Zambia's new Finance Minister Felix Mutati reveals budget to grow economy

PUBLISHED: Sat, 12 Nov 2016 15:54:27 GMT

LUSAKA, Nov 11 (Reuters) – Zambia has proposed measures to curb its budget deficit at a time when slumping commodity prices have seen the country face mine closures, rising unemployment, power shortages and soaring food prices.

New Finance Minister Felix Mutati told parliament on Friday that Africa’s second-largest copper producer would cut its fiscal deficit to 7 percent of Gross Domestic Product (GDP) in 2017 from a projected 10 percent this year.

Presenting a 64.5 billion kwacha ($6.6 billion) budget, Mutati said it sought to limit domestic borrowing to 2 percent of GDP in 2017, slightly higher than 1.2 percent this year.

“We are all agreed that the task of restoring stability and accelerating growth will not be easy. We have to be bold and decisive,” Mutati, who was appointed in September, said.

The economy would grow 3.4 percent next year from just over 3 percent this year due to low copper prices, power shortages, inflation and a government cash crunch, he said, adding the government would restrict new capital projects.

Zambia is in talks with the International Monetary Fund about a potential aid package after agreeing its budget deficit was not sustainable and hopes to conclude a programme with the IMF in the first quarter of next year.

The stock of the government’s external debt as at end-September 2016 was $6.7 billion representing 35 percent of GDP while the domestic debt in form of government securities was 26 billion kwacha – equal to 12 percent of GDP, he said.

“Clearly we are walking a tight rope. We must not burden the next generation,” Mutati said.

Razia Khan, chief economist, Africa at Standard Chartered bank, said the budget contained a mixed bag of measures.

“The context of this budget was clear – there was a need for fiscal consolidation and the demonstration of reform in order to ease the way for negotiations with the IMF early next year,” she said.

The finance minister said Zambia would introduce import duty on copper concentrates at the rate of 7.5 percent starting in January next year, but would not change existing mining taxes.

Copper earnings fell to $3.2 billion in the first nine months of 2016 from $4 billion in 2015, Mutati said.

Mining companies operating in Zambia include Glencore , Canada’s First Quantum Minerals, Vedanta Resources and Barrick Gold.

Zambia would raise the price of electricity to reflect the cost of production by the end of 2017, and review state-owned firms in a bid to recapitalize those that are making profit and sell off loss-making firms.

($1 = 9.8000 Zambian kwachas) (Writing by James Macharia)

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