MID-YEAR PERFORMANCE REVIEW OF THE ZAMBIAN ECONOMY

The Ministry of Finance has undertaken to issue quarterly briefs on the performance of the economy in order to keep citizens, the business community, cooperating partners, and other stakeholders abreast with periodical developments.

The second quarter having ended, my Ministry has compiled an update for the period January to June, 2017.

GDP Growth

I remain confident that given the developments in the first half of 2017, the projected growth rate of 4.3 percent for 2017 remains feasible. This is mainly driven by observed growth in the major sectors of agriculture, mining, construction, transport and storage, and the wholesale and retail trade. Increased electricity generation will also contribute to this positive perspective and, hopefully, support growth in other sectors.

Fiscal Management

Following enhanced tax collection efforts, the under-performance in terms of total revenue collection declined as at end June, 2017. Revenues and grants for the period totaled K20.4 billion, against the half-year target of K22.3 billion.

During the same period, the government maintained its commitment to collection of programmed revenues. For instance, as a result of the initiative to appoint agents to withhold VAT at source, the total VAT collection was above target by 22.6 percent.

Further, the Government moved forward with other measures aimed at enhancing revenue collection by implementing initiatives such as:

1) Use of fiscal devices to further enhance VAT collections and reduce cheating particularly in the retail and wholesale sectors. The devices were expected to be installed on a pilot basis in Lusaka during this quarter to enhance compliance by VAT suppliers; and,

2) Appointment of agents for withholding tax on rental income to enhance compliance.

In the period under review, the Zambia Revenue Authority offered the business community a tax amnesty on interest and penalties arising from late returns and non-payments on all tax liabilities. The amnesty ends this month end; 31st July, 2017.

As at end of June, 2017, a total of 229,700 [TWO-HUNDRED-TWENTY-NINE-THOUSAND-SEVEN-HUNDRED] applications had been received, resulting in collections of K384.65 million. A further K448.5 million in “time-to-pay-agreements” is expected to be paid before 31st December 2017.

The total expected yield from the tax amnesty on interest and penalties is therefore K833.2 million, against the target of K750 million.

In view of the foregoing, I take this opportunity to appeal to the business community to take advantage of the remaining few days of the amnesty. There will be no extension.

The total debt collection target for ZRA, including the amount expected from the amnesty was K2.25 billion. A total of K2. 212 billion was collected between January and June, 2017.

In order to raise more financing for developmental projects, and in line with the guidance by the Republican President for Pension Funds to support infrastructure development, NAPSA recently participated in financing of the Ndola-Solwezi road. Similar arrangements will be explored for other capital projects.

Given the revenue out-turn and Government’s efforts to restrain expenditure, the projection is that the budget deficit for 2017 will be maintained at budgeted levels of round 7 percent. Further, in line with the overarching fiscal consolidation policy, the target is to gradually reduce the deficit to around 3 percent of GDP, by 2020.

Dismantling of Arrears

I wish to point out that in order to address the problem of domestic arrears, the Government has designed a MEDIUM-TERM-TIME-SPECIFIC-ARREARS-DISMANTLING-STRATEGY. The Government will gradually clear the arrears including through the use of budgetary provisions and restructuring of some of the debt into longer term debt instruments.

Inflation Developments

The inflation rate as at end June 2017 was 6.8 % [Six-Point-Eight-Percent] down from 7.5% [Seven-Point-Five-Percent] in December 2016. Largely, this reflected stability in most food items and in the Kwacha against major currencies. The expectation is that inflation will remain within the range of the medium term target of 6-8 percent that has been set by the Government.

Exchange Rate Developments

The exchange rate of the Kwacha showed resilience over the first six months of the year. As at end June, 2017 the exchange rate of the Kwacha per US dollar was K9.25. Further, over the past few weeks, the Kwacha has appreciated and is currently trading around K8.8 to the US$ [United States Dollar].

The appreciation of the Kwacha is a reflection of increased supply of foreign exchange arising from among others, a higher participation of foreign portfolio investors in Government Securities.

Additionally, continued strong copper prices and market confidence has supported the Kwacha. Going forward, we expect the exchange rate to remain stable. Government is alive to the need for stability of the exchange rate as it is supportive of both exporters and importers. We will work hard to stay on this positive slate.

External Sector Developments

During the first half of 2017, Zambia’s external sector performance improved relative to the corresponding period in 2016. Preliminary data showed that Zambia’s merchandise TRADE BALANCE RECORDED A SURPLUS OF US$186.6 MILLION compared to a DEFICIT of US$316.4 million in the first half of 2016.

The positive external sector performance was due to a rebound in copper and cobalt export earnings as export volumes and realized prices recovered. However, non-traditional exports declined on account of a reduction in exports of maize, gemstones, cotton lint, and wheat.

Imports grew by 15.4 percent to THREE-POINT-NINE-THREE-EIGHT BILLION UNITED STATES DOLLARS [US$3.938 billion] in the first half of 2017 from THREE-POINT-FOUR-ONE-TWO BILLION UNITED STATES DOLLARS [US$3.412 billion] in the first half of 2016.

Higher imports of food items, fertilizer, chemicals, industrial boilers, and equipment accounted for the out-turn. An increase in plant area and fertilizer usage accounted for higher imports of fertilizer, whilst a rebound in mining activity partly explains the increase in imports of industrial boilers and equipment.

Developments on Debt

The debt stock as at end June 2017 was SEVEN-POINT-THREE BILLION UNITED STATES DOLLARS [US$7.3 billion] from SIX-POINT-NINE BILLION UNITED STATES DOLLARS [US$6.9 billion] in December, 2016. The increase in the debt stock was on account of new disbursements from previously signed loans.

REGARDING DOMESTIC DEBT, the stock was K42.01 billion in June, 2017, compared to K33 billion in December, 2016. The rise is explained by a higher recourse to domestic borrowing; consistent with the Government’s Medium Term Debt Strategy.

As at end of June 2017, foreign reserves amounted to TWO-POINT-FOUR BILLION UNITED STATES DOLLARS [US$2.4 billion] which translated to 3.3 months of import cover. The Government’s objective is to attain four months of import cover over the medium term.

Update on Intermarket Bank Corporation

The shareholders of the Bank have made good progress and we expect the bank to soon be operational. Capitalization of the bank has been done and the shareholders will be announcing the new management team soon. The Government is closely monitoring developments at the bank to ensure that re-opening of the institution was done quickly.

The fundamentals in the economy have improved over the first half of 2017. However, this does not mean that economic players should relax. We have to stay on our feet and consolidate our gains in meeting our priority objective of stabilizing and growing the Zambian economy.

ISSUED BY:

FELIX C. MUTATI, MP
MINISTER OF FINANCE

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