BUS operators have praised Government’s decision to direct the Road Transport and Safety Agency (RTSA) to revert to old fees and fines for traffic offences and services.

Chairperson Ishmael Kankara has told the Daily Nation that his association was happy that Government had heard its plea because maintaining the fees and fines would have had a huge impact on the cost of doing business in the transport sector.

Mr. Kankara said the bus operators were already paying too much for other services and that the increase would have suffocated them more adding that the commuters would also have felt the impact of such upward adjustments as the bus owners would have had no option but to hike the fares in order to meet the costs.

He noted that the intervention by Government had come at the right time when economic challenges had also taken a toll on the sector.

“We want to thank Government for coming to our aid because the proposed fees were just too high for the sector which is already paying so much in other taxes. Of course, this will provide a little bit of relief to us because we are already operating under very difficult conditions,” Mr. Kankara said.

He said the move would also reduce the levels of corruption as traffic officers would have taken advantage of the exorbitant fees to ask for bribes from drivers who would not manage to pay the full amounts of money for their offences.

“It is obvious that when fees go up corruption sets in as both parties – the perpetrators and the officers – would be lured to engage into corrupt activities for the driver to pay less than the needed amount and this means that the revenue that was supposed to go to Government coffers ends up in someone’s pocket.

Meanwhile, Mr. Kankara has asked Government to revise the presumption tax charged by the Zambia Revenue Authority (ZRA) as the tax in its current form was exploitative.

“This tax is very good because Government needs to collect revenue from us but there is need to revise it so that it does not exploit us. As things are, even if my bus is not working or it has a breakdown, I am still compelled to pay this tax to ZRA as long as my vehicle is registered with RTSA,” he said.

Cabinet this week reversed the recently announced increase in fines and fees for traffic offences and services and reverted to the old ones.

Chief Government spokesperson Chishimba Kambwili said Cabinet considered the concerns raised by the general public especially bus and taxi operators that the newly introduced fines and fees were too high and were making the operations of their businesses difficult.

Mr. Kambwili advised traffic officers to begin charging the old fees.

He said the Ministry of Justice would in due course issue a statutory instrument on reverting to old fines and fees.

Last month, RTSA announced an upward adjustment in fees for traffic offences and services. Those caught driving unlicensed motor vehicles were to pay K450 while those found with expired test certificates were to pay K450 fine, among other fines.

Former Finance Minister Situmbeko Musokotwane says Zambia should access emergency funding from the International Monetary Fund to prevent further deterioration in the economy.

Dr Musokotwane said in a statement that Zambia is quickly running out of money saying it is incumbent upon the government to agree with the IMF on a program that not only stabilizes the economy, but also quickly restores investor confidence and re-kindles faster economic growth as it was before.

He said Zambia is resisting an IMF deal to avoid the strict conditions that will accompany it, said Musokotwane, who was finance minister from 2008 to 2011.

Dr Musokotwane said President Edgar Lungu’s government doesn’t want to cut spending before general elections next year.

An IMF team from the Washington visited Zambia this month at the invitation of the government to assess the state of the economy and Zambia’s responses to the fiscal issues facing the country.
But neither the government nor the IMF mentioned the possibility of talks about an economic program in statements released at the end of the tour on Friday.

Below is Dr Musokotwane’s full statement

WHICH WAY FOR THE ECONOMY AFTER THE IMF VISIT?

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A team from the International Monetary Fund (IMF) just left Zambia after making an assessment of the economic situation of the country. They found a dire situation. However, the government has rejected the idea of taking matters forwards by agreeing on a corrective economic program with them.

What is the IMF? What is the nature of its interactions with countries? What would Zambians have experienced with an IMF economic program in place?

Now that there will be no such program, what does this mean for the future of the Zambian economy? These are the questions to be answered in this paper.

The IMF and the World Bank – sometimes referred to as the Bretton Wood Institutions (BWI) are international institutions; Zambia is a member of both. After World War II, most countries were in economic ruin.

