Crippling debt forces Govt to effect new austerity measures

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Mwanakatwe

Zambia’s debt crisis has forced government into making major fiscal policy changes and effecting new austerity measures.

The country’s debt stock officially stands at US$9.3 billion, or roughly a third of gross domestic product, at the end of March, up from $8.7 billion at the end of 2017.

In February, the International Monetary Fund rejected Zambia’s borrowing plans, saying the country risked making its debt load harder to sustain. The new debt management plan could now clear the way for Zambia to agree a $1.3 billion loan agreement with the IMF.

Finance Minister Margaret Mwanakatwe announced, Thursday Evening, that President Edgar Lungu has with immediate effect ordered the cancellation of some existing loans, banned the issuance of letters of credit and guarantees to state owned enterprises, terminated financing of development projects that are below 80 percent completion and cut down on ministerial travels.

In a statement, Mwanakatwe also announced a ban on all government from making public statements on economic matters and debt contraction.

Mwanakatwe admitted that the current stock of domestic arrears, which stood at K12.7 billion as at end-December 2017, had adversely affected economic activity through elevated non-performing loans and subsequently contributed to reduced private sector financing.

She said due to continued spending pressures relative to expected revenue, the fiscal deficit for 2018 is likely to be higher than the 6.1 percent projected in the budget.

On expenditure measures, Mwanakatwe announced that her ministry would not finance any construction projects that are less than 80 per cent complete.

 

Below is Mwanakatwe’s full statement to the press:

 

STATEMENT ISSUED BY HONOURABLE MARGARET D. MWANAKATWE, MP,

MINISTER OF FINANCE – REPUBLIC OF ZAMBIA
www.mof.gov.zm

INTRODUCTORY REMARKS

*1.*

I WELCOME YOU TO THIS BRIEFING AT WHICH I WILL SHARE WITH YOU PERSPECTIVES ON THE CURRENT PERFORMANCE OF THE ECONOMY AND THE PROSPECTS GOING FORWARD.

I WILL ALSO ADDRESS THE TOPICAL ISSUE OF FISCAL CHALLENGES AND THE DEBT POSITION AND ITS SUSTAINABILITY.

I WILL FURTHER PROVIDE MEASURES THAT GOVERNMENT IS TAKING TO BRING THE COUNTRY BACK ON A MORE SUSTAINABLE DEBT TRAJECTORY, IMPROVE THE FISCAL POSITION AND ENTRENCH MACROECONOMIC STABILITY.

*2.*

MEMBERS OF THE MEDIA, THE MEASURES I WILL ANNOUNCE TODAY COUPLED WITH OTHER REFORMS WILL ENSURE THAT GOVERNMENT REMAINS ON COURSE WITH ACHIEVING SUSTAINED AND INCLUSIVE GROWTH.

I WISH TO FURTHER INDICATE THAT THE MEASURES COME AS A RESOLVE FROM HIS EXCELLENCY, THE PRESIDENT OF THE REPUBLIC OF ZAMBIA, MR. EDGAR CHAGWA LUNGU, WHO HAS ALREADY COMMUNICATED IN WRITING TO ALL CABINET AND PROVINCIAL MINISTERS.

THIS ATTESTS TO GOVERNMENT’S COMMITMENT TO PRUDENT FINANCIAL AND SOUND ECONOMIC MANAGEMENT.

THE MEASURES TAKEN BY PRESIDENT LUNGU WILL BECOME OUR BLUEPRINT AS A GOVERNMENT.

*ECONOMIC SITUATION*

*3.*

IN 2017, GOVERNMENT EMBARKED ON POLICY AND STRUCTURAL REFORMS UNDER THE ECONOMIC STABILISATION AND GROWTH PROGRAMME, WITH THE VIEW TO STRENGTHEN OUR FISCAL POSITION FOR SUSTAINED AND INCLUSIVE GROWTH.

THESE REFORMS WILL LAY A SOUND FOUNDATION FOR THE EFFECTIVE IMPLEMENTATION OF THE SEVENTH NATIONAL DEVELOPMENT PLAN, 2017 – 2021.

