Status of Zambia’s Economy - Minister of Finance Report
1. Highlights of Macroeconomic Performance 2018
i) The economic environment is largely stable and GDP growth projections for 2018 remain on target, building on the 4.1% growth rate registered in 2017. The exchange rate of the Kwacha against major trading currencies remained stable while inflation is within the targeted 6 to 8% band margin.
ii) Fiscal discipline is at the core of fiscal management. As a result of measures taken, the 2017 budget deficit recorded at 6.1% a rate that was below the 7% projection.
iii) Management of the country’s debt has been prioritized. Regulatory and administrative measures to slow down the growth of the debt stock have been put in place in accordance with the medium-term debt strategy.
iv) Let me now highlight a few specific performance updates.
1.1 Fiscal Management
i) Attaining fiscal prudence through lowering of the fiscal deficit, better cash management and timely provision of funds to the sectors is the key to fiscal management.
ii) Tax compliance at below 60% of the eligible tax payers remains a challenge. Corporates and Citizens should note that the more tax evasion we have the more a few people face the tax burden. Therefore, strengthening tax administration as opposed to introducing new taxes will be the strategy.
iii) For the quarter ended, total revenues and grants amounted to K12 billion against a projection of K12.04 billion. Higher collections were achieved for VAT, which compensated for lower performance in other revenue categories such as customs and excise, and non-tax revenues.
1.2 Exchange rate of the Kwacha
The Kwacha made gains against the US$ dollar in March 2018 on the back of net supply of foreign exchange. During the month of March, the Kwacha appreciated by 2.1 percent against the dollar to an average of K9.5859/US$ relative to the February average of K9.7926/US$.
1.3 Lending Rates
Marginal decreases have been recorded in interest rates that fell to 24.1 percent in March 2018 from 24.6 percent in December 2017. This notwithstanding, Government through the Central Bank is working on measures to make the cost of credit affordable as these levels are still very high. On its part, Government has put in place a programme to pay local contractors what is owed to them to reduce stress on the financial sector and allow for normalization of lending conditions on market. The second quarter will therefore see substantial movements on payments to contractors.
At 7.1 percent, inflation remains within the medium-term target range of 6-8 percent. The rise in inflation was mainly attributed to the increased price of petroleum products and the subsequent rise in transport costs, as well as reduced supply of selected vegetables.
1.5 Debt Management
Zambia’s reconciled debt stock is currently at US$8.7 billion. The larger part of the increase due to the reclassification of the US$500 million fuel debt that was reconsolidated in the external debt.
ii) Domestic debt stood at K50.9 billion at the end of the first quarter while arrears were K12.7 billion as at end 2017.
2. 2018 OUTLOOK
i) We expect continued positive growth and macroeconomic stability in 2018 with GDP growth projected above 4 percent. This is premised on positive performance in the agriculture, mining, construction and manufacturing sectors. Inflation is expected to remain within the projected single digit target range of 6-8 percent.
ii) Consistent with the fiscal consolidation stance, the Government is working towards the end-year fiscal deficit target of not more than 6.1 percent of GDP on a cash basis.
iii) In addition, to support macroeconomic stability, government will continue to undertake measures aimed at maintaining debt sustainability.
3. Government’s Taxation Regime
i) In recognition of Government’s need to finance the various development programmes, Government is implementing several policy and structural reforms under the Economic Stabilization and Growth Programme (ESGP). The ESGP emphasizes the need for the country to finance its development agenda from domestic resources, while reducing external dependence.
ii) This Government recognizes that financing its development programmes from debt and hand-outs from cooperating partners is not sustainable. The country has immense domestic revenue opportunities yet to be fully tapped.
iii) Zambia has for years relied, for its domestic revenue, on a few sectors and tax types, a situation which is one of the constraining factors to higher growth and shared prosperity. This must not continue if poverty has to be effectively tackled. Government has to respond to such low levels through strengthening compliance and broadening the tax base. While doing so, Government will continuously and as appropriate, review its tax regime so that it does not disrupt economic activities.
iv) Government endeavors to ensure fair taxation while at the same time raising sufficient resources to deliver public services including up-scaling social protection programmes. For instance, on Social Cash Transfer, beneficiaries have increased to 700,000 in this year’s budget from 590,000 in 2017. The trend is similar to other social protection programmes. This is in addition to scaled up public investments in education, health and physical infrastructure.
v) For sustainability, these programmes must rely on domestically generated resources. Relying on domestic resources will also avoid increasing the debt overhang on our future generation. We have to be responsible for our own development and everyone has the obligation and ability to contribute by meeting their tax obligations to support Government’s initiatives. Meanwhile, Government will ensure that the ordinary and poor Zambians are insulated from any reforms that may erode their livelihood.
vi) It is important to state that the higher the compliance levels, coupled with a broadened tax base, the higher the chance that Government will over time, reduce the tax burden on a few tax payer and make taxation equitable.
4. Policy and Structural Reforms
i) Since 2017, Government has been implementing several policy and structural reforms under the Economic Stabilization and Growth Programme (ESGP). The ESGP is a three year programme up to 2019. To-date notable progress has been made in the areas of agriculture, energy and legislation.
• Reviewed the farmer database and reverted to 1 million beneficiaries from 1.6 million beneficiaries
• Totally migrated to E-Voucher for delivering FISP
• Implemented the 500,000 MT limit of food purchases by FRA
• Undertaken interim electricity tariff adjustment of 75 percent
• Undertaking the Cost of Service Study
• Review of the financial and operational sustainability of Zesco commenced and ongoing
• Development of the framework for full engagement of the private sector in importation of petroleum products advanced
• Public Financial Management bill in parliament
• Amendments to ZPPA Act advanced.
• Planning and Budgeting bill also advanced.
ii) Government will continue to undertake reforms as outlined in the ESGP.
5. IMF PROGRAMME
i) The point of discussion with regards to the IMF programme is the issue of debt management. We are currently carrying out a detailed debt sustainability exercise that will give us the current debt parameters and the path we may have to take going forward.
ii) This will be completed in the next two weeks on which basis we can take the discussion with the IMF forward and find a settlement.