MINISTER of Finance Dr Bwalya Ng’andu has announced an increase in the country’s budget deficit to K17.2 billion from K14.8 billion announced in April.
And Dr Ng’andu says K6.8 billion has so far been raised from the K8 billion Covid bond that was recently issued by the Bank of Zambia.
Meanwhile, Dr Ng’andu says 23 percent of the approved K3,875.6 from the K10 billion medium term refinancing facility has so far been disbursed.
Speaking when he rendered a ministerial statement in Parliament, Tuesday, the Dr Ng’andu attributed the widening budget deficit to a reduction in economic activity.
“Mr Speaker, it is estimated that the budgeted 2020 resource envelope will fall short of target by approximately K17.2 billion of the approved 2020 budget. The budgetary shortfall will be on account of the following; a revenue reduction of K12.8 billion arising mainly from the loss of exceptional revenue which was anticipated, Covid related tax relief measures and the general reduction in economic activity; and External Financing of K4.35 billion no longer expected to materialize. In this regard Mr. Speaker, domestic revenues in 2020 are projected to be 17.8 percent below the budget target. Tax revenues are now projected at K47.0 billion against a budget target of 53.9 billion representing a decline of 12.7 percent. The Non-Tax Revenue category is now projected to outperform the budget target of K11.3 billion by 7.3 percent at K12.1 billion. This performance is largely attributed to receipts from dividends and on-lending activities,” he said.
He said that external debt service was expected to increase by K2.2 billion this year due to the depreciation of the kwacha.
“Mr Speaker, Government spending in 2020 is expected to increase by an estimated K9.7 billion. This is due to increased Government spending on Covid-19 related interventions and increased external debt payments and other foreign currency denominated expenditures affected by the depreciation of the kwacha. External debt service is expected to increase by K2.2 billion. Mr. Speaker, the decline in revenues and the increase in expenditures is expected to create a financing gap of K26.9 billion, due to: A loss of resources amounting to K17.2 billion; and An increase in expenditures amounting to K9.7 billion. To close the financing gap, expenditure cuts will have to be introduced because raising financing from the domestic securities market will be constrained by the economic environment and borrowing from external sources is not sustainable as it poses further foreign exchange risks on our future earnings,” he said.
“Mr. Speaker, the prudent management of our financing has even become more important in view of the resource requirements to fight the Covid-19 pandemic. We need to give priority to the effective management of our resources to meet our urgent health risks. To this end, Government has engaged the services of an internationally renowned financial institution to provide financial advisory services to the Government in relation to the liability management of its debt portfolio. This exercise, once completed should result in an amicable agreement with creditors and bond holders on the level of debt service payments in the medium term and provide Government the necessary relief to address the immediate risk and challenges. In view of the fact that revenues have declined while expenditures have increased, we are in the process of revising the 2020 Budget, for which I will be seeking approval from this House within this current sitting.”
And Dr Ng’andu said no foreign expenditures would be made using the Covid bond as it was issued to finance domestic expenditures.
“Mr. Speaker, I wish to report that the Ministry has progressed with the modalities of setting up of an SME Fund that was directed by his Excellency the President. The funds to be used will be allocated from the Covid-19 Mitigation Bond. The Bond is targeting to raise up to K8 billion in tranches from the Banking sector and Pension Funds. Mr. Speaker, I wish to report that so far, Government has managed to raise K6.8 billion. The bond proceeds will solely target to finance domestic expenditures as it is supposed to be applied to boost the economy. No foreign related expenditures will be covered as this will defeat the objective of improving liquidity in the market and negatively impacting the exchange rate of the Kwacha against major tradable currencies,” he said.
Meanwhile, Dr Ng’andu announced that 9,762 beneficiaries had so far recieved their funds from the K10 billion facility.
“Mr. Speaker, the financial sector’s liquidity challenges have further been eased through the Bank of Zambia’s K10 Billion Medium-Term Refinancing Facility. This Facility is available eligible commercial banks and non-bank financial institutions to access in order to restructure, refinance or extend credit to businesses and households impacted by Covid-19 on more favourable terms. I wish to report that the uptake of the facility commenced with applications from the Banking Sector and Non-Bank Financial Sector being processed and approved by the Bank of Zambia. As at 13th July 2020, we have had eleven (11) banks and twelve (12) non-bank financial institutions submitting applications for financing worth a total of K4,821,2 million, out of which K3,875.6 million has been approved. This represents 80 percent approval of total financing requested and of which twenty three percent (23%) has already been disbursed to 9,762 beneficiaries. Sir, I should emphasize that these funds are meant for relief on the part of business and are offered at relatively lower interest rates. It is expected that financial service providers will pass this benefit to their customers,” said Dr Ng’andu.