And Dr Ng’andu says government will release K2.5 billion to dismantle domestic arrears and ease liquidity challenges faced by contractors and suppliers in the country amidst the pandemic.
Meanwhile, Dr Ng’andu has suspended import duties on copper concentrates as a means of alleviating mining companies’ escalating operating costs as they struggle to contain lower copper prices on the international market.
Speaking at a media briefing in Lusaka, Friday, Dr Ng’andu said Cabinet had approved a COVID-19 Contingency and Response Plan with a budget of K659 million under the Disaster Management and Mitigation Unit (DMMU), and that it was already in the process of making applications to multilateral partner organizations for COVID-19 support, which included the International Monetary Fund (IMF) and World Bank who have a combined total of US $64 billion to aid IDA countries
IDA countries are developing countries with low per capita incomes.
“In order to finance the response towards COVID-19, government has taken the following measures: Set up an Epidemic Preparedness Fund under the Ministry of Health amounting to K57 million; Cabinet approved a COVID-19 Contingency and Response Plan with a budget of K659 million under the Disaster Management and Mitigation Unit,” Dr Ng’andu said.
“Government has started mobilizing funds through the budget and engagement with various local and international stakeholders. We are in the process of making applications to our multilateral partner organizations for COVID-19 support. As announced, the International Monetary Fund (IMF) is making available a total of US $50 billion to affected countries via rapid disbursing emergency facilities, while the World Bank Group has approved support of up to US $14 billion under a fast track COVID-19 Facility.”
He, however, said that government was able to release K2.5 billion to ease liquidity challenges faced by contractors and suppliers in the country, and that a separate K140 million will be released to pay local contractors in the road sector.
“To support the easing of liquidity in the face of the adverse effects of COVID-19, government will release K2.5 billion to: reduce domestic arrears owed to domestic suppliers of goods and services; reduce outstanding arrears to pensioners under Public Service Pension Fund and retirees under Ministry of Justice and reduce outstanding third-party arrears and other employee-related commitment. In addition, K140 million will be released to pay local contractors in the road sector,” he said.
And Dr Ng’andu announced the suspension of import duties on copper concentrates as a means of alleviating mining companies’ escalating operating costs.
“In order to provide relief to businesses, government will: suspend excise duty on imported ethanol for use in alcohol-based sanitisers and other medicine-related activities subject to guidelines to be issued by ZRA (Zambia Revenue Authority); remove provisions of SI 90 relating to claim of VAT on imported spare parts, lubricants and stationery to ease pressure on companies; suspend import duties on the importation of concentrates in the mining sector to ease pressure on the sector; and suspend export duty on precious metals and crocodile skin,” he said.
He added that government will issue a Statutory Instrument (SI) for classification and provisioning of loans directives to encourage financial service providers to provide relief to the private sector.
“Government, as announced by the Bank of Zambia (BoZ), has taken a number of measures to encourage the use of digital financial services. These measures are aimed at preventing the spread of the disease by minimizing person-to-person contact in conducting financial transactions, decongesting banks and reducing the use of cash. The measures are as follows: waived charges for person-to-person electronic money transfers of up to K150. These transactions are now free of charge; revised upwards transactions and balance limits for individuals, small-scale farmers and enterprises. The limits by agents have been revised upwards to give agents more float to deal with transactions. This is made to decongest banks; removed the transaction and balance limits on agents and corporate wallets; and reduced the processing fees for Real Time Gross Settlement System,” he added.
“I wish to urge businesses and organizations to take advantage of these revisions or measures by adopting mobile money and other electronic forms to pay for goods and services to safeguard against or reduce the possibility of spreading the disease. In addition, government will issue a Statutory Instrument for Classification and Provisioning of Loans Directives to encourage financial service providers to provide relief to the private sector and facilitate long-term lending to productive sectors of the economy. We expect the banking sector to pass on these benefits to their clients.”
Meanwhile, Dr Ng’andu revised Zambia’s economic growth down to just two per cent this year from an earlier projected forecast of three per cent as a result of the devastating effects of COVID-19.
He also outlined that government’s revenue collection targets would be missed in view of drastically reduced earnings from several sectors, such as tourism, which had suffered sudden booking cancellations at various tour operators.
