IMF says Zambia will need more help next year

Zambia’s struggling economy will need more financial assistance in 2015 than previously thought, the International Monetary Fund said on Friday.

According to the Financial Times, the country turned to the fund this year after the kwacha fell to record lows against the US dollar and the government battled a fiscal deficit, blamed largely on excessive public spending.

Africa’s second-largest copper producer has also been hit by the sharp decline in prices for the metal, which accounts for about 70 per cent of export earnings.

The situation has been exacerbated by concerns in the mining sector about government proposals to put up royalty taxes, causing Barrick Gold to announce this week it would suspend operations at its Lumwana copper mine.

The Zambian Chamber of Mines warned on Friday that the proposed tax reforms would lead to shaft closures and threaten up to 12,000 jobs.

The measures, expected to take effect next year, will have an impact on other miners, including Glencore, Vedanta and First Quantum Minerals. Mining companies are also locked in a dispute with the government about millions of dollars they are owed in value added tax refunds.

The IMF said in statement after a team ended a two-week visit to the country: “Zambia’s growth potential remains high but the medium-term outlook is clouded by domestic and external risks. In the mission’s view — based on the current international and domestic environment — the 2015 financing requirement is likely to be larger than planned.”
The IMF forecast that Zambia’s economy would expand by 5.5 per cent this year, its lowest pace of growth since 2002. Negotiations with the fund were delayed by the death in October of Michael Sata, the populist president.

The death triggered a wave of political uncertainty and a presidential poll on January 20 will determine who will complete Sata’s term up to 2016 elections. Sata’s ruling Patriotic Front party and the main opposition Movement for Multi Party Democracy are riddled with factionalism.

Alexander Chikwanda, the finance minister, had forecast growth above 6.5 per cent for this year and 7 per cent for 2015 in his October budget. He said the budget deficit was expected to be 5.5 per cent of gross domestic product, down from 6.5 per cent last year.

Mr Chikwanda used the budget to announce proposals to eliminate corporate tax on mining and to raise royalties to 8 per cent from 6 per cent in underground mines and to 20 per cent in opencast operations.

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The government says the changes would bring additional revenues of K1.7bn ($271,000) next year and are part of its efforts to distribute the impoverished country’s mineral wealth more equitably.

The IMF said greater policy stability and consistency would “help anchor confidence in Zambia as an attractive investment destination”. Zambian authorities had indicated they were “looking to assuage the concerns of mines and prevent closures”, it added.

The fund also warned that political and social pressures for loosening fiscal policy in the run-up to the 2016 poll were potential sources of downside risk.

 

 

 

 

 

 

 

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