FINANCE Minister Dr Bwalya Ng’andu says there is nothing embarrassing about Zambia’s request to suspend Eurobond interest repayments because it is normal procedure and the first step towards the country’s debt restructuring programme.
And Dr Ng’andu says government deliberately did not alter the existing 2019 mining fiscal regime to make Mineral Royalty Taxes (MRT) tax deductible because some mining companies are still in the habit of perpetuating transfer pricing.
Speaking when he featured on ZNBC’s Sunday Interview Programme, Dr Bwalya Ng’andu argued that the Ministry’s issuance of the consent solicitation to suspend its interest repayments on Zambia’s US $3 billion worth of Eurobonds should not be misconstrued to mean that the country had defaulted on its debt.
“It is not negative, it’s not an embarrassment, and this is not the reason why it [Zambia] has been downgraded. The problem with people is that we have too many people who talk about things they don’t understand! We don’t spend enough time to try to understand something. We announced some months back that we had hired a team to work with us on the process of debt restructuring. I have indicated that consent solicitation is a normal process when you are dealing with holders of bonds. You ask them, ‘would you be willing to give us the space, would you be willing to restructure?’ The whole process of a debt servicing standstill is to give you the period within which you can work towards coming up with a more structured and perhaps a longer term restructuring agreement. Remember, the process we have begun should lead to some kind of debt restructuring. That shouldn’t be an embarrassment! That’s what we said we would do, and what we have done is just the first stage in the process,” Dr Ng’andu said.
“It’s accepted in dealing with Eurobonds, and that’s what all the countries that have found themselves in the same position that we are in, that’s what they have done and they have been successful in getting the adequately accepted restructuring agreement. Now, I need to explain this because there has been a lot of talk going around that we have defaulted on the Eurobond. That conclusion is wrong! I think what you need to know is that a consent solicitation is a customary process where the issuers of Eurobonds engage the holders of these notes in the event that you are seeking to have a change in terms under which the bonds were issued. Now, one of the reasons we need to do that is what I have explained that the other creditors that we are approaching would like to see that all the creditors that we are involved with are behaving in the same way towards us because if I have borrowed money from you and you give me a suspension of my payment, but in the meantime I am paying somebody else I owe money to, you will be saying, ‘wait a minute, why are you doing that?’ So, we are operating on the basis of a pari passu principle here that all creditors should be treated equally.”
When asked whether borrowing locally and crowding out the private sector was an option, Dr Ngandu noted that he has no choice but to borrow to avoid growing the fiscal deficit further.
“Firstly, external debt I did explain that when it comes to external debt financing, we stopped contracting commercial debt so there is no problem as far as that is concerned but one has to look at the choices that you have. The choices that I have are these, that I increase my budget deficit through higher domestic financing than I would want to do that I can finance education, I can finance health, I can finance recreational all these things that I have to finance. At this point in time yes because if don’t do that [crowd out the private sector] it means that I won’t finance education, but here is the thing calculation is that as we go forward, we will begin to see a gradual increase in taxable revenue and even non tax revenue because as the effect of the lockdown begins to wear out and more activity comes back into play and businesses become more active, we should be able to see an increase in revenue from the traditional ways which we raise revenue,” he said.
And Dr Ngandu said he did not alter the 2019 mining fiscal regime to make MRT tax deductible because of transfer pricing being perpetrated by several mining companies.
“One of the things that people accuse us of doing is not having a consistent policy regime in as far as mining companies are concerned. So, I left them alone this year because I think that with the improvement in (the copper) price, they should continue to operate as they have been operating in a much better and improved environment than has been the environment this year, and probably even last year, the biggest issue that I know in as far as the mining companies are concerned is the issue that Mineral Royalty Tax should be tax deductible, but right now it is not. I have not addressed that issue and the reason why is that it takes me back to exactly why we are where we are. The reason why we went this way was that there was a lot of transfer pricing that was being perpetrated by a number of mining companies, we know this to be a fact and we know that we don’t have the capacity to police adequately that transfer pricing so our position was, ‘fine, play the games you want to play, but we will be content with just taking our mineral royalty tax and leave it at that,” he disclosed.
“I now that that kind arrangement is unfair for a company that declares profit. At the time we were preparing this budget, we were toying with the idea, what do you do about companies that declare profit, should we give them the same treatment as those companies, which don’t declare profit, which have not declared profit for the last God knows how many years…? So, it requires a little more thinking so that we don’t put measures that within the next few months will be subject to severe criticism, as being inadequate, as not producing the right outcome.”
Meanwhile, Dr Ng’andu announced that the FISP was also under review to ensure all stakeholders got more value under the programme.
“Over and above what we have already given, agriculture is one sector in this country that enjoys a lot of incentives and I would like to see people in agriculture doing more with the incentives that we have given because there is a tendency for people to just demand incentives and in the end, these incentives become nothing worse than just a loss of revenue, just a route through which revenue is lost. We would like to see more paid back to us in return for what we are giving,” said Dr Ng’andu.
“In fact, what we have is actually a drop from what we have spent this year, we obviously went over the budget because of the various stresses that occurred during the course of the year. But like I said, FISP is under review and the figure that we have of K5.3 billion is something that I think they will meet in requirements for the year and in fact in terms of the financing for this, this is going to be financed from commercial bank financing and I think that has already been done; the contracts have already been secured to that extent, but as we go beyond the coming year, we should be able to come up with a totally different arrangement in this space.”
