Whilst regulators in Britain continue to fight a battle of what to do with the “Big Four” auditing firms (Deloitte, EY, KPMG and PwC) following several financial reporting scandals that included Tesco and British Telecom (BT), in another part of the “galaxy”, the big four were busy courting Zambia’s Minister of Finance Honourable Margaret Mwanakatwe following her maiden presentation of the 2019 Budget to parliament on Friday 28th September.
One of the events Financial Insight had the pleasure of being invited to as media partners was the KPMG Budget 2019 Budget Discussion (aptly dubbed, “The Budget Breakfast”) hosted by KPMG’s Managing Partner and ZiCA President, Jason Kazilimani. The event hosted at Intercontinental Hotel in Lusaka not only offered attendees some sumptuous breakfast, but an opportunity to get a KPMG perspective that brought together industry and commerce players to the table to scrutinize the budget.
The Budget presentation, which was under the theme “Delivering Fiscal Consolidation for Sustainable and Inclusive Growth”, saw the Minister acknowledge that despite positive strides the country had made in improving health and education infrastructure, enhancing interconnectivity of Zambia to benefit from the its central location) through improved road and telecommunication infrastructure and increased social safety coverage for the vulnerable, economic growth remains below the country’s potential and the high levels of poverty have persisted. This would form the ethos of the plenary discussions that were moderated by Gedfrey Mutizwa (CNBC Africa Anchor) that had Nathan Chishimba (Chamber of Mines President), Lubinda Haabazoka (Economics Association of Zambia President), Leonard Mwanza (Bankers Associate of Zambia CEO), Chipego Zulu (Zambia Association of Manufacturers CEO) and Noel Nkhoma (Betternow Financial Services CEO).
One could easily deduce from the selection of panel speakers that KPMG wanted a family discussion around the impact of the 2019 Budget on what really matters in moving Zambia forward. Furthermore, as a recipe for the discussions, KPMG provided a snapshot of the economy’s performance over the past year through their budget analysis brochure. Some of the highlights included:
- Economic growth projected to close at 4% from 3.4% in 2017 spurred by improved performance in mining, construction, manufacturing, wholesale and retail trade sectors boosted by reliable energy supply.
- Budget deficit estimated to close at 7.4% of GDP against a target of 6.1% owing to projected higher than budgeted expenditure due to higher interest payments and project loan disbursements.
- External debt stock at close of June 2018 was US$ 9.4 billion (34.7% of GDP) up from US$ 8.7 billion in December 2017.
- Domestic debt stood at ZMW 13.9 billion at the end of March 2018 from ZMW 12.7 billion in December 2017.
- Government guaranteed debt stock was US$ 1.2 billion at close of June 2018.
- Inflation was 7.9% at the end of September 2018 from 6.1% at the end of December 2017.
- Despite a notable increase in exports by about 20.7% to US$ 4.6 billion as at the close of the first half of 2018, the current account deficit expanded to US$ 756 million on account of increased imports relative to exports.
- Gross international reserves fell to US$ 1.8 billion (two months of import cover) at the end of July 2018 from US$ 2.1 billion at close of December 2017.
- Some notable legislation was enacted such as the Credit Reporting Act, the Movable Property (Security Interest) Act and the Public Finance Management Act.
In addition, the KPMG brief provides an outturn of the 2018 Budget which gives some insight into how that budget performed. Key performance issues included economic growth increasing by 1% from 2017 to 2018, inflation being within target range of 6% to 8% within the first half of the year and monetary policy rate being reduced to 9.75% from 12.5%.
The directive to remove unwarranted bank charges and fees issued in August 2018 by Bank of Zambia also gets a mention along with the decline in lending rates to 23.5% in August 2018 from an average of 26.7% in December 2017. Furthermore, the Copper export earnings increase to $3.5 billion from $2.9 billion combined with overall export sales increasing to $4.6 billion from $3.8 billion shows part if the exciting times that the economy faced.
However, the “dark side of the moon” which is seeing Q3 and Q4 experience a depreciating Kwacha (partly due to increased appetite for greenback by fuel importers) and a budget deficit of 7.4% of GDP against a projected 6.1% indicates signals of troubling times. External debt stock now stands at 34.7% of GDP as at 30 June 2018 following a $0.7 billion increase December 2017.