Among the measures taken to revive the world economy was the creation of the two institutions.

The World Bank was established to help countries to re-construct.

This was to happen by financing development projects, especially infrastructure. The IMF was established to help countries deal with short-term balance of payments problems.

It was to provide short-term credit to needy countries. Over the years, the functions of the two institutions have evolved a lot and in many cases they work jointly to help a country even while each one is tackling issues at the core of its mandate.

How do the BWIs engage with countries?

The institutions HAVE to be approached and invited in by a member country. In other words, a country (say Zambia) must approach the BWI to seek for assistance.

Zambia (through the Federation of Rhodesia and Nyasaland) first engaged the World Bank in the 1950s with the construction of the Kariba Dam being one of the outcomes.

Her engagement with the IMF, on the other hand, started in the 1970s.

At the time, Zambia was running into foreign exchange shortages. The initial trigger for her problems was declining copper prices, just as is the case today.

Assistance from the BWIs comes in different forms. The form that is commonly known is provision of credit. Very poor (low income) countries will typically be given soft or concessional credit.

For a poor country, credit from the BWIs is normally the cheapest that can be accessed in the world. Interest can be as low as 0.5 percent per annum, grace period can be five to ten years and repayment period can be as long as 40 years, depending on the lending institution.

If a country graduates from being low income to middle income as Zambia did in 2010, the concessional credit window from the BWIs is generally reduced or gets shuts off.

Concessional funds are scarce and they are reserved for the very poor countries with non-concessional funding being accessible to the rest.

Not all assistance from the BWIs is in form of credit. It may also be in other forms like advice or technical assistance. It may also be in form of references to third parties like donors if they inquire about the performance of the economy in question.

Even lenders under the Eurobonds will be interested to hear what the IMF thinks about economic management in Zambia to assist them judge whether or not to lend to us.

In the early years of the BWIs, it was not uncommon for both rich and poor countries to ask for financial assistance. Britain, France, China, India, etc. did approach the IMF. With time, however, the BWIs financial help became more associated with the developing world.

The high-income industrialized countries since then have relied more on domestic and international capital markets for funding. Indeed, the trend has been clear: as countries (including those from Africa) made progress and grew wealthier, they tended to “graduate”from the BWIs especially the IMF.

By 2010, Zambia had “graduated “from the IMF programs.

She was able to make do with her own money and from development institutions like the World Bank, African Development Bank, Eximbank of China and the European Investment Bank. In addition, the improved Zambian economy enabled her, if needed, to raise funding on the international bond markets.

When a country “runs”to the IMF for assistance that may sometimes, though not always, reflect failure to manage its own financial affairs.

A recent example is Greece, a member of the European Union. Her level of indebtedness deteriorated to levels that made it imperative for her to seek the assistance of the IMF and other official creditors.

The international capital markets alone for her were no longer appropriate. This was humiliating.

The humiliation by a country seeking assistance from BWIs arises because it must adhere to conditions in exchange for being granted credit. Typically such conditions include: -Restricting the size of the budget deficit for the country or, expressed differently, restricting how much the country can borrow each year Restricting the type of borrowing that the country may incur: domestic versus foreign; concessional versus non-concessional, etc.

Prescribing the minimum amount of additional foreign exchange reserves that the country must accumulate.

The effect of this is to tie the hands of the central bank regarding the interventions it can make in the foreign exchange markets Getting rid of loss making parastatal companies, say through privatization.

Reducing or removing consumer and producer subsidies.

In certain cases, demanding that the government devalues the currency.

Although a freely acting government can undertake any of the measures mentioned above, it can be humiliating to undertake them under the auspices of an IMF program: It will appear like it acted under duress.

During the 1980s and the 1990s, IMF programs led to some governments in Africa, Latin America, and Asia losing popularity because of conditionality.

Zambia today faces economic problems that are hard to resolve without the help of the BWIs.

The country is losing foreign exchange fast as can be seen from the rapid fall of the Kwacha exchange rate.

