GOVT CANCELS LOANS

… To fiscal and debt challenges for sustained macroeconomic stability and growth

THE minister of Finance has announced drastic measures that President Edgar Lungu wants implemented to ease the debt burden. Some of the major ones include the order not to contract any more new loans until the economy regains a firmer footing. The following is a reproduction of what Finance Minister, Margaret Mwanakatwe announced on behalf of the President.

The measures announced are coupled with other reforms to 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 In 2017, government embarked on policy and structural reforms under the economic stabilization 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.

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.

On the basis of the measures and other ongoing reforms, growth in the mediumterm 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.

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. 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.

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

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.

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.

Let me again, emphasize that *we have reconciled all the debt with all our creditors and hereby confirm the debt position. 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

The current stock of domestic arrears ( K12.7 billion as at endDecember 2017) has adversely affected economic activity through elevated non-performing loans and subsequently contributed to re-

In 2017, government embarked on policy and structural reforms under the economic stabilization and growth programme, with the view to strengthen our fiscal position for sustained and inclusive growth.

duce 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 arrears.

DEBT CONTRACTION IN ZAMBIA

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 (authorization) 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

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 will 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 smuggling of 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 scrutinize 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

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

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.

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 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.

MARGARET D. MWANAKATWE, MP, Minister of Finance - Republic of Zambia

www.mof.gov.zm