Zambia expects to complete debt structuring talks next year

Zambia has announced tax breaks for mining companies, lowered its budget deficit target, and stated that debt restructuring talks with creditors are expected to be completed early next year.

Mining royalties will be tax-deductible, according to Finance Minister Situmbeko Musokotwane, who delivered his first budget speech to lawmakers since his party took power in August. He didn’t say anything about royalty rates changing. The country’s tax system underwent its tenth change in 16 years in 2019.

The mining industry’s lobby group had complained for years that not being allowed to deduct royalties’ amounted to double taxation and deterred investment. Royalties are currently imposed at a sliding scale of 5.5% to 10%, depending on the copper price.

Shares in First Quantum Minerals Ltd., which accounts for more than half of Zambia’s copper output, rose as much as 5.3% in Toronto. Zambia’s $1 billion in Eurobonds due 2024 rose 0.3% to 80 cents on the dollar by 4:55 p.m. in London. A close at that level would be the highest since March 2019.

The continent’s second-biggest producer of copper also plans a spending shortfall of 6.7% of the gross domestic product in 2022, down from a revised estimate of 10.4% this year, the minister said. The government aims to reach an agreement with the International Monetary Fund next month that will anchor talks with creditors, he said.

Zambia’s economy has been buckling under a rapidly growing external debt burden taken on by the previous government, becoming the first pandemic-era sovereign defaulter nearly a year ago. The International Monetary Fund estimates that public debt reached 128.7% of GDP last year, one of the highest ratios on the continent.

The government plans on using the Group of 20’s so-called Common Framework to restructure its more than $13 billion in external debt, and an economic program with the IMF will be key to those efforts.

“The task ahead of us is enormous,” Musokotwane said. “The journey to fix the economy starts now.”

The minister is expected to give a detailed update to creditors on the IMF talks and next steps in the restructuring process on Nov. 2.

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