With reduced revenue, mining companies are either closing or threatening to close some mines, causing serious social problems in mining areas as people lose jobs.

The government budget itself is out of control with economic destabilization effects as tax revenues dwindle because companies are facing difficulties. Confidence in the economy is waning.

The government blames the economic problems on low copper prices and what it calls the drought induced energy shortage. The explanation about low price for copper is correct and indeed there is nothing the country can do to improve it. But this explanation is not complete for the economic problems that we face.

The government is silent on another important cause of the crisis, namely that copper output has also fallen so badly.

According to a Bloomberg’s story attributed to government, copper production in 2015 may only reach 600, 000 MT. When compared with the production of 830,000 MT achieved in 2011, the drop in production is serious.

Even if the average copper price had remained at the higher 2014 level of $6,863/MT the reduced production would have accounted for about $1.6 billion loss in export revenue.

Whereas the low copper prices are beyond the government’s control the same cannot be said of the reduced mining output. In fact, had the government not mishandled the mining sector, copper production by now would have reached at least 1,500,000 MT per annum.

This is the production target that the MMD government had set, knowing well that it was a matter of time before copper prices fell as they usually do. The plans on copper output expansion were laid out and were already under implementation. Specifically, there was the Konkola Deep project (KCM), Kansanshi Expansion (First Quantum), Lumwana Expansion (Barrick Gold), synclinorium shaft (Mopani) and opening of Kalumbila mine by First Quantum.

The best way to prepare for low prices is to encourage copper production to expand during the time when prices are good. The effects of low copper price when that time came would be strongly counteracted by the high volumes of copper sales.

Export proceeds would not have fallen that badly. In addition, individual mining companies’ ability to survive at low prices when prices are low would have been better with expanded output.

Contrary to this thinking, the PF ushered in policies that discouraged expansion or indeed maintenance of copper production. Here are the mistakes they have made.

Firstly, the government withheld VAT refunds to mining companies until it now owes colossal amounts.

This is money that should have been used to maintain or expand production at a time when liquidity in the sector is constrained by low prices.

Secondly the mining tax regime has been full of confusion culminating in the introduction of a strange mineral royalty tax rate, which the President dropped but only after Lumwana had threatened to close the mine in response.

Thirdly, the government has over the past four years failed to maintain healthy dialogue with the mining industry. A few years ago, some mines planned to restructure their operations by reducing labor and other costs.

Had they succeeded to do so, their ability to survive with low prices would have improved and this may have prevented their harsher survival measures that we see today.

However the government blocked the companies and the restructuring was not done.

The chief executive officer of the company was deported. Even at this critical present time, government still threatens mining companies instead of engaging them constructively.

Confidence has been lost. How can it be surprising that copper output has been falling amidst this confusion?

Even without copper related problems, Zambia would still have faced serious economic and foreign exchange crisis. The reason is that from 2011 the PF have carelessly spent public money.

Construction of new universities has been declared without planning. Similarly, construction of new districts, roads, sports stadia have been declared also without plans. Expensive bye-elections have been the order of the day.

This kind of conduct eventually leads to a country getting bankrupt in both Kwacha and foreign exchange terms.

It may sound strange that domestic expenditure on roads, universities, new districts, etc. can lead to foreign exchange shortages. In actual fact such a result is not surprising because most so-called domestic expenditure in Kwacha have foreign exchange implications.

For example, in constructing a road or a university, some of the expenditure will surely be externalized in profits or to import inputs.

Even something seemingly innocent like paying of salaries for officials of new districts has foreign exchange consequences. For instance, a salary recipient may decide to import consumer goods like TV.

It follows from all this, therefore, that lack of restraint in public expenditure by the government contributes to exchange rate depreciation and economic dislocation. This is why previous administrations under MMD adhered to sustainable budget deficits, which is the normal practice
globally.

However, this has not been seriously done under PF even after continuous advice over the past four years from both local and foreign experts.

Let us get back to the issues of the IMF.

Had the government agreed to engage the IMF it would have asked for credit in foreign exchange.