*4.*

THE IMPLEMENTATION OF THE REFORMS HAS SHOWN POSITIVE RESULTS AS REFLECTED IN SOME OF THE FOLLOWING:

*i)* THE REBOUND IN GDP GROWTH FROM A DIP OF 2.9% IN 2015 TO THE CURRENT 4.1% RATE, ABOVE THE SUB SAHARAN AFRICA AVERAGE OF 2.8% FOR 2017.

*ii)* REDUCTION IN INFLATION TO SINGLE DIGITS, RECORDED AT 7.8% IN MAY 2018 FROM A HIGH OF AROUND 22.9% IN FEBRUARY 2016 AND HOLDING WITHIN THE BAND OF 6 TO 8% THAT GOVERNMENT HAS SET TO ATTAIN IN 2018.

*iii)* THE RELATIVE STABILITY OF THE EXCHANGE RATE OF THE KWACHA AGAINST MAJOR TRADING CURRENCIES.

*iv)* AN IMPROVING CURRENT ACCOUNT THAT HAS BEEN IN A DEFICIT SINCE 2015. THE CURRENT ACCOUNT DEFICIT NARROWED TO US$139.2 MILLION IN THE FIRST QUARTER OF 2018 FROM US$241.5 MILLION IN THE FOURTH QUARTER OF 2017. THIS WAS MAINLY ATTRIBUTED TO A HIGHER TRADE SURPLUS FOLLOWING RELATIVELY HIGHER EXPORT EARNINGS.

*5.*

ON THE BASIS OF THE MEASURES AND OTHER ONGOING REFORMS, GROWTH IN THE MEDIUM-TERM IS PROJECTED IN THE 4 – 5 PERCENT RANGE, SUPPORTED BY AN IMPROVING EXTERNAL SECTOR. THE FISCAL DEFICIT WILL GRADUALLY DECLINE TO 3 PERCENT OF GDP WHILE INFLATION IS EXPECTED TO REMAIN IN SINGLE-DIGIT.

*6.*

THE STABILITY OF THE MACROECONOMIC VARIABLES IS CARDINAL IN RE-ESTABLISHING GROWTH OF ABOVE 7% REQUIRED TO REDUCE POVERTY. HOWEVER, THERE ARE A NUMBER OF CHALLENGES AND RISKS THAT THREATEN THE STABILITY ACHIEVED SO FAR.

*7.*

THEREFORE, IN ORDER TO MITIGATE THE THREATS TO MACROECONOMIC STABILITY AND OVERALL GOVERNMENT OBJECTIVES OF HIGHER AND SHARED PROSPERITY, THERE IS NEED TO TAKE TIMELY AND DECISIVE POLICY ACTIONS.

*8.*

LET ME NOW ADDRESS CRITICAL ISSUES ON THE COUNTRY’S DEBT AND FISCAL POSITION AND RELATED MATTERS.

*UNSUSTAINABLE DEBT STOCK AND HIGH PACE OF DEBT ACCUMULATION*

*9.*

WE HAVE COMPLETED THE *DEBT SUSTAINABILITY ANALYSIS* (DSA) AND A FULL RECONCILIATION OF OUR DEBT STOCK. THE DSA EXERCISE HAS CONFIRMED THAT WE NEED TO UNDERTAKE MEASURES TO BRING DEBT RISK TO MODERATE FROM THE CURRENT HIGH RISK.

*10.*

TOTAL PUBLIC EXTERNAL DEBT AS AT *END MARCH 2018* AMOUNTED TO US $9.3 BILLION FROM US $8.7 BILLION IN 2017. THE DOMESTIC DEBT STOCK (GOVERNMENT SECURITIES) AMOUNTED TO K53.5 BILLION FROM K48.4 BILLION OVER THE SAME PERIOD.

