Zambia plans to trim its fiscal deficit next year even as Africa’s second-biggest copper producer boosts spending. It may be considering raising mine taxes to achieve that, according to analysts.
The Finance Ministry is targeting a budget shortfall of 6.5 percent of gross domestic product next year, compared to 7.4 percent this year, according to a medium-term expenditure plan that sets its fiscal course until 2021.
At the same time, it forecasts mineral-royalty and mine-profit tax revenue increasing by about a quarter, as copper output grows 3.7 percent and prices remain flat.
That suggests an increase in rates for both profit tax and royalties for companies including said Mark Bohlund, an Africa economist with Bloomberg.
“The sharp increase in mining royalties and mining corporation income tax appear to be based on a change in the taxation regime,” he said in reply to emailed questions.
A Finance Ministry spokesman didn’t immediately respond to a request for comment.
Finance Minister Margaret Mwanakatwe is due to present the 2019 budget to lawmakers this month.
She’s trying to allay fears around Zambia’s external debt that grew to $9.4 billion at the end of June, almost double the amount at the end of 2014, and get the International Monetary Fund to resume talks over a potential $1.3 billion bailout.
Distress Risk
Last year, the IMF classified the country as being at high risk of external debt distress. Standard & Poor’s and Moody’s Investors Service both cut their credit ratings further into junk territory in August, and the southern African nation’s Eurobonds have been the world’s worst performers this year.
Yields on its $1 billion bond due 2024 rose to a record 16.4 percent on Wednesday.
The MTEF forecasts total revenue will increase by 14 percent next year from a 2018 target of 49 billion kwacha ($4.8 billion).
Income from mineral royalties is seen growing 23 percent to 4.4 billion kwacha, with receipts from mining-profit tax climbing 27 percent to 2.5 billion kwacha.
The estimates suggest the government may be considering higher royalty rates, said Renaissance Capital Fixed Income Strategist Gregory Smith.
The levies are currently at 6 percent when the copper price is above $6,000 per metric ton, and 5 percent if below that level, but higher than $4,500.
‘Optimistic’ Forecasts
“Without an increase in royalty rates the 23 percent growth appears optimistic,” Smith said in emailed comments.
The government’s targets may not be sufficient, according to Smith. “The fiscal deficit target of 5.1 percent of GDP in 2021 and the gradual pace of getting there might not be enough for the IMF to rekindle discussions on a possible program,” he said.
Zambian mining companies have enjoyed a period of “relative stability” in the taxation regime after upheaval in 2014 and 2015 that saw some operators threatening to close, the country’s mines lobby group said.
“It would be an unfortunate travesty if the government were to consider a short-term revenue grab in the middle of such a positive environment between government and industry,” Zambia Chamber of Mines President Nathan Chishimba said in emailed comments. “We hope sanity will prevail.”
The Finance Ministry reiterated plans to slow debt accumulation in the expenditure plan.
“Projects that are at least 80 percent complete will be prioritized for financing,” it said. “In addition, contraction of commercial foreign debt to finance new projects will be postponed until the debt situation is reduced to moderate risk. Some of the negotiated loans that are yet to be disbursed will be canceled.”
Sinking Fund
The government plans to set aside 4.4 billion kwacha for a sinking fund, meant to enable it to meet its future debt obligations, it said.
Other key points in the medium-term expenditure framework:
• 2019 economic growth seen at 4.3 percent from 4 percent this year
• 2019 copper production to rise to 924,510 tons from 891,203 tons this year
• Inflation target band remains 6 percent to 8 percent up to 2021
• Mineral royalty revenue seen rising 23 percent in 2019 to 4.4 billion kwacha; mining profit tax revenue to climb 27 percent next year to 2.5 billion kwacha
• Value-added tax revenue seen jumping 27 percent in 2019 to 15.7 billion kwacha
Source: Bloomberg
Green paper
BREAKING NEWS: CHINA TAKES OVER ZAMBIAN GOVERNMENT!
1,481 views
Dave Partner
Published on Sep 7, 2018
How China slowly colonizing Zambian economy. President Edgar Lungu pose for a group photograph with Sinoma members before the official opening of the China National Building Material Zambia Industry Plant in Chongwe District
Citizens wary of the dragon, Chinese President understands the fears
(Note to readers: In Chinese mythology, the dragon is the most powerful creature but can be benevolent. In imperial China, the Emperor used the dragon as a symbol of power and strength. This article is longer than usual as the topic to me, as an analytical patriot, is Zambia’s number one national interest issue for the short, medium and long terms and is likely to impact future…
They have been reading speeches about diversifying the economy for 8 years but have invested zero in Agriculture even half billion of those EUROBONDS fast forward today its the same story…what a bunch of reckless empty tins!!
Its-about-time. The mines have been screwing Zambia since privatisation in the 1991s
Long overdue. The wealth from the mines should run Zambia. HH must go to Panama as well and live there.
#2 Lazy trib.es Jay Gay, part of the poor performance can be blamed on you and your trib.al association upnd and its trib.al leader Hacks. You have invested so much time planting your cadres in government systems and carrying out so much sabotage to frustrate even or especially progressive ideas. All in a vain attempt to show that government is not working. Unfortunately this affects the national economy while pushing the presidency of upnd Hacks so much more remote to 2099.
Without saying too much, just let me point out one thing. At one I said these detractors are accusing government of letting the mines go without paying enough to the country but once government does that they make a 360 degree turn to cry You’re scaring investors. …there its.
This article is about scaring the Zambian government from getting what rightly belongs to the country and it’s fully supported by a known party.