The credit would have provided confidence that the country has continuous access to new money that can be used to intervene on the foreign exchange markets.

Further confidence would have arisen from the understanding that the IMF will monitor the government to ensure compliance to agreed upon prudential performance or else they will freeze the credit lines.

The IMF would have come up with conditions for Zambia observe. Which would have been the conditions and how could they have affected the lives of the ordinary Zambians?

The conditions set would have stemmed from the IMF’s understanding of what has gone wrong with the economy and thereafter determine the “dos”and “don’ts “required to correct things.

They would have comprehensively looked at different aspects of the economy including but not restricted to the external sector as well as public finances.

On the external sector, they would have accepted that there is nothing Zambia can do to change the low copper prices. However, they were unlikely to accept that Zambia is powerless to reverse the massive drop in copper production. That being the case, there would have been discussion on all matters that may have led to the drop.

Questions on governments plan to pay back the VAT refunds they owe the mining companies would have been raised.

The government has held on to these funds for about three years.

The refunds, which the government has finally accepted as legitimate, can assist to improve mining liquidity.

However, government already spent this money and it is not easy to say where they find it.

There may also have been discussion on the mineral royalty tax. Last year, the government introduced mineral royalty tax at rates as high as 20 percent for open cast mines.

No other mining country in the world has the mineral royalty tax at that high rate, and this should have been enough reason, even without technical analysis, for the government to ask themselves whether such a tax rate was sensible.

As pointed out already the tax rate was eventually lowered but not before a lot of confidence in the industry had been lost. But there is still dissatisfaction in the industry that the tax rate still remains too high given the prevailing low copper prices.

What is the government’s response to this issue at the time when miners are losing jobs?

These two issues of VAT refunds and the mineral royalty tax may not affect the general public although, if they were resolved, the business environment on the Copperbelt should improve as normal mining activities gradually resume.

The external economic issues for discussions that would have drawn public attention relate to the exchange rate. As indicated earlier, the IMF were likely to oppose the manner by which the government has been intervening by selling dollars from reserves to fight Kwacha depreciation.

The government has done this at its full discretion. The IMF’s position may have been that it is pointless for the government to keep on selling dollars in interventions without first tackling the fundamental root cause of the economic crisis including the depreciations. In other words, the total freedom that the government has exercised to date regarding when to intervene and by how, may have been curtailed.

This would have been a clashing point between the IMF and the government. For the general public, this might have meant more Kwacha depreciation, at least initially, unless the government quickly became serious in tackling budget deficits, leading to stabilization of the exchange rate without need for foreign exchange based interventions.

Finally on the external sector of the economy, the IMF would have imposed restrictions not just on domestic but also on new external loans. In other words, the era of the government freely borrowing via Euro bonds and other sources would have ended.

This would now have been subject of negotiations with the IMF and the outcome could either be yes or no.

This would have been another point of tension between the government and the IMF because, after all, the government sees big spending as its best bet for political survival.

Let’s now delve into the possible tension issues between the government and the IMF regarding matters of public finances. It is certainly in this area where the two were likely to clash a lot and where the ordinary person is most likely to feel the presence of the IMF.

Public expenditure control under the PF has been weak. It is like there was no gatekeeper on public finances.

This, as we have seen, eventually leads to foreign exchange problems. Zambia cannot therefore expect to stabilize the exchange rate unless more effective gate keeping on public finances is established. It follows that the IMF would focus a lot on public expenditure.

Zambians should therefore expect pressure from the IMF that the government drastically reduces subsidies, for example on petroleum fuel. Petroleum (dollar) prices on the international markets have fallen significantly.

However their prices in Zambia ought to be higher because of the Kwacha depreciation.

The current prices for fuel in Kwacha reflects the exchange rate of not more than K8/US$ or thereabout.

The removal of subsidies on petroleum prices will worsen the lives of the already pressed Zambian consumer. In addition to the direct increase in fuel prices, prices of most goods and services will rise in response to the cost of transportation.

