Finance Minister Margaret Mwanakatwe has announced that government has already exceeded its budget for the first half of 2018 by K5 billion owing to huge interest payments and capital expenditure.
And Mwanakatwe says Zambia will continue to engage the International Monetary Fund (IMF) until a bailout package is agreed, despite talks on the current economic bailout package being suspended.
Meanwhile, Mwanakatwe disclosed that domestic arrears in the first quarter of 2018 increased to K13.91 billion from K12.77 billion due to a rise in arrears-related to roads construction.
Addressing the media and other stakeholders during the quarterly economic performance briefing in Lusaka, Thursday, Mwanakatwe said the total expenditure, including amortization, for the first half of 2018 amounted to K39.6 billion, against the budgeted K34.19 billion.
“Total expenditure (including amortization) for the first half of 2018 amounted to K39.6 billion, against the budgeted K34.19 billion. The major components, which were above target, were interest payments by 43.2 per cent and capital expenditure by 65 per cent. Going forward, expenditure control will be at the core to achieve fiscal adjustment given the tight financing conditions and higher deficit. In this regard, measures on enhancing payroll management, expenditure cuts in areas such as use of goods and services, progressing on procurement reforms and debt reprioritization will be the focus for the rest of the year. This is meant to create a lower spending base as we get into the 2019 financial year,” Mwanakatwe disclosed at the Ministry of Finance’s head office.
She added that government’s priority was to scale-back domestic borrowing to help improve monetary conditions and lower the cost of borrowing.
“Inflation remained within the target range of 6-8 per cent, closing the period at 7.4 per cent, down from the May rate of 7.8 per cent. For the rest of the year, the expectation is that inflation will remain within the programmed target. The low levels of inflation continued to support monetary policy. We, however, note that room for monetary easing is becoming tight amid government financing under tight liquidity conditions. Therefore, it’s government’s priority to scale-back in domestic borrowing to help improve monetary conditions and lowering the cost of borrowing. Suffice to mention that, further reduction in lending rates also hinges on implementation of the austerity measures to support fiscal consolidation,” Mwanakatwe added.
And when asked what the Zambian government’s position was on an IMF-backed economic programme following the suspension of talks last week, Mwanakatwe said Zambia would continue to engage the IMF until a much-needed bailout package is agreed.
“On IMF engagement, I have seen that there has been some excitement in the press on this matter. I, however, wish to update you as follows: 1). We have taken measures that were announced by my office to rein in on fiscal slippages and risks related to debt. 2). These measures are now being incorporated in our fiscal and debt position for 2018 and over the medium-term. It is this data that once completed will be given to the IMF to assess our adjustment and get their feedback as to the appropriateness of the measures for macroeconomic sustainability. 3). Whilst we have shared the raw data, the adjustment data has not yet been provided to the IMF as our team is still working through it. 4). Again, we wish to state that as this work is proceeding, we will refrain from making public statements on this matter until we have a firm position. We will continue to engage the IMF because we are part of the IMF,” Mwanakatwe responded.
Meanwhile, the country’s domestic arrears in the first quarter of 2018 increased to K13.91 billion from K12.77 billion due to a rise in arrears-related to roads construction.
“Domestic arrears in the first quarter 2018 increased to K13.91billion from K12.77 billion due to a rise in arrears related to roads and other RDCs. The pace of arrears accumulation is a source of concern to the Government and commitment controls are being strengthened to avoid accumulation in RDCs. Road sector arrears are on account of more work being done as a result of payments made. The concentration of dismantling projects at 80 percent and above will address this problem going forward,” Mwanakatwe said.
“The stock of external debt as at end of first quarter was US $9.37 billion. The slight increase in the debt stock was on account of disbursements during the review period. As at June 2018, government paid US $161.3 million in external debt service. Total guaranteed debt was US $2.7 billion of which US $1.21 billion had been drawn against the principal amount. The stock of domestic debt as at end June 2018 was K51.86 billion.”
She further highlighted other macroeconomic indicators, such as the trade deficit, as being largely stable.
“Trade deficit during the first five months of 2018 continued being positive with a surplus of K245.4 Million recorded in May 2018. Recovery in the performance of Non-traditional exports in the recent past has been recorded with the share of NTEs averaging of 22.9 percent in export earnings between May and April 2018. In view of the positive performance it is expected that the current account balance will further narrow down in 2018 and become positive over the medium term. The reserve position as at end June 2018 was US $1.82 billion,” she said.
“In an effort to address some of the challenges associated with the low revenue collection in some tax-types, government is undertaking measures which include: use of electronic solutions in revenue collection including; the telecommunications transaction monitoring system for mobile service providers and rollout of fiscal registers; increased pace of implementing the land titling programme. We are working with the World Bank on this matter; and the recent change in the taxation for fuel importers to enhance excise duty collection.”
She also said government will begin to implement austerity measures to address the fiscal imbalance and revealed that operations in parastatals such as Zesco are currently unsustainable because of high debts in those institutions.
“I would like to assure you that policy and structural reforms will continue to be undertaken. The major ones are: Reforms to parastatal bodies with attention being given to institutions such as Zesco whose debt is high resulting in operations being unsustainable. The President announced a number of measures to address the fiscal imbalances and high debt that the country faces. We are now in the process of implementing these measures, so that we have a new fiscal and debt outlook into the medium term. This said, I am aware that there are questions on the implications of the recently-announced austerity measures. I would like to clarify as follows: The measures announced are supposed to support growth and social protection going forward. Therefore, ongoing projects whose financing has been signed for will continue to be implemented as these will support growth going forward. We will be selective on the cancellation of current contracted debt, which have not yet disbursed to address economic impact, financial and legal implications. We will be aiming to free up cash-flows by carrying out liability management on selected bilateral loans, both local and foreign, by extending the maturity profile,” said Mwanakatwe.
“Implementation of the recent austerity measures will aid the sustenance of the macroeconomic environment, growth prospects and renewed confidence in the economy.”
On Tuesday, Mwanakatwe proposed reallocating K7.2 billion, roughly US$721 million, in a supplementary budget delivered to MPs in Parliament.
About K7 billion is envisaged to come from reallocating resources and the remainder from “cooperating partners” and carry-over funds from the 2017 financial year, according to Mwanakatwe’s statement to lawmakers.
And out of that total, K3.6 billion is for domestic and external debt obligations, K1.3 billion will be spent on completing infrastructure projects and K2.3 billion will cover shortfalls on government-support programmes, by-elections and the recruitment of a further 3,700 medical personnel.
The supplementary budget, already approved by lawmakers, will be in addition to this year’s K71.6 billion budget.