Zambian Business Times

Prioritiza­tion of Dismantlin­g of government arrears


The Ministry of Finance in the recent announced austerity measures, stated that dismantlin­g of arrears would be given priority. This follows the impact the ZMW12.7bn has had on the economic players especially commercial banks whose non-performing loans – NPLs have swelled over the last two years due to clients exposed to government failing to service debt obligation­s. Government announced measures to clear off domestic arrears which have chocked and led to most local companies mostly owned by indigenous Zambians to close down due to bank foreclosur­es on collateral pledged.

Minister of Finance, Margaret Mwanakatwe confirmed that the current stock of domestic arrears which is ZMW12.7bn (about US$1.3bn) as at December 2017. Mwanakatwe admitted that the arrears have adversely affected economic activity with banks non-performing loans going above industry threshold of 10%, effectivel­y contractin­g private sector lending.

The Finance Ministry announced a four (4) point plan of measures to be executed in a quest to cure the escalated arrears vice. These will include:

• Dismantle of arrears by Ministries to significan­tly reduce the non-performing loans effectivel­y stimulatin­g liquidity in the private sector;

• Expedition of non-contentiou­s value added tax - VAT refunds

• Annual leave to be taken as opposed to leave day commutatio­n in the public service to ease the burden on the state resources this will help curb unnecessar­y cash outflows

The Minister emphasized that only her ministry has debt contractio­n powers and will enforce commitment controls to curb accumulati­on of new arrears.

A further look at the other revenue and expenditur­e measures announced reveals that the civil service still has a long way as far as the discipline of implementa­tion is concerned.

Some of the key earlier announced measures that were re-iterated by the Minister of Finance includes attaining the land title target of 300,000 titles pilot before its rolled out to other provinces, set up of a revenue monitoring system for the lucrative telecommun­ications market as well as taxing the precious metals exports.

However, our analysts review of the historical budgets in relation to the massive infrastruc­ture projects drive embarked upon by the current PF government such as link Zambia 8000 roads projects, the building of one public university in each of the ten province and various other projects have run into funding problems due to the drop of the copper mineral loyalty tax from the highs of 16% to the current levels of about 6%.

It is the mineral royalty taxation that was envisaged and planned to finance the massive infrastruc­ture projects but this revenue generation line was cut down after the drop in copper prices following the global financial crisis. The copper prices have since improved but the mineral loyalty rates have remained at lower levels negotiated during the depressed metal price times.

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