THE International Monetary Fund (IMF) has welcomed President Edgar Lungu’s directive to call for a review of the mining tax regime that came into effect at the beginning of this year and hopes that the resolution of the impasse will result in a transparent system applicable to all mines.
This came to light at the End-of-Mission report presentation on 2015 Article IV consultation team led by Tsidi Tsikata at the Ministry of Finance and National Planning yesterday.
Mr. Tsikata observed that while pressures on the economy have grown, the challenges are not insurmountable, adding that resolute actions to contain the budget deficit, resolve the mining tax disputes, and foster policy coherence and stability, would go a long way toward boosting investor confidence and unlocking the country’s high growth potential.
“The Government budget is under stress from significant obligations that have emerged in relation to fuel and agriculture subsidies, pensions, and road construction. There is an urgent need for action to contain the fiscal deficit in order to alleviate financing pressures that are keeping interest rates high and crowding out lending to the private sector,” Mr. Tsikata said.
He observed that policy uncertainties have had a huge impact on the economy of Zambia and that the mining sector has been burdened by tax issues and the falling copper prices.
He noted that the Kwacha’s has depreciated sharply against the US dollar since the beginning of the year, reflecting the general strength of the dollar and low copper prices as well as domestic factors clouding the outlook for supply of foreign exchange to domestic market.
“The Zambian economy is experiencing strong headwinds. Policy uncertainties at home and external shocks are dampening economic activity. In particular, the mining sector which accounts for three quarters of the country’s export earnings has been burdened by on-going tax issues and by copper prices that declined to five-year lows in January, 2015,” Mr. Tsikata.
He also observed that the annual inflation rates and fuel pump prices have had a huge impact on the economy which is already suffocated by budget deficits stressed by Government’s pensions and road construction.
“The annual rate of inflation has been falling steadily in recent months, helped by a series of reductions in fuel prices. However, the prevailing pump prices are not covering costs and contributed to payment arrears that led to the fuel shortages in the country in early March,” he said.
He further observed that even though pressures on the economy have grown, the challenges are not insurmountable.
“Resolute actions to contain the budget deficit, resolve the mining tax disputes, and foster policy coherence and stability would go a long way toward boosting investor confidence and unlocking the country’s high growth potential,” he said.
And speaking earlier, Secretary to the Treasury Fredson Yamba said that the country has continued to record positive Gross Domestic Product (GDP) in the region despite external and domestic factors such as falling copper prices and depreciation of the Kwacha.
Mr. Yamba noted that Government is committed to resolving challenges and that diversification of the economy remains the more sustainable way of insulating the economy against adverse external shocks.