Zambia will probably cut spending and boost borrowing to make up for a revenue shortfall after scrapping a plan to collect more taxes from mining companies, according to Razia Khan, chief economist for Africa at Standard Chartered Bank Plc.
The government announced on Monday it will roll back increases in royalties imposed in January, returning to a previous system based on profit taxes. The change will cost K2.3 billion ($310 million), government spokesman Vincent Mwale said.
“The modification to the mining royalties is good news ultimately,” Khan said in response to e-mailed questions. In the short term, though, government will probably resort to a “combination of some spending cuts as well as external borrowing, given a potentially larger deficit.”
President Edgar Lungu ordered revisions to the tax last month after it was fiercely opposed by the industry. Barrick Gold Corp. said it would halt operations at its Lumwana mine.
The revenue hit comes as Zambia, Africa’s second-biggest copper producer, seeks to trim its budget deficit to 4.6 percent of economic output this year, from 5.5 percent in 2014. The new mining tax system will come into force on July 1.
Road Plans
Borrowing more to plug the deficit will be costly and government should focus on cutting spending, though that won’t be easy with elections due next year, said Oliver Saasa, chief executive officer at Lusaka-based Premier Consult Ltd. He said savings can be found in road-building plans, and by combining ministries and reducing travel costs for civil servants.
Finance Minister Alexander Chikwanda budgeted 5.6 billion kwachas for road infrastructure this year, or 12 percent of total spending.
Zambia’s fiscal deficit “will certainly be higher than planned,” though its size won’t be clear until parliament approves adjustments to the budget, Praveen Kumar, lead economist for Zambia, Zimbabwe and Malawi at the World Bank, said in an e-mailed response to questions.
The government could remove fuel subsidies, keep a wage freeze in place, sell corn and cut capital spending to contain the deficit, and it may also need to “borrow more than was originally planned,” Kumar said.
Source: Bloomberg business
** Wage freeze for cabinet officials.
** Reduction of the number of depute ministers.
** Unnecessary international Govt trips.
** Checks and balances of the National Tender Board.
ETC
My fellow Zambians I indicated earlier this year that the situation of Zambia is worse than that of Greece.Most bloggers thought I was hallucinating.Our true financial position will be clear to all soon ,by Augast you will begin to see the damage done by one illiterate president Zambia has ever had (Sata).If the African union was like EU it should have already exposed Zambia and advised Zambia to drastically reduce expenses and limit borrowing to investments and consumption.African Union is simply a club of African president to further their grip to power regardless of performance. At the time the USA is enjoying good economy almost all African countries are facing economic challenges ,which has lead to almost 900 people dying in the Mediterranean sea in route to Europe to seek better life
The formula to solving the current problem is there for all to see. In the case of Mwanawasa and Magande (2001-2008)What did these two sons of the soil do? They first reduced borrowing through Government bonds. They reduced borrowing from international banks like IMF and world, instead agreed to all conditions to reach HIPC completion point. They boosted internal revenue collection and increased foreign and local direct investments. They targeted grants instead of loans.They were committed to fight corruption and dismantling local debt by paying government suppliers, Farmers and pensioners on time because they knew that by doing so they are empowering Zambians with capital for investments. What did Banda and Sata do they increased borrowing and expenditure at the same time.
The current situation is that we are now experiencing a budget deficit .Check your facts right Mwanawasa and Magande left more than $200billion in reserves,but RB and Sata have depleted these reserves.They have instead created huge loans and yet the Road infrastructure is not complete.The 8000 link Zambia is now a pipe dream.the question is were did the money go,since all these projects were fully funded?Zambians lets be serious are going to continue voting for such people even if they are our tribesmen its too much.Since Lungu come in power has he addressed the nation on its current state?What is his current direction ?what interventions has he put in place?My heart bleeds to see people being taken for granted because of ignorance .HH last week gave solutions others do not bother to read
Second largest copper producer in Africa and 8th in the world yet so around number 29th from bottom on the poverty list in the world. The country is cursed, we can not see it. Let Zambia find something else to produce. Try gas, diamonds, and gold in the Western and North Western part of the country. The Boers are picking these minerals from Zambia under our own noses and flying then away in one engined aircrafts while Zambians are locked in a political tango.
Finally, what HH has been telling us is beginning to sink in. It will get worse unless Chokwanda is removed and Edgar gets a clear vision.
the choices for AC are stark. With election season approaching, there may be a temptation to increase spending. Bedsides Im sure the unions will start clamoring for the lifting of the wage freeze, and with the influence they have on the potential voters, it will be interesting to see how AC resists these calls. The silver lining on the cloud could be that with a projected poor harvest this season, perhaps GRZ will not have to spend as much buying the grain. But expect a slow down in the road projects especially those not seen as being politically urgent. As Zambians we must prepare to tighten our belts once more!
Best solutions is for the country to be colonised again… thats the only way blacks work and do something. Look at South Africa
The proverbial basket case.
Just bring back colonialism.