*11.*

MEMBERS OF THE MEDIA: LET ME AGAIN, EMPHASIZE THAT *WE HAVE RECONCILED ALL THE DEBT WITH ALL OUR CREDITORS AND HEREBY CONFIRM THE DEBT POSITION.

*12.*

IN ORDER TO ADDRESS THE PACE OF *DEBT* CONTRACTION AND THE AFFORDABILITY OF THE DEBT, GOVERNMENT HAS UNDERTAKEN TO IMPLEMENT THE FOLLOWING *MEASURES:*

i. INDEFINITELY POSTPONE THE CONTRACTION OF ALL PIPELINE DEBT UNTIL THE DEBT IS BROUGHT BACK TO MODERATE RISK OF DISTRESS;

ii. CANCEL *SOME* OF THE CURRENT CONTRACTED LOANS THAT ARE YET TO BE DISBURSED TO REDUCE THE DEBT SERVICE OUTLAYS;

iii. UNDERTAKE REFINANCING ON SELECTED BILATERAL LOANS, BOTH LOCAL AND EXTERNAL, TO EXTEND THE MATURITY PROFILE AND ATTAIN LOWER COSTS ON DEBT;

iv. CARRY OUT AN *ASSET LIABILITY MANAGEMENT EXERCISE* ON THE DEBT TO ENSURE SUSTAINABILITY OF CASH FLOWS;

v. *CEASE* ISSUANCE OF GUARANTEES TO COMMERCIALLY VIABLE PROJECTS; AND,

vi. *CEASE* THE ISSUANCE OF LETTERS OF CREDIT AND GUARANTEES TO STATE OWNED ENTERPRISES THAT ARE TECHNICALLY INSOLVENT UNTIL THEIR BALANCE SHEET CHALLENGES ARE RESOLVED.

*GOVERNMENT ARREARS*

*13.*

THE CURRENT STOCK OF *DOMESTIC AREARS* ( K12.7 BILLION AS AT END-DECEMBER 2017) HAS ADVERSELY AFFECTED ECONOMIC ACTIVITY THROUGH ELEVATED NON-PERFORMING LOANS AND SUBSEQUENTLY CONTRIBUTED TO REDUCE PRIVATE SECTOR FINANCING.

TO ADDRESS THIS, THE FOLLOWING ARE THE MEASURES TO BE IMPLEMENTED:

i. ALL MINISTRIES TO CONCENTRATE ARREARS DISMANTLING TO AREAS THAT WILL SIGNIFICANTLY REDUCE NON-PERFORMING LOANS AND RELEASE LIQUIDITY TO THE PRIVATE SECTOR;

ii. ENSURE THAT ZRA COMES UP WITH PROFILES TO LIQUIDATE CURRENT AND NON-CONTENTIOUS VAT CLAIMS;

iii. THE SECRETARY TO THE CABINET TO ENSURE THAT CIVIL SERVANTS TAKE ANNUAL LEAVE TO CURTAIL EXPENDITURES RELATED TO PERSONAL EMOLUMENTS SUCH AS COMMUTATION OF DAYS; AND,

iv. THE MINISTRY OF FINANCE TO ENFORCE COMMITMENT CONTROLS TO CURB ACCUMULATION OF NEW AREARS.

*DEBT CONTRACTION IN ZAMBIA*

*14.*

LADIES AND GENTLEMEN, ANOTHER ISSUE THAT I WOULD LIKE TO CLARIFY IS THE PROCESS OF DEBT CONTRACTION IN THE COUNTRY.

DEBT CONTRACTION IS GUIDED MAINLY BY THE *LOANS AND GUARANTEES (AUTHORISATION) ACT CAP 366 OF THE LAWS OF ZAMBIA.* CAP 366 VESTS POWERS OF DEBT CONTRACTION IN THE MINISTER OF FINANCE.

IN THIS RESPECT, *OTHER THAN THE MINISTER OF FINANCE,* NO ONE HAS THE LEGAL POWERS TO CONTRACT LOANS.

