Zambia to Cut Deficit Next Year Even as Growth Prospects Dim…

Zambia plans to narrow its budget deficit to about 5 percent of economic output next year even after lowering its 2015 growth forecast for the second time since June.

The shortfall will shrink from an expected 6.9 percent this year, Deputy Finance Minister Christopher Mvunga said in an interview at his office in Lusaka, the capital. That’s higher than an earlier government estimate of 4.6 percent.

Sliding commodity prices and a power crisis have prompted Africa’s second-biggest copper producer to trim its growth outlook to 5 percent, about two percentage points lower than the initial target in the budget, he said.

The government is trying to moderate spending by reducing the public-sector wage bill and scaling back road-construction projects, said Mvunga.
“We are scrutinizing expenditure very rigorously,” Mvunga said. “We now understand exactly where our pain points are.”

Power Rationing

Zambia’s government is trying to turn around a struggling economy as power utilities prepare to ration supplies to mining operations after water levels at hydropower dams declined because of a drought.

The price of copper, which accounts for about 70 percent of Zambia’s export earnings, has fallen by more than 20 percent in London this year to $4,951 per metric ton on Monday, a six-year low. Reduced inflows from the mining industry have put pressure on the kwacha, which has lost about a quarter of its value against the dollar in 2015, making it Africa’s worst-performing currency.

The finance ministry is proposing a copper-price benchmark for 2016 at $4,500 per ton on average, said Mvunga. Prices for the metal are anticipated to start rising by 2017-18 as higher-cost producers cut back on output and demand increases, he said.

“Although there is a sluggish growth in China, at some point there will be an exponential lift, in the sense that when things start auto-correcting the supply will be behind the demand,” he said, referring to the copper market.

The government is auditing the payroll to eliminate payments to nonexistent employees in the hope of finding “huge savings,” Mvunga said. As many as one in five people earning state salaries are fake workers or getting paid multiple times, pushing up the wage bill, which stands at about half of state revenue.

Narrowing Deficit

Zambia will further reduce the budget shortfall to 3 percent in 2017 and 2 percent the next year, said Mvunga, a former Standard Chartered Bank regional head before he was appointed by President Edgar Lungu in March.

New power-generation projects due to start producing electricity within the next six months should help alleviate the country’s current power deficit, estimated by the state-owned utility Zesco Ltd. at 580 megawatts. Generating capacity is normally about 2,300 megawatts.

“We’ve got a problem that we’re dealing with for the next six months, after which things should stabilize,” said Mvunga. “That impact in my view is short-term.”

The currency’s depreciation makes it cheaper for the government to repay kwacha-denominated debt using dollars converted from its $1.25 billion Eurobond sold in July, Mvunga said. Zambia owes 20.5 billion kwacha ($2.4 billion) in domestic debt, according to data provided by the government in June.

 

 

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