50 years of independence wasted.
200 years from now….WE WILL STILL SPEAK OF THE ABUNDANT NATURAL RESOURCES, and the potential Zambia has.
Thank God, I’m abroad!
Do you even know what colonialism was about? Best ask your grandparents to enlightened you!!
Its a clue less country…. with clueless people
Thank God i also left @Chikontwe
WITH THE LIKES OF STUPID YAMFWA MUKANGA WHO SAID THEY WILL SPEND AS LONG AS THEY ARE ABLE, I DON’T SEE PF LISTENING TO ECONOMISTS.SATA SAID IT THAT THEY ARE A BUNCH OF USELESS MPS
Unfortunately we have a visionless leader on a short term tightened the belt is the least of his priorities….its more spending and more borrowing…what’s the point of all these natural resources if you get pennies from it.
So we have been blackmailed by investors.
We have decided not to make money from our natural resources and opted to borrow expensively.
We have decided to worsen the already poor quality of life.
We should have let the aggrieved blackmailers pass on the resources to would be worthy investment partners.
For the future, we need foresight when signing investment deals into Zambia.
When are we going to get rich kansi akwasu?
Just give a chance to HH and you will see even South Africans will run to Zambia to look for employment. All the resources that other countries are crying for are already laid down in Zambia; a vast of minerals, natural gas, oil deposits, plenty of fresh water, massive farm lands, intelligent, peaceful and skilled Zambians, stable atmosphere, etc.
I don’t care what people may say or think, Zambia is blessed. Its our leaders who are messing up this beautiful country.
Just change governments or make deliberate policies to bring back all skilled Zambians from USA/EU and Australia. Zambia will be a marvel for all to see. We already have all international investors eying Zambia.
May the Lord bless Zambia and her beautiful people.
Indeed our Lord help us
We all know what needs to be done. The PF messed up in the following areas
-Increased the number of districts and provinces which significantly increased the size of government. I still have no idea how many districts Zambia has, and what value if any has been added by the creation of the new ones. This has just led to increased expenditure with no clear plan as to where the revenue was supposed to come from to support it
-Useless deputy ministers and DCS. Can we all agree and get rid of these positions
-Civil servant salary increments. This was another useless move. There has been no discernible improvement in service delivery to justify this increase
-Over 70% of the national budget is currently servicing employee benefits. There is no way this is sustainable
There you have it…
The inconsistent policy pronouncements have also not helped matters. I was expecting more from EL, but as they say, birds of the same feather
The man in the picture shaking the hands of the Chinese official is not Mr Victor Mundende.
LT, check your files and make the correction
The other curse of africa (& africa has many curses) is this political hegemony & dominance over economics. While we need foreign investment where is local investment. Where are our millionaires to anchor these mines. There is no single serious business you can call zambian owned.
The few zambians that invest in this country politicians try to squeeze them out. Case in point being Mathani & Zambeef.
Where is EPK’s rail line? GBM we have thrown out of the country now he has taken his businesses to SA.
When are we going to learn to support our own.
GBM has/was not thrown out of the country. He is fighting his own demons and went to do business in South Africa out of his own will. Wrt Mahtani,it is not as straight forward as it may look to you and me. Oh,what short memories Zambians have! Read your history
Biggest problem we face is low population productivity. A large portion of the population is not producing anything and hence not contributing to GDP and consequently we have a low tax base. As much as development of infrastructure is a priority our government needs to find inovative ways to create an atmosphere that will increase employment opportunities. Offering investment opportunities in agriculture, tourism and small scale manufacturing is key. Also we need to start protecting local industry by taxing nonessential imported goods more. This would not only help to reduce the demand for foreign exchange but help with revenue too. We have said this before we need to brace ourselves they will be some hard choices ahead. Plain put we can’t afford everything we want right now.
You have let the Mines have their way. You will pay for this decision. Unfortunately its the common man in the street who pays. Lungu will be comfortable in State House
Please!!! My fellow zambian come 2016 vote wisely forget about people who have no vision for our beautiful country!!
@ SIDO MARK.
Mwanawasa was not the person who introduced the structural adjustment and was not the one who made arrangement for Zambia to qualify and reach HIPIC completion point. Also he was not the one who introduced institutions reforms, thereby improve the way taxes were collected. It was Chiluba and you can not discount his contributions.
How can you say that Mwanawasa and Magade had left $200 bn in reserves? Where did the money come from, because Zambia had just been declared bankrupt over $7bn? For Mwanawasa, this was a case of being in the right place at the right time. The money they accumulated was interest of $365m per month which we had stopped paying and coupled with improved revenue collections. Mwanaswas’s corruption crusade was just lip service and a waste of money…
and no one had been convicted. Also, how do you say reducing borrowing thru govt bonds? Issuing Govt bonds is increasing borrowing. Please stop confusing people.
I agree with the Engineer. Zambia needs to be colonised again for @ least 50 years. Blacks simply cant manage resources prudently