Another area of clash with the IMF on control of public expenditure would be the subsidies on the farming input support program (FSP) and on maize marketing, both of which are currently are making huge losses.

Once again these are difficult areas, which are likely to make the life of the farmer and the consumers of maize harder.

The chaotic approach to infrastructure development by the PF is unlikely to escape the attention of the IMF.

From 2011, the PF has embarked on many big infrastructural projects without any sound planning and regard to the sustainable availability of financial resources to do so.

This has resulted in rapid accumulation of both domestic and foreign debt, which will soon become difficult to service.

Demands from the IMF that the government prioritizes its investments in infrastructure to suit limited money will see some projects already announced or even embarked upon put on hold.

For the affected communities, this will prove frustrating and disappointing. For the contractors, this will be massive loss of business.

We should also expect many contractors to sue the state for loss of business.

There are many other potential areas of tension between the IMF and the government. Overall, the biggest source of tension between the IMF and the government will arise from the former’s attempt to get the latter to reign in its chaotic ways of spending beyond its means and slow down on borrowing. This will come at the wrong time for the PF who seem to believe that their political survival depends on spending, and spending.

As the saying goes, it is the grass that suffers when elephants fight. Assuming the government reduces expenditures, in which areas will this happen more?

Is it on expenditures that matter to the poor (e.g. health, education, water, etc.? If so then the ordinary Zambian will suffer. But if the focus of the expenditure reduction will protect social spending on the poor, then the suffering will be less severe.

With the insistence of the government to proceed with expensive infrastructure, it is likely that this will be done at the expense of social spending.

Let us wrap it up. Zambia is quickly running out of money. There is rapid shrinkage in industry, led by the mining sector with the consequent loss of jobs.

Similar difficulties will follow in non- mining sectors because loss of incomes in mining means reduced buying power for consumers in
other sectors. Further, the massive depreciation of the Kwacha also means further loss of business across the board because buying power is eroded.

New money is required to help stabilize the economy. The financing that the government has hitherto so much relied upon, namely Eurobonds and others including domestic sources are becoming less available.

Some lenders may still offer money to the government but this money will increasingly become more and more expensive and unsuitable.

The only credible funding sources that remain at this point in time are the IMF and the World Bank. But these institutions will not permit the government to continue “business as usual”.

They will demand corrective actions and this in the short term will be unpleasant for most people. And it is these corrective actions that the government has rejected and thereby expressed no interest in agreeing on a program with the IMF.

In other words the government remains uncommitted to controlling expenditure because it believes it is the infrastructure development that will win it elections. Similarly, the government believes expanded bureaucracy in districts and even foreign missions are good for it. Although the government is rejecting a program with the IMF, it has to-date remained silent and not offering adequate solutions to the huge economic problems the country is going through.

Nothing on the crisis on the mines. Nothing on the exchange rate except selling dollars which everyone knows will run out. Nothing on restoring the confidence of the business community.

Nothing on the escalating debt problem and to the contrary the government wants more borrowing.

It is incumbent upon the government to agree with the IMF on a program that not only stabilizes the economy but also quickly restores investor confidence and re-kindles faster economic growth as it was before.

It is doubtful that there is patience in today’s young population for a prolonged period of stabilizing the economy while jobs and livelihoods remain scarce. In this respect, the attitude taken by the government of rejecting a program without tangible alternatives is not helpful and will just see the economy spinning further out of control.

The PF must take responsibility for the current economic hardships and act.

They should not blame everything on drought and low copper prices. A global economic crisis which resulted in even lower copper prices than they are today occurred also between 2008 and 2009 but things did not deteriorate as they have done this year.

Concrete measures then were taken that minimized the negative effects of the crisis.

The PF must also take practical steps to stabilize the economy and return it to strong growth. The main problem is that right from start in 2011, the PF economic policy was internally contradictory and inconsistent: On one hand they believed that development was about the government spending big on infrastructure and other things like bye-elections and expanding government bureaucracy. On the other hand they instituted policies that discouraged the private sector and thereby leading to a declining economy.

