MINISTRY of Finance Permanent Secretary Mukuli Chikuba says COVID-19 has impacted Zambia’s economy as evidenced by negative economic growth projected at -4.2 per cent.
And Chikuba says government has applied for debt relief under the G20 DSSI Facility to try and reduce expenditure.
Speaking when he featured on ZNBC’s Sunday Interview, Chikuba said economic growth this year was projected at -4.2 per cent.
“The impact that has been brought about as a result of COVID-19 has presented a tough economy. However, I should mention here that some of the measures that we are taking, not all is glum. So, as much as we may make projections now, it depends on how the path of COVID-19 will roll out. Should the situation demand that we go into 2021, we will have to take a few more extra measures and mitigate the impact. And just as you have mentioned, growth this year is projected to be in the region of negative -4.2 per cent. But what we have done this far, and even the numbers that we have worked out with international partners, we think that next year, we will start with some modest recovery of about 1.8 per cent. We are projecting a re-shaped kind of impact. But this year, yes, it’s quite deep and that is the reason why, therefore, measures such as the COVID Bond and some of the tax measures that we took to help the economy were put in place,” Chikuba said.
“The major sectors that have been impacted the most are wholesale, trade, and tourism. Then we have, of course, under the primary sectors, we have mining, construction, and manufacturing that have been hit. It’s not easy and the aim is not to balance it off soon, but to make adjustments that will enable us to meet at least the basic things this year, but in the medium-term, try and build it back. COVID-19 has hit us on two sides: one side is the social sector side and the other side is the economic side. If you look at the interventions that we have made this far, starting with the initial stimulus [package] that we gave of K2.5 billion, we were largely trying to address is: how do you unroll yourselves on the sides of social spending so that you mitigate the impact? That is why we were paying pensioners on the economic bond. But also, on the economic side, which is also on two ends (i) do refunds to companies that you owe, at least the domestic ones, so that you put back liquidity into the system on arrears, on VAT refunds (ii) and also on the banking side. The Bank of Zambia (BoZ) put up a facility to try and help the private sector that is distressed during that time.”
Chikuba explained that his Ministry had a revised budget, which highlighted a reduction in revenues, but an increase in expenditures.
“The other issues we are looking at on the fiscal side is: how do we ensure that some lines in terms of expenditure we bring them down. We have done a revised budget, which is coming up with those same numbers of the reduction in revenues and the increase in expenditures. And in that regard, again, we have done revisions on the expenditure side to try and match-up that position,” Chikuba said.
And he said government had applied for debt relief under the G20 DSSI Facility to reduce debt expenditure, which increased due to the kwacha’s depreciation against major currency convertibles.
“We have applied for debt relief under the G20 DSSI Facility. Within there, we are trying to reduce expenditures. Expenditures on debt have increased as a result of the depreciation of the exchange rate. That is in the immediate term, just to try and waiver it out. In the medium-term, we are implementing the measures around debt and you have seen [that] we have hired advisors (Lazard Freres) to advise us on the issue of debt cancellations, debt refinancing, re-scoping of projects, and also the extra measure that was taken on a moratorium on commercial borrowing. Those are the two buckets. But we have extra buckets that we are looking at and the third one is on growth. How do we stimulate back growth,” he said.
Chikuba also explained that this year’s national budget had to go down due to the revenue gap.
“For 2020, we have restated the budget. We have increased social spending and we have slowed down non-essential lines, particularly those to do with non-essential expenditure. Non-essential expenditure is that expenditure that is not economical. For example, there is infrastructure spending that we think should support the economy that we have gone ahead with, there is also that which we have re-scoped downwards, like even in the road sector, from bituminous standard to gravel. Certainly, the budget figure will go down as you have seen there is a revenue gap. That revenue gap certainly tells you that we need to scale back the budget,” Chikuba added.
Chikuba further said that the K2.5 billion COVID Fund, which was earlier released, had fully been disbursed.
“The K2.5 billion is fully disbursed in full so we do not have anything outstanding under that. Now, we have started disbursing the money that we have put up under the COVID Bond to build on the first K2.5 billion that we had released. A number of contractors have been paid, third-party arrears have not been totally cleared from the K2.5 billion. But I am going to mention that under the COVID Fund, we have just released K800 million more for them to be paid. Under the K2.5 billion, we paid third-party arrears of K515 million. Now, most of the third-party arrears are coming almost to a current position. With the extra release of funds, we should catch-up on the third-party arrears. Third-party arrears are funds that are deducted, for example, from civil servants that had borrowed under micro-finance (institutions). Those were salary-based deductions. We had a backlog in terms of remitting that to micro-finance institutions, the same with banks, and some insurance companies. With the COVID Bond, we expect to come to the current position,” he said.
Meanwhile, Chikuba announced that government had raised K6 billion under the COVID Bond out of which K5.2 billion had so far been released.
“Under the COVID Bond, we have allocated K585 million for PSPF, we have allocated LASF K150 million, retirees under the Ministry of Justice (compensation and awards) for those that had gone to court and those who were working for parastatals in the past, we have allocated K300 million for that. So far, we are sitting on about K6 billion and in terms of the monies that we have raised and this is a bond that is spanning about 10 to 15 years depending on who is subscribing to it. So far, most of the subscriptions are around a 15-year horizon. In reality, yes, this is a debt. A bond is a debt instrument. It does add to the debt stock, but the sustainability of the debt stock is judged on the amount of the economic activity you have. I am confident that it will be fully subscribed,” said Chikuba.
“From the K6 billion, so far we have disbursed K5.2 billion. Under dismantling of arrears to suppliers and contractors, we had a K1 billion that was set aside for this and we have released K500 million, currently, VAT to SMEs, K250 million has been released, recapitalization of Natsave, we have released the entire K900 million, pensions we have released K585 million as allocated, and about K800 million for micro-finance institutions. Youth empowerment, we are releasing the K30 million this week. So, the total anyway, is K5.2 billion that has been released thus far.”