Editor's Comment

Way to go on debt


MINISTER of Finance Bwalya Ng’andu yesterday presented the 2020 Budget, his first, under the theme ‘Focusing national priorities towards stimulating the domestic economy’.
From the outset, the theme sounded good. But obviously the devil was always going to be in the detail.
For the business community, particularly the mines, there will be relief that Government has finally scrapped plans to re-introduce sales tax. A lot of lobbying has been done by the mines. In fact, only a few days ago, the Chamber of Mines released a hard-hitting report which urged Government to recommit to the existing Value Added Tax (VAT) system. The chamber argued that implementing a sales tax will leave the mining industry at a point where it is uncompetitive as it will significantly cost more to mine a tonne of ore or metal under a sales tax regime than it does under VAT.
To its credit, Government listened to stakeholder concerns. But while doing so, the Minister of Finance also announced that a number of administrative measures will be introduced to strengthen enforcement and efficiency of VAT. One of these measures is making it mandatory to capture and electronically transmit to the Zambia Revenue Authority (ZRA) the Taxpayer Identification Number (TPIN) and name of the buyer and seller of goods and services in all Business to Business as well as Business to Government transactions.
For the worker, the big one is obviously the Pay As You Earn (PAYE). However, there was no movement on that.
But one other major issue which has preoccupied and concerned the nation is that of debt. Almost everyone in the country understands that the fiscal state of the country is currently stretched.
National debt, both domestic and external, has been a recurring theme over the past few years. It is a theme President Edgar Lungu touched on when he officially opened the Fourth Session of the Twelfth National Assembly a fortnight ago.
President Lungu said the fiscal space must continue to grow by ensuring macroeconomic stability and maintaining debt within sustainable levels.
In his own words: “The art of borrowing is the ability to pay back.”
The President acknowledged that accumulation of domestic arrears has not only negatively impacted the operations of suppliers and contractors, but also on the performance of the financial sector through an increase in non-performing loans. Not only that, the President also acknowledged that there is an accumulation of pension arrears.
It was left to the Minister of Finance to provide further detail. This he did in yesterday’s budget.
In fact, in line with his budget theme, debt was among the identified priorities.
Dr Ng’andu said the priorities of the Treasury will be creating fiscal space, ensuring debt sustainability and dismantling domestic arrears. These arrears include those to pensioners and suppliers of goods and services to Government. All this is aimed at alleviating hardships to those owed by Government, preserving business, saving jobs, increasing liquidity and boosting economic activity.
As a furtherance of stimulating domestic activity, he said Government will strictly enforce the provision requiring 20 percent allocation to Zambians of works carried out by foreign contractors.
For Government, prudent debt management remains a key priority in ensuring that it is maintained within sustainable levels. To do this, it will slow down external debt contraction; postpone or cancel some pipeline loans; cease the issuance of guarantees; and refinance existing loans.
Further, Government intends to develop the 2020 to 2022 Medium- Term Debt Strategy to ensure that Government’s financing needs are met at lowest possible cost, consistent with a prudent degree of risk.
We have also noted that Government has made a commitment in addressing domestic arrears. This is through increasing the allocation of funds to reduce the stock of domestic arrears; use of debt swap to liquidate part of the outstanding arrears; and engaging commitment to control systems in order to curb further accumulation.
We welcome these measures.
Previously, not enough commitment has been shown in addressing domestic debt. It is something the World Bank highlighted as far back as 2004 when lending rates in Zambia were hovering around 40 percent per annum.
In its 2004 Country Economic Memorandum for Zambia, the World Bank highlighted that high lending rates have stifled borrowing and undermined private investment and growth. At the time, the ratio of private sector to Gross Domestic Product was at eight percent, which was one of the lowest in Sub- Saharan Africa.
Commercial banks were opting to invest in banks abroad and in Government debt. In fact, by mid- 2003, such investments accounted for almost half of their aggregate total assets. Commercial banks were deriving more than half of their income from Government securities. In the meantime, local lending amounted to less than 20 percent of most banks’ portfolios. And even with that, only a small proportion was lent to indigenous Zambians.
But not much attention was paid to this, and central government kept borrowing by issuing bonds and treasury bills to some staggering billions of dollars at the exchange rate of the time.
Clearly, Dr Ng’andu’s background of having worked for a commercial and development bank as well as central bank played a part in the new approach by Government towards debt.
The country needs to create fiscal space and the route announced by the Minister of Finance is the way to go.

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