FURTHER, *UNDER CAP 349, THE MINISTER OF FINANCE IS A CORPORATE BODY*, BEING AN OFFICE THAT CAN BE SUED AND THUS ON WHICH LOAN OBLIGATIONS ENFORCEMENT CAN BE CARRIED OUT.

*UNSUSTAINABLE GOVERNMENT EXPENDITURE*

*15.*

DURING 2017, BUDGET PERFORMANCE CONTINUED TO FACE PRESSURES AS REVENUES FELL BEHIND EXPENDITURES.

CONSEQUENTLY, THE *FISCAL DEFICIT*, AT 7.8 PERCENT OF GDP, WAS HIGHER THAN BUDGET TARGET OF 7 PERCENT. GIVEN THE CONTINUED SPENDING PRESSURES RELATIVE TO EXPECTED REVENUES IN 2018, THE DEFICIT IS PROJECTED TO BE HIGHER THAN THE *6.1 PERCENT* PROJECTED IN THE BUDGET. PARTICULARLY, THE FINANCING OF PROJECTS HAS CONTINUED TO INFLUENCE THE DEFICIT UPWARDS IN 2018.

IN THIS REGARD, THE FOLLOWING *REVENUE AND EXPENDITURE MEASURES* SHALL BE IMPLEMENTED IN ORDER TO MAINTAIN A SUSTAINABLE DEFICIT.

*REVENUE MEASURES*

i. THE MINISTRY OF FINANCE WIĹL ENSURE THAT THERE IS STRICT ADHERENCE TO THE PROGRAMMED DOMESTIC FINANCING IN THE 2018 BUDGET;

ii. THE MINISTRY OF FINANCE WILL COMPEL FUEL IMPORTERS TO MAKE DECLARATION OF FUEL IMPORTS AT BORDERS TO CURB THE PROBLEM OF SMUGGLINGOF FUEL;

iii. THE MINISTRY OF TRANSPORT AND COMMUNICATION WILL EXPEDITIOUSLY IMPLEMENT THE TELECOMMUNICATION TRANSACTIONS MONITORING SYSTEM FOR MOBILE SERVICE PROVIDERS;

iv. THE MINISTRIES OF FINANCE AND MINES AND MINERALS DEVELOPMENT WILL PUT IN PLACE LEGISLATIVE MEASURES TO INTRODUCE TAXATION ON PRECIOUS METAL EXPORTS;

v. THE MINISTRY OF FINANCE WILL INTRODUCE ELECTRONICALLY VERIFIABLE TAX STAMPS ON HIGH RISK IMPORTS TO ADDRESS THE PROBLEM OF SMUGGLING; AND,

vi. THE MINISTRIES OF JUSTICE; FINANCE, AND LANDS WILL URGENTLY RESOLVE ALL LAND TITLING ISSUES TO ENSURE THAT THE PLANNED ISSUANCE OF 300,000 LAND TITLES IS ATTAINED.

*EXPENDITURE MEASURES*

i. THE MINISTRY OF FINANCE WILL ONLY FUND PROJECTS THAT ARE AT LEAST 80 PERCENT COMPLETE;

ii. IN ORDER TO CONTROL THE HIGH EXPENDITURE ON PERSONAL EMOLUMENTS, RECRUITMENTS WILL STRICTLY BE LIMITED TO THE PROVISIONS OF THE 2018 BUDGET;

iii. THE MANAGEMENT OF THE PAYROLL WILL BE MOVED TO THE MINISTRY OF FINANCE BY THE END OF JUNE 2018 TO ENSURE SEPARATION OF DUTIES IN ORDER TO ENHANCE THE AUTHENTICITY OF ENTRIES ON THE PAYROLL, ADDRESS PAYMENT OF WRONG ALLOWANCES AND GHOST WORKERS;

iv. TO CUT DOWN ON THE COST OF RUNNING GOVERNMENT BY REDUCING EXPENDITURES RELATED TO BOTH LOCAL AND FOREIGN TRAVEL, AND WORKSHOPS, THE SECRETARY TO THE CABINET HAS BEEN DIRECTED BY THE PRESIDENT TO IMMEDIATELY ISSUE NEW TRAVEL GUIDELINES THAT WILL REDUCE THE NUMBER OF TRAVELS AND THE SIZE OF DELEGATIONS;

