STATEMENT BY HONOURABLE MARGARET MWANAKATWE, MP, MINISTER OF FINANCE, ON THE OUTCOME OF THE 11th (SPECIAL) CABINET MEETING ON THE STATE OF THE ECONOMY, HELD AT STATE HOUSE ON MONDAY, 27th MAY, 2019
In view of the prevailing economic environment the country is going through, His Excellency the President Mr. Edgar Chagwa Lungu called for an urgent Cabinet Meeting yesterday, Monday, 27th May 2019 at State House to get a full brief on the state of the economy and to decide on measures to be taken to restore the macroeconomic stability, restore debt sustainability and ensure that growth is restored on an upward trajectory for the benefit of Zambians.
Following the deliberations, I would like to appraise the nation on the outcome of the meeting and on the policy decisions that were taken by Cabinet.
Cabinet deliberated on the growth prospects and the need to restore GDP growth on an upward trajectory in 2019 and over the medium term. Cabinet took recognition of the domestic and external factors that have negatively impacted on Growth. On the domestic front, Cabinet noted the negative impact of climate change that has affected agriculture and electricity production and the tight liquidity conditions. On the external front, the impact of the trade war and uncertainty around BREXIT were noted.
As a response to these developments, Cabinet undertook to:
- Implement fiscal reforms by slowing down the level of the deficit to ensure that liquidity conditions improve and spur growth;
- Urgently complete energy reforms and renegotiate unsustainable power purchase agreements so that the sector does not become a contingent liability on the fiscal and to ensure continued investments in the sector to overcome the energy deficit over the medium term;
- Address liquidity challenges by dismantling domestic arrears, and halting the accumulation of new arrears; and,
- Designate the Ministry of Development Planning as a focal point lead in the implementation of the diversification agenda for better accountability.
Cabinet agreed that the fiscal deficit needs to be reduced to sustainable levels. Cabinet also noted the impact of the increase in debt service payments on the budget and the need to reduce this expenditure, the build-up of domestic arrears and the tightening of liquidity on the domestic market.
In order to address these issues, Cabinet directed that:
- The Minister of Finance to present to Cabinet at its next sitting a list of project loans to be considered for slowing down, postponing and Cancellation. In doing so, projects that are of an economic nature will not be cancelled as resumption of growth is important to address the current challenges. However, management of disbursements on these loans will be important. This will be in accordance with provisions in the contracts;
- Cabinet directed that legal reforms such as the enactment of a new Public Procurement law should be hastened to ensure value for money and that Ministries should improve on contract management; and,
- Cabinet also directed that no Ministry, Province, or Spending Agency should contract goods and services without availability of funds even if it is budgeted for to stop the accumulation of arrears. To this effect the Treasury was directed to issue strict guidelines on the matter.
The Treasury was also directed to ensure that the measures above are implemented expeditiously to facilitate the sourcing of external funds to finance critical expenditures in the 2019 budget that are required to support growth.
EXTERNAL AND DOMESTIC DEBT
Cabinet took note of the current high levels of debt service over the next 3 years compared to 2018. It also noted the increase in the debt stock on account of disbursements on the current portfolio of loans. Cabinet also deliberated on the need to take measures to bring the risk on debt from high to moderate risk of debt distress and the impact this was having on the macroeconomic position through adverse sentiments. Cabinet also deliberated on the tight liquidity conditions in the market and increasing lending rates. Taking these issues into consideration, Cabinet decided as follows:
- Reaffirmed to indefinitely postpone the contraction of all new non-concessional loans in the intervening period;
- To cancel some signed but undisbursed loans;
- Increase the control and management of disbursements on foreign financed loans; and,
- Reduce the deficit to induce lending to the private sector.
To this effect, the Minister of Finance was directed to Cabinet, a list of loans to be considered for cancellation, postponement and slowdown for consideration.
MONETARY AND EXTERNAL SECTOR
Exchange Rate Developments
Cabinet deliberated on the factors affecting the volatility of the exchange rate that included high and lumpy demands for foreign exchange in the market, strengthening of the United States Dollar and sentiments emanating from concerns on the macroeconomic developments. In dealing with these issues, Cabinet noted that the actions on the macro-economic front, the fiscal and the debt I have just alluded to will be cardinal. Further, work that has been embarked on the accumulation of international reserves will be solidified to ensure that we build back reserves.
Cabinet discussed the need to build up international reserves and address the higher demand for forex vis-a-vis supply in the market. To address this issue, Cabinet agreed to address in the short and long term the lumpy demands on items such as fuel procurement in the market and to slow down debt service through the measures to be taken on debt.
Cabinet further directed the following:
- The enhanced implementation of the decisions of Cabinet by the civil service especially those related to expenditure and revenue. These included measures on strengthening commitment controls to avoid arrears accumulation, implementation of land titling, dealing with the challenge of smuggling including fuel, the decision to put measure in place for the orderly sale of Mukula and the implementation of the Telecommunications Monitoring System for excise duty;
- The timely undertaking of programmes and projects by the civil service;
- The need to hasten the dismantling of arrears to address liquidity challenges;
- The hastened reforms at ZESCO Limited and the conclusion of the cost of service study by the ERB that has delayed; and,
- MOF and IDC to hasten measures taken on improving the performance of State-Owned Enterprises.
Cabinet took note of delays in implementing some of the previously taken decisions and directed that:
- All Ministers will now be allocated tasks and associated timelines to ensure effective implementation;
- The implementation of measures and adherence to deadlines will be monitored by the Ministry of Finance and Cabinet Office for report back to Cabinet; and,
- Cabinet resolved that this is not business as usual and that tough times call for tough measures.
Cabinet deliberated on the emerging problem of fake news and negative sentiment that is having adverse impact on the economy. It urged Ministers to increase communication and provision of information to the public to provide facts that will facilitate decision making in the economy.
It also directed education of the public on the negative impact of spreading false and negative news on ordinary citizens that have to face increased cost of living as the exchange rate depreciates and inflation is induced. It emphasised the responsibility of every citizen towards the country.
As a Ministry of Finance, we will now on the basis of the decisions of cabinet move to expeditiously implement reforms.
I THANK YOU AND GOD BLESS YOU ALL.