Summary
This is a summary of the key points of Honorable Dr Bwalya N’gandu’s statement to parliament on the performance of the Zambian economy. Our economy is expected to recline by -4.2% down -7% from the original 2020 GDP forecast of “no lower than 3% growth” based on the IMF forecasts. The country is still outperforming the global average of -4.9% and is significantly higher than our Southern African counterparts Zimbabwe (-8%) and South Africa (-4.5%). We are still being significantly outperformed by the Eastern African countries Rwanda (+5.1%) and Kenya (-2.8%). The country has suffered significantly due to the closure of large mines, a significant drop in the value of the Kwacha and the disruption of the supply chain as a result of the pandemic.
Response to COVID-19
The Minister of Finance has recently gained international praise for his insistence on increased transparency in the government procurement process and has led the way in the ongoing negotiations to mitigate the countries substantial debt ( $11 billion). Despite being denied a bailout package from the IMF the government managed to attract donations from the EU, United Kingdom, and the US totaling an excess of K 400 million to aid the government’s efforts. Beyond this, it is rumored the Chinese government is willing to forgive the countries debt up to $3 billion in addition to the world-renowned Lazard Investment Group agreeing to head the refinancing of our Euro bond. The government directly allocated K710 million to fund the relief measures with K57 million paid towards the Epidemic Preparedness Fund and K659 million for the DMMU.
Public Relief
A topic of high contention has been the disbursement of the K10 billion Medium-Term Refinancing Facility to be distributed for the stimulation of the economy and to protect SME’s vulnerable as an effect of the pandemic. The minister stated the ‘uptake of the has been successful’ with K3.8 billion being approved to 11 banks and 12 non-banking institutions (with an 80% success rate of applications). 23% percent of the funds have been distributed to 9,762 beneficiaries around the country. The minister added:
“The funds are meant to be a relief and on the part of businesses and are offered at relatively lower interest rates”
Beyond the aforementioned measures, the government availed K2.5 billion of financial relief to ease the liquidity in the market. This was initially marked by the Bank of Zambia lowering its interest rate to 9.25% in May which was effective in taming the fast-growing inflation and was the first time interest rates had moved in two years. In addition, the government paid K500 million in pensions, K140 million to road contractors, and K950 million to large companies with big supply chains.
Government Revenue and budget
The government made significant but temporary changes to the Employment Code and the Tax regulations to maintain the pandemic economy. It is estimated that the shortfall on the initial 2020 budget will be K17.2 billion of revenue with K12 billion lost on tax exemptions (all medical supplies and alcohol-based sanitizers were among the long list of exemptions) and K4.3 billion lost to external financing deals which failed to materialize. Tax revenues have fallen K6 billion to a new projection of K47 billion. Despite this government expenditure is expected to be in excess of K9.7 billion due to “increase government COVID-19 interventions”. This has created a “Financing Gap” of K26.9 billion ($1.2 billion) which will need to be borrowed, adding further to our debt woes. It is a worrying time ahead for the economy, the Minister ended the address pledging, “The Treasury will strive to mobilise more resources to respond to various developmental needs of the country”.