“You may recall that during my 2020 budget address, I projected that the Zambian economy would grow at 3.2 per cent. In view of the recent developments, growth is now projected to be lower at around 2 per cent despite the anticipated significant recovery in the agricultural sector. The tourism, mining, manufacturing, construction as well as wholesale and retail trade sectors, are projected to slow down on account of the pandemic. In the specific case of tourism, disruptions in international air transport from the United States of America, Europe, Asia and within Africa have had an adverse effect on tourist arrivals,” he said.
“Although the reduction in international air traffic arrivals was only five per cent in the first two months of the year compared to last year, it is anticipated that there will be a sharper decline in March and the months to come. This follows an increase in the number of cancellations on pre-booked tour packages, coupled with travel restrictions and lock downs in other jurisdictions. Emirates Airlines, RwandAir and South African Airways have suspended flights into Zambia, while other carriers have scaled down the number of flights into the country. Consequently, some hotels and lodges have already reported significant reductions in bed occupancy rates, to less than 20 per cent from an average of 50 per cent for the same period last year. Based on current information, occupancy rates are expected to decline further. In addition, closure and restricted operating hours are also affecting the operations of various businesses. This has drastically reduced both tax and non-tax revenue and is posing challenge to the employment in the sector.”
Dr Ng’andu revealed that copper export earnings were expected to decline substantially by more than US $1 billion in 2020 if the situation persists.
“As alluded to earlier, copper prices have declined by 23 per cent to US $4,754 per metric tonne as at 25th March, 2020, from US $6,165 per metric tonne in January, 2020. This represents a reduction of about US $1,400 per tonne. Consequently, copper export earnings are expected to decline substantially by more than US $1 billion in 2020 if the situation persists. It follows, therefore, that Mineral Royalty Tax (MRT) collection will decline,” Dr Ng’andu said.
“Revenues under the 2020 budget are projected to be lower on account of the slowdown in economic activity. Collections under VAT, Customs Duties, Income Tax and Mineral Royalty are expected to decline. For instance, in February, 2020, revenue and grants collections were recorded at K4.6 billion, which was 4 per cent below the target. More particularly, collection from mining company tax and overall VAT were below target by 32 and 13 per cent, respectively. Revenue collected in March, 2020, thus far, stands at K2.7 billion against the target of K4.5 billion. This trend could continue if the pandemic persists.”
He further said that the kwacha’s depreciation against major currencies was resulting in higher debt service than programmed, and that the COVID-19 outbreak had disrupted international trade in terms of both volumes and commodity prices.
“On the expenditure side, the depreciation of the kwacha against major currencies is resulting in higher debt service than programmed. Further, expenditures are also increasing to respond to the pandemic. In order to accommodate the decrease in revenues, increase in debt service payments and expenditures in response to the pandemic, it is expected that other expenditures in the budget will have to be scaled-down. COVID-19 has disrupted international trade in terms of both volumes and commodity prices. Collections of trade taxes are expected to be lower than projected in the first quarter of the year and most likely, beyond. There is also disruption to cross-border supply chains given Zambia’s close trading relations in the region. This will have a significant negative impact on small and medium-scale businesses,” he said.
“Preliminary information indicates that there was a significant reduction in imports from China, which has emerged as a major trading partner, both in dollar terms and volumes in February, 2020, compared to February, 2019. In addition, in March, 2020, the volumes of imports from India, Japan, Kenya, Namibia and Tanzania have declined relative to March, 2019. Given the lock-down announced by South Africa, imports from that country will decline further with direct adverse impact on wholesale and retail trade, manufacturing and mining. To this end, revenue collections in the form of VAT and Customs Duty for March, 2020, are expected to be below target by 25 per cent.”
Dr Ng’andu also warned against panic buying of essential commodities, such as mealie meal, as it had the potential of increasing inflation.
“Annual inflation is projected to remain above the target range of 6-8 per cent. Inflation as announced by the Zambia Statistical Agency (ZSA) yesterday (Thursday) for the month of March stood at 14 per cent. Food inflation, exchange rate depreciation, the effects of electricity and petroleum price adjustments have led to the increase in overall inflation. More recently, panic buying, particularly of essential commodities, such as mealie meal, has a potential of further increasing inflation. We encourage businesses and retail outlets to avoid taking advantage of the pandemic to distort prices and, therefore, worsen the inflation spiral,” said Dr Ng’andu.