Given that they wanted to spend big, they should have made it a top priority to promote investments and expand the economy.

This would have cultivated the next crop of tax payers. By grabbing private companies (e.g. Zamtel), by introducing unreasonable taxes in mining, by deporting company chief executives (Lafarge, KCM), by abandoning or delaying projects designed to promote future economic growth (Kasaba Bay Tourism Project, Mamba Thermal Power Station, Kafue Gorge Lower Power Station), etc. the PF was actually killing future tax payers who should have produced the money for them to spend.

It is this contradiction of killing industry while wanting to spend big that has crystalized in the economic crisis we face today.

By Situmbeko Musokotwane

The Head of State has also reversed Statutory Instrument (SI) 41 of 2015 that increased the unit fee from 20 Ngwee per unit to 30 Ngwee per unit.

The fees were revised in accordance with the provisions of Statutory Instrument No.41 of July 2015 of the Fees and Fines Act, which increased the value of the Penalty Units from 20 ngwee to 30 ngwee per Penalty Unit.

The Zambia Revenue Authority (ZRA) also introduced the presumptive tax on bus and taxi operators this year.

The presumptive tax is a tax imposed on an informal sector like transport and when it was introduced, bus operators were meant to pay tax of between K1,600 and K19,700 per month at ZRA offices.

Bus and taxi operators protested saying that paying of the taxes was cumbersome and consequently costly.

Special Assistant to the President for Press and Public Relations Amos Chanda said in an interview yesterday that President Lungu had ordered the presumptive tax that had affected the transport sector and reversal of the SI 41.

“Following submissions from the bus and transport operators, the President has with immediate effect directed the reversal of the presumptive tax and the SI 41,” Mr Chanda said.

He said Mr Lungu has directed the ministries of Finance and Transport to revert to the initial fees and fines that transport operators were paying.

Mr Chanda said President Lungu has ordered the two ministries to review the entire penal and tax Law that affect the transport business to ease their operations and make them more effective.

“For example, the bus operators complained that the presumptive tax took a lot of their time as they took about three hours at ZRA which made it cumbersome for them to operate,” he said.

He said bus and taxi operators should know that the review is with immediate effect and should corporate with RTSA and ZRA.

The revised fines ranged from K225 to K450 for charges penalty offences which include traffic offences, unlicensed Motor Vehicle,expired Test certificate and fitness, defective tyres talking on mobile phones whilst driving.

Mr Lubinda said farming was one of the main sectors that contributed and promoted national development saying farmers were entrepreneurs that needed to be supported.

He said the funds were aimed at empowering small scale farmers in the country in order for them to work efficiently and contribute to national development by producing enough for export purposes.

Mr Lubinda was speaking in Lusaka yesterday during the economic panel discussion on agriculture in Zambia.

The discussion is part of a series of economic panel discussions the U.S. Embassy and the Women’s Entrepreneurial Centers of Resources, Education, Access, and Training for Economic Empowerment (WECREATE) Center are holding to support Zambia’s economic growth and prosperity.

“Small scale farmers have the potential to boost the agriculture sector in Zambia and government will ensure that it invests for them to get the support they need for the country to develop, “Mr Lubinda said.

He said government had the capacity to regulate the economy using the instrument of exports and that the empowerment of farmers would promote exports.

Mr Lubinda said government is currently discussing with some foreign investors to come on board and promote the agriculture sector in the country.

He appealed to the private sector to participate in the empowerment programmes by closely working with government to promote national development.

Speaking at the same event, American ambassador to Zambia Eric Schultz said the current economic situation in the country was an opportunity for Zambia to promote herself.

“Zambia is in a crisis mode, this means we have many opportunities to show the world that we can make it. Let’s make use of what we have now, “he said.

Mr Schultez noted that helping the private sector develop would increase the pace at which the country was growing positively.

He said agriculture was one of the largest sectors in the country and that making efforts to promote farmers products was good for the country.