Oxford group foresees instability in Zambia

THE NKC African Economics says Zambia faces hard times ahead and the growing risks to political stability inherent in its current economic and financial challenges imply a downgrade in overall political risk profile during this quarter.

In its Zambia quarterly update yesterday, the Oxford Economics company indicates that the threat of instability in the short to medium term was relatively high and when electoral pressures are added, the “political environment would become even more toxic”.

NKC African Economics notes that Zambia’s public debt remains a concern with external debt standing at $9.4bn by end-June.

“In turn, the domestic public debt stock stood at ZK51.9bn by end-June (19.2 per cent of GDP) while the domestic arrears stock was measured at ZK13.9bn by end-March. We project that public debt will equate to just over 66 per cent of GDP by end-2018, which captures our pessimistic revision for the kwacha at year-end (seen at ZK12.1/$). This is above the consensus projection both in terms of the nominal value of debt and currency valuation. Public debt is expected to increase to just under 69per cent of GDP next year, before easing to 67 per cent of GDP in 2020,” it states.

It noted that finance minister Margaret Mwanakatwe delivered vocal commitment, in her maiden budget address, towards fiscal consolidation via expenditure streamlining and increased revenue mobilisation, underwhelmed in terms of details on how the government plans to achieve the goals.

“Our critique of the recent budget spans multiple layers, but at the core rests upon the notion that a sense of urgency to address investors’ loss of confidence severely lacks,” according to the update.

“While Zambia is hopeful that discussions with the IMF will resume in October, we attach a low probability to a fruitful end this quarter as the pace of consolidation – albeit more realistic than in previous budgets – signals a discounted view of external risks to fragile economic recovery…Critically, Zambia missed an opportunity to appease investors’ and analysts’ concerns by failing to provide deeper insight into the current public debt position, raising questions as to the reasons behind the delay.”

It states that it does not anticipate an IMF deal before the second half of 2019.

“Informed by this projection, we remain cautious of Zambia’s ability to raise external public debt in 2019 as set out in the latest budget, unless investor confidence can be restored,” it states. “The latter will require a policy anchor, which does not seem to be forthcoming.”

The NKC African Economics feared foreign investment in Zambia could be negatively affected by tax measures in next year’s budget.

“Changes to the mining tax regime include an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding

scale. A fourth-tier rate (at 10 per cent) has been introduced to the sliding scale and will apply at a copper price above $7,500/tonne,” it notes. “In addition, VAT is being replaced by a non-refundable sales tax, which ends the current system whereby generous rebates are given by the State as a fiscal incentive. The government has stated that it remains open to dialogue with mining companies to discuss the transition to the new mining tax regime. Still, risk perceptions will be negatively affected by the proposed tax measures, and we expect FDI to drop from just over $1bn in 2017 to just over $500m this year. The recovery in growth will encourage increased foreign investment, but FDI is only expected to breach the $1bn level again over the medium term.”

On Zambia’s reserves position, the NKC African Economics says these are still under pressure.

It doubts whether the BoZ had the firepower to intervene in forex markets given the weak reserve buffer and ongoing need to meet external debt obligations with forex holdings. And the NKC African Economics notes that Zambia’s political environment has continued to deteriorate amid a series of crises that include suspension of aid by some donors as well as a growing debt crisis that had the potential to stoke political unrest in the longer term.

“Repression, paranoia, and the continuing decay of democratic principle now characterise the political scene,” it states.

However, it considers political risk in the country to be low to moderate with the overall trend negative.

It states that the government itself was doing a “wonderful job undermining people’s confidence in its ability to govern”.

“Regional sources close to developments in Zambia suggest that the government’s lack of concern over the debt issue is based on a belief that when the chips are down, China will provide. While that expectation may or may not carry any weight, it is a concern to civil society groups who believe that any deepening financial commitments to China could be disastrous,” according to the report.

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COMMENTS

WORDPRESS: 11
  • comment-avatar

    I normally blame my balls for ruining Zambia please forgive my ass

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    Ndoleshyafye 3 days ago

    The best way to counter the British agenda to tarnish Zambia’s reputation to investors abroad to promote regime change is by; avoiding their tainted bilateral donor AID money; terminating business involvement with UK companies ie Cancel and put to tender the Tullow Oil Petroleum Exploration Licence 28, which covers a 55,000-square-kilometer (21,236-square-mile) onshore block in northern Zambia. and disqualify Glencore Energy UK’s exploration bid to buy a majority stake in Zambia’s Indeni Petroleum Refinery. The less we have to do with the British the Better off we are.

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    scare crow 3 days ago

    nabs cuume i fuck you

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    (Mwashibe),This gent was a street kid then, so he knows nothing apart from a bottle of chibuku and a pair of over sized salaula boots to complete the requirements of animal farm were his roll is to protect the pigs.

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    nabs 4 days ago

    Talk for yourself! My family and I are not part of you

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    For you who were born yêsterday or those who refuse to look at what,why, and how zambia was, has been, is and will be, when and so on may think the situation can be solved through rhetoric, misrepresentation and overstreching reality or worsening the countries image out their. The so cold developed nations passed through many stages and have êxperienced many mítakes to the êxtent that they have learnt that intrenal strife does not build nations. Look at Syria,Iraq, Libya who have had their countries torn apart mêrely because of the selfishness of a few individuals who think only their ideas and only when they are in power can make things better. In the countries mentioned above some individuals or governments can sponsor un caring individuals and equip them ưith the belief that they can make things better if they came into power or remain in power. The sponsors only care about their interests and they will be happy if thêre is internal strife as they will advance their interests by finding market for arms, food stuffs and so on which countries in strife ưould need. The poor will suffer even more.BE CAREFUL !

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    peters 4 days ago

    Its not about UPND.it about the majority suffering.why u do have so much hatred.face the truth baba don’t just support for the sake of nibayama when the country is in trouble.

  • comment-avatar
    peters 4 days ago

    You are a fool

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    blind follower,does economic hardships effect upnd only or all zambians are in it? people are talking sense u are carelessly posting yr trash,if u hav nothing good to offer jst keep quiet and listen to comment from wel meaningful zambian.

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    Mwishibe 5 days ago

    UPND are happy with such reports. For your own info, chaos has no place here in Zambia. We will go through these hard times peacefully.

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      Mwishibe,I don’t think the UPND would be happy with such a scenerio. They all live, breathe Zambian oxygen and suffer the same as many ordinary PF members who are not connected in one way or another to the people calling the shots. You were probably not there when Zambia was nearly put on fire in 1990 but for the wisdom of K.K. to accept change.