renegotiated to ensure that there is parity between the buying and sell prices by Zesco; The Industrial Development Corporation (IDC) will implement the President’s long outstanding directive to relook at the portfolio of state owned companies to restructure the portfolio and bring in equity participation for those that are variable. The Ministry of National Development Planning will establish a multi-sectoral public investment board to scruitnise capital expenditure requests prior to submitting to cabinet.”
And Mwanakatwe banned government official from making public comments on the state of the economy and the debt situation.
“The making of several statements on economic and financial matters by unmandated government officials has continued despite a cabinet decision against the practice. This has sent wrong signals that have impacted negatively on the performance of the economy. To address this shortcoming, the President has banned unmandated government officials from issuing public statements on economic and financial matters, including on debt contraction. Such statements will now be done by the minister of finance,” stated Mwanakatwe.
“Let me, on behalf on the President of the Republic of Zambia, Mr Edgar Chagwa Lungu, stress and assure Zambians and the international community that the measures I have announced are an undertaking by the government to set a sound foundation for improved economic management, sustained growth and safeguarding of the people’s welfare.”