The Government of Zambia through the Ministry of Finance has observed the need to commence implementing a calculated strategy towards dismantling of arrears to ease liquidity in the market, improve financial sector performance, get businesses to operate smoothly and reduce lending rates to get the economy back on a higher growth path.
The ministry has also disclosed that over the first half of 2019, total revenues and grants amounted to K32.6 billion, representing 8.31 percent above the projection of K30.1 billion.
Finance Minister Hon. Dr. Bwalya Ng’andu disclosed that domestic revenues in the period under review stood at K32.1 billion above target by 9 percent.
Speaking during a briefing of the Cooperating Partners, Business Community, Civil Societies and the Media on the performance of the economy in the first half of 2019, Dr. Ng’andu said this was mainly driven by higher nontax revenues collections, mostly from declaration of dividends.
On tax revenues, Dr. Ng’andu stated that Value Added Tax (VAT) collections were higher than projected by 17 percent, although refunds have increased to an average of K1.4 billion per month from around K800 million in 2018.
He said this has deprived the revenues required for capital and social sector spending.
“The broad measures that we are undertaking include the following; the first task is to achieve fiscal sustainability by reducing the deficit over the medium term to sustainable levels of 3 to 4 percent of GDP. In this regard, I will ensure that we enhance measures to achieve fiscal restraint or consolidation, by implementing well targeted expenditure measures. The second, and related task, is to increase our capacity to mobilize resources. This will entail increasing efficiency in collection of tax revenue and fixing leakages in Non-Tax revenue collections through increased use of IT solutions,” he highlighted.
“Another priority will be ensuring debt sustainability, which is cardinal in reducing fiscal risks and vulnerabilities. Our main focus will be to enhance the pace at which we will be implementing the austerity measures that were pronounced by Cabinet; the fourth one is dismantling of arrears owed to suppliers and contractors will be another important task.”
Touching on the aspect of expenditure, the Finance Minister said total expenditure were above target by 6.4 percent at K46.8 billion.
He indicated that this was mainly on account of interest payments on debt which were 27.3 percent higher than projected at K9.2 billion, due to the depreciation of the Kwacha in the second quarter of 2019.
“The target for 2019 remains to reduce the budget deficit to 6.5 percent of GDP, a level which even if lower than last years is still high when compared to our objectives of getting the budget deficit below 4% of GDP. On a broad policy level, I would like to point out that elevated fiscal deficits have been driven, by higher than programmed external project financing. Thus, Government has taken measures for management of project disbursements, debt cancellation and rescheduling to bring down deficits to sustainable levels. This is in line with the SADC macro convergence regional targets,” he further disclosed.
On Zambia’s Debt Position, Dr. Ng’andu revealed that the external debt stock as at end June 2019 was US $10.23 billion compared to US $10.18 billion at end March 2019.
He further revealed that the stock of guarantees is currently US$1.3 billion, unchanged from the end March 2019, and end-December 2018 position.
“Domestic debt in terms of securities and bonds as at end June 2019 was K60.3 billion showing an increase from the end-March position of K58.3 billion. During the quarter, subscription rates for government securities declined relative to the first quarter of 2019, due to liquidity challenges, perception and exit of foreign participates in the market,” said Dr. Ng’andu.
“Arrears stood at K16.7 billion at as end March 2019, up from K15.6 billion as at December 2018. The increase in arrears is due to increased disbarments on infrastructure development.”
On the performance of the kwacha against major convertible currencies, Dr. Ng’andu disclosed that the Kwacha depreciated by 7.6 percent against the US Dollar, trading at an average of K12.83 per US Dollar from K11.961 during the first quarter of 2019.
He added that the Kwacha also depreciated by 6.1 percent, 6.5 percent and 4.9 percent against the British Pound, the Euro and the South African Rand, respectively.
“External Gross Reserves as at end June 2019 remained at the same level as at end March 2019 at US $1.41 billion (1.6 months of import cover.). The position has been supported by the continued foreign exchange purchases from the market and mineral royalty flows into reserves,” he said.
Dr. Ng’andu emphasized that the Government will continue with policy measures to support the build-up of reserves, which among others, will include payment of mineral royalty in US dollars and buying of foreign exchange from the market by the Bank of Zambia.
He added that measures on gold purchases will also continue.