PRUDENT DEBT MEASURES

FINANCE Minister Margaret Mwanakatwe’s measures to bring down debt are timely and welcome especially that they have come against a backdrop of concerns about Zambia’s rising debts. The minister’s pledge to reduce the debt and to trim the fiscal deficit to 6.5 percent of the gross domestic product (GDP) in 2019 from 7.4 percent this year, should be supported by all Zambians and stakeholders. As one of the measures to help tackle debt, the minister has proposed changes to the mining tax regime that will see an increase in mineral royalty rates. This entails increasing the country’s sliding scale for royalties of 3 to 9 percent by 1.5 percentage points, money which could be channelled to debt servicing or other key economic sectors. Ms Mwanakatwe announced these plans when she delivered a K86.8 billion budget in Parliament yesterday. While the announcement to increase the mineral royalties is likely not going to go down well with local mining houses, the measure will certainly help improve the country’s revenue collection. Mining companies make huge profits and on top of that claim tax refunds from government under the VAT tax system, which the government wants to abolish. Beyond this, the plan, as the minister observed, will ensure more Zambians benefit from the country’s vast mineral wealth and it is only fair that citizens benefit from their natural resources. The minister’s proposal to abolish VAT and replace with a simple non-refundable sales tax, is also a prudent decision as it will result in the Government saving US$1 billion from the mining sector. The VAT refunds to the mines were certainly becoming a burden on the treasury, little wonder some stakeholders in the economy had been calling for their removal. Indeed, savings from this would greatly help the government tackle the debt problem. Economics Association of Zambia (EAZ) president Lubinda Haabazoka also insists the VAT refunds are a big drain on government’s coffers and fully supports the proposed scrapping of the refunds. Dr Haabazoka says Government was spending US$700, 000 in VAT refunds to mining companies, money which could be used in other vital areas of the economy. “This is a move in the right direction because the motive behind giving refunds is that companies that bought raw materials were refunded by the State and it is reducing their cost of doing business.” “Some firms would over-claim VAT refunds which was affecting Government coffers but as individuals we will not be affected when the proposal is implemented,” he observed. There is no doubt that the scrapping of VAT will solidify Government’s domestic revenue collection capacity as it will be able to mobilise resources locally and reduce on external borrowing. We, therefore, urge Government to keep the existing debt in check by avoiding contracting new debts through unnecessary borrowing. We call for prudent borrowing. This will also require Government to consider rescheduling loan repayments by renegotiating with China and other entities and nations that we owe. Once these measures are implemented, we are convinced Government will be able to manage the debt within the required levels, without triggering concerns from local stakeholders and cooperating partners.