The Standard Bank Group which trades in Zambia as Stanbic Bank has welcomed the appointment of Bwalya Ng’andu has Finance Minister.
The bank has however cautioned that Dr. Ng’andu’s appointment could be a case of having a different messenger delivering the same message.
In its latest report on Zambia, Standard Bank says Dr Ng’andu’s appointment as is a positive development that the market will probably look favourably upon.
“This is the third Finance Minister in three years. Obviously the country is facing some fiscal challenges that require rather drastic fiscal consolidation efforts. Perhaps there is also a need to restructure some external debt in order to lengthen the maturity profile thereof,” the report said.
“As we have repeatedly argued, there is a significant increase in the amount of external debt that is maturing this year, thereby increasing the government’s external debt service payments. This year the amount of external debt service payments will be nearly as much as, if not more than, the amount of FX reserves at the end of 2018.”
It states that the Finance Ministry expects external debt service payments to be in excess of 1.5 billion dollars per year over the next 2 years.
“Gross FX reserves are already lower than this, having consistently declined since about June 2017 when they were USD2.39bn. Is the change of Finance Minister going to change the advice that the President and the rest of the Cabinet has been receiving from the Finance Ministry?”
It added, “Judging from our conversations with the Finance Ministry over the past 3 years, it seems reasonable to believe that the Finance Ministry has been making calls for fiscal consolidation.”
“We might not know for sure what the new Finance Minister will be communicating to the President and the rest of the Cabinet. But judging from the increasingly strident warnings that the Bank of Zambia’s Monetary Policy Committee has been making regarding the risks to macroeconomic stability posed by fiscal policy, it seems reasonable to believe that he would continue to communicate that message.”
“Furthermore, taking account of the very strong possibility that the senior leadership of the Finance Ministry, besides perhaps the Finance Minister, is not going to change, then the advice that the Finance Ministry will deliver to the President and the Cabinet regarding fiscal matters is probably not going to change. Media reports indicate that the new Finance Minister wants to restart talks with the IMF.”
It says, “Recall that previous talks for a funded program ended in 2017 with the IMF bemoaning the risks posed by the fast pace at which external debt was rising. Additionally, the IMF advised the government to strengthen debt management capacity, improve the project appraisal and selection process and slow down the pace at which it was contracting new external debt, especially non-concessional debt.”
It added, “So, if these new proposed talks are to explore a funded program, then is there really a strong likelihood that the IMF is going to have a better assessment now?”
“Presumably, the President and the new Finance Minister conferred on the state of government finances, fiscal policy management challenges and the Minister’s proposed strategy to deal with them. If so, then this appointment would probably also be an implicit acknowledgement by the President that he broadly agrees about the need for fiscal consolidation.”