v. THE MINISTRY OF WORKS AND SUPPLY WILL FINALIZE THE POLICY ON GOVERNMENT VEHICLES WITH THE VIEW TO HAVE THEM DISPOSED OFF. THIS WILL REDUCE EXPENDITURES ON RUNNING THE GOVERNMENT FLEET;

vi. THE PRESIDENT HAS DIRECTED THAT A COMMITTEE TO CRUTINIZE THE QUALITY OF EXPENDITURE IN MINISTRIES SHOULD BE SET UP UNDER THE MINISTRY OF FINANCE.THE COMMITTEE WILL ALLOW GOVERNMENT TO TAKE REMEDIAL MEASURES ON UNNECESSARY EXPENDITURES FOR THE REST OF 2018 AND GOING FORWARD.

vii. ELECTRICITY TARIFFS WITH INDEPENDENT POWER PRODUCERS WILL BE RENEGOTIATED TO ENSURE THAT THERE IS PARITY BETWEEN THE BUYING AND SELL PRICES BY ZESCO;

viii. THE INDUSTRIAL DEVELOPMENT CORPORATION (IDC) WILL IMPLEMENT THE PRESIDENT’S LONG OUTSTANDING DIRECTIVE TO RELOOK AT THE PORTFOLIO OF STATE OWNED COMPANIES TO RESTRUCTURE THE PORTFOLIO AND BRING IN EQUITY PARTICIPATION FOR THOSE THAT ARE VARIABLE; AND,

ix. THE MINISTRY OF NATIONAL DEVELOPMENT PLANNING WILL ESTABLISH A MULTI-SECTORAL PUBLIC INVESTMENT BOARD TO SCRUITNIZE CAPITAL EXPENDITURE REQUESTS PRIOR TO SUBMITTING TO CABINET.

*COMMUNICATION ON ECONOMIC AND FINANCIAL MATTERS*

*16.*

THE MAKING OF SEVERAL STATEMENTS ON ECONOMIC AND FINANCIAL MATTERS BY UNMANDATED GOVERNMENT OFFICIALS HAS CONTINUED DESPITE A CABINET DECISION AGAINST THE PRACTICE. THIS HAS SENT WRONG SIGNALS THAT HAVE IMPACTED NEGATIVELY ON THE PERFORMANCE OF THE ECONOMY.

TO ADDRESS THIS SHORTCOMING, THE PRESIDENT HAS BANNED UNMANDATED GOVERNMENT OFFICIALS FROM ISSUING PUBLIC STATEMENTS ON ECONOMIC AND FINANCIAL MATTERS, INCLUDING ON DEBT CONTRACTION. SUCH STATEMENTS WILL NOW BE DONE BY THE MINISTER OF FINANCE.

*CONCLUSION*

*17.*

IN ORDER TO SUSTAIN GROWTH AND CREATE WEALTH, IT IS IMPORTANT THAT EVERYONE COMMITS TO THESE MEASURES AND LEGAL REFORMS AS OUTLINED IN THE ECONOMIC STABILISATION AND GROWTH PROGRAMME.

*18.*

LET ME ON BEHALF ON THE PRESIDENT OF THE REPUBLIC OF ZAMBIA, MR. EDGAR CHAGWA LUNGU, STRESS AND ASSURE ZAMBIANS AND THE INTERNATIONAL COMMUNITY THAT THE MEASURES I HAVE ANNOUNCED ARE AN UNDERTAKING BY THE GOVERNMENT TO SET A SOUND FOUNDATION FOR IMPROVED ECONOMIC MANAGEMENT, SUSTAINED GROWTH AND SAFEGUARDING OF THE PEOPLE’S WELFARE.

I THANK YOU.

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Start: 2019-07-01 End: 2019-07-31