By Jeff Kapembwa
Lusaka - Zambia has effected austerity and fiscal consolidation measures in a quest to sustain ballooning indebtedness to instil investor confidence.
Finance Minister Margaret Mwanakatwe says all existing loans have been cancelled, the issuance of letters of credit and guarantees to state-owned enterprises banned while serving ministers will now be required to buy fuel when operating outside their respective stations, as part of the fiscal realignment.
Additionally, no government official will be allowed to issue statements on economic matters and debt contraction going forward, as it sent wrong signals to investors and that has impacted negatively on the performance of the economy, says Mwanakatwe, who made the announcement on behalf of Zambia’s President Edgar Lungu last week.
“The decision to waive all loans on projects that have not taken off the ground is in accordance with the 2017 policy the government embarked upon as part of the policy and structural reforms under the economic stabilisation and growth programme, to strengthen our fiscal position for sustained and inclusive growth,” said the minister.
She said the government will only sustain loans whose projects are 80% of completion. Other austerity measures have been extended to the public service workers with ministers to be compelled to buy their own fuel during errands out of station at regulated fuel allowances to curb abuse.
It is envisaged that all these measures, among others, will help strengthen the country’s fiscal position for sustained and inclusive growth and lay a sound foundation for the effective implementation of the seventh national development plan, 2017-2021.
According to Zambia’s Debt Sustainability Analysis, the country’s external debt stands at US$9.3 billion, up from US$8.7 billion accrued in 2017 while domestic debt stock (government securities) amounted to US$5.2 billion from US$4 billion last year.
Part of the external debt includes US$3 billion sourced from foreign capital markets in Euro bonds since 2012 and are due for repayment between 2022-27 at a variable annual interest of US$145 million
“President Lungu 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% completion and cut down on ministerial travels with immediate effect,” the finance minister said.
It is envisaged that the cross-cutting measures and reforms will induce positive results, as reflected in the Gross Domestic Product 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 last year.
There has been reduced 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.
There is an improvement in the current account that has been in a deficit since 2015, which had narrowed to US$$139.2 million in the first quarter of 2018 from US$241.5 million in the fourth quarter of 2017 on account of a higher trade surplus following relatively higher export earnings.
On the basis of the measures and other ongoing reforms, growth in the medium-term is projected in the 4-5% range, supported by an improving external sector. The fiscal deficit will gradually decline to 3% of the GDP, with inflation expected to remain in the single digits.
“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.”
The ministry of finance has been directed to ensure that there is strict adherence to the programmed domestic financing in the 2018 budget. It will also compel fuel importers to make the declaration of fuel imports at borders to curb smuggling, while the ministry of mines will induce measures to introduce taxation on precious metal exports.
Foreign travels by dignitaries and other government officials, including holding workshops, have been scaled down to cut expenditure and new guidelines will be issued.
The ministry of works and supply will finalise the policy on government vehicles to have them disposed of to reduce expenditures on running the government fleet. A committee to scrutinise the quality of expenditure in ministries will be set up under the ministry of finance.
This is to allow the government to take remedial measures on unnecessary expenditures for the rest of 2018 and going forward. The power provider, ZESCO, will renegotiate electricity tariffs with independent power producers to ensure that there is parity between the buying and sale prices.
The government seeks to relook at the portfolio of state-owned companies to restructure the portfolio and bring in equity participation for those that are variable through the Industrial Development Corporation and ensure only those viable are funded.
“The measures by the government are intended to set a sound foundation for improved economic management, sustained growth and safeguarding of the people’s welfare,” said Mwanakatwe.