Newly-appointed Finance Minister Dr Bwalya Ng’andu says as austerity measures begin to produce results, the gap between the Zambian government and the IMF will begin to close which can hopefully lead to clinching a programme.
And Dr Ng’andu says Zambia’s external debt has continued rising to a new high of US $10.23 billion for the first time in the country’s history.
Meanwhile, Dr Ng’andu says low copper production this year should not be linked to the 2019 mining fiscal regime as the real factors are largely attributable to pricing and lower grades, among other fundamentals.
Speaking during his maiden economic briefing for the 2019 second quarter in Lusaka, Wednesday, Dr Ng’andu said Article IV consultations with the IMF would resume from next Wednesday and reaffirmed his commitment to ensuring that a much-needed economic bailout programme with the Fund was achieved.
“We continue to engage the IMF all the time and we engaged the IMF through Article IV consultations. In fact, we have an Article IV consultation team coming on the 24th of July. So, we continue to engage them and on top of that, we have already agreed the map of framework that addresses getting debt to a sustainable level and creating a fiscal space that will permit the country to move forward. So we are continuously engaging them. If you ask if we going to have a programme, that’s another matter. You see, the programme is an outcome of restoring the economy to fiscal fitness. If we can get fiscal fitness into the economy, it will be leading to that,” Dr Ng’andu said.
“As our measures begin to produce results, we will be able to close the gap between ourselves and the IMF and, hopefully, have a programme. The thing with an IMF programme is that it sends a positive message to the world, it affects the decisions that investors make. If you have a programme, investors think: ‘oh, well the economy is being managed properly’ and they find it easier to come to our country.”
And Dr Ng’andu revealed that Zambia’s external debt stock had continued piling up to reach US$10.23 billion by June 30, 2019, from US$10.18 billion as at March 31, 2019, while domestic debt had equally jumped to over K60 billion.
“The external debt stock as at end June, 2019, was US $10.23 billion compared to US $10.18 billion at end March, 2019. Domestic debt in terms of securities and bonds as at end June, 2019, was K60.3 billion showing an increase from the end-March position of K58.3 billion,” Dr Ng’andu told stakeholders at a packed auditorium at the Taj Pamodzi Hotel.
He revealed that Zambia’s liquidity challenges had badly hit subscription rates for government securities last quarter.
“During the quarter, subscription rates for government securities declined relative to the first quarter of 2019, due to liquidity challenges, perception and exit of foreign participants in the market,” he disclosed.
He also announced a general rise in government’s arrears owed to contractors and suppliers, which swelled to nearly K17 billion from K15.6 billion.
“Arrears stood at K16.7 billion at as end March, 2019, up from K15.6 billion as at December, 2018. The increase in arrears is due to increased disbarments on infrastructure development,” he said.
On the Goods and Services Tax (GST) implementation, Dr Ng’andu said consultations into this proposal will continue.
“Allow me to provide an update on some key policy matters that are of public interest. Sales Tax implementation: Having finalized countrywide consultations on the switch from VAT to Sales Tax, we are now addressing issues that have come from the consultation process. These include cascading effects due to multiple value chains, the need to avoid loss of employment due to possibilities of value chains dying off, the timing of introducing the tax and the need to protect manufacturers. These will be addressed as the process evolves in Parliament,” he added.
Meanwhile, Dr Ng’andu, who is also a nominated member of parliament, said declining copper production should not be linked to the 2019 mining fiscal regime as the real factors were largely attributable to pricing, among other fundamentals.
Reacting to a question on whether there were likely to be any changes to the disputed 2019 mining fiscal regime, which mining companies had complained of as having increased costs of production this year, Dr Ng’andu disputed the notion that the controversial tax regime was linked to stalled production.
Since taking effect on January 1, 2019, Mopani Copper Mines’ smelter had been temporarily shut down, while Konkola Copper Mines (KCM) Plc had downsized its operations at its Nchanga smelter.
Back in January this year, KCM had announced that it had decided to downsize its Nchanga smelter operations owing to limited copper concentrates, which followed the introduction of the five per cent import duty on concentrates.
“I need to correct what I think has been a misunderstanding: the link between lower copper production and the tax regime is not the correct link. In fact, what has contributed to lower copper production has been the low grades of copper, which a number of mining companies seem to be faced with right now. And also, the lower than expected prices; as you know, when the price is lower than expected, mining companies will not generally generate as much as they should do. So, we can’t really tie mining challenges to the fiscal regime,” Dr Ng’andu argued.
“However, we will be making a review in preparation to the 2020 (national budget) process and, hopefully, we will be able to put in place an effective (fiscal) regime.”
He, however, announced that a tax review committee had been constituted to probe the impact of the consequences of the 2019 mining fiscal regime, which raised mineral royalty rates by 1.5 percentage points across all levels of the sliding scale, among other punitive measures.
“The tax review committee will soon begin its work and part of the challenge is obviously to examine the impact of the implementation of the measures that were introduced at the beginning of this year. So, we hope that once that comprehensive work is done, we will be able to have a clear view of what the impact of this taxation regime has been,” said Dr Ng’andu.