Cabinet has approved an indefinite stop to contraction of new non-concessional loans owing to the current high levels of debt service in the three years compared to 2018.
Finance minister Margaret Mwanakatwe, who read out resolutions of yesterday’s Cabinet meeting during a briefing in Lusaka today, said “this is not business as usual” and that “tough times call for tough measures”.
According to Mwanakatwe, Cabinet further noted the increase in the debt stock on account of disbursements on the current portfolio of loans and directed the cancellation of some signed but undisbursed 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: 1) Reaffirmed to indefinitely postpone the contraction of all new non-concessional loans in the intervening period; 2) To cancel some signed but undisbursed loans; 3) Increase the control and management of disbursements on foreign financed loans; and, 4) Reduce the deficit to induce lending to the private sector,” Mwanakatwe said.
“To this effect, the Minister of Finance was directed to [present to] Cabinet a list of loans to be considered for cancellation, postponement and slowdown for consideration.”
She said the urgent Cabinet meeting called by President Edgar Chagwa Lungu yesterday at State House was meant 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”.
“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: 1) 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,” Mwanakatwe said. “2) 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, 3) 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.”
On the monetary and external sector, the finance minister said 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,” Mwanakatwe said.
On reserves accumulation, which have slumped to the lowest levels ever, she said Cabinet discussed the need to build up international reserves and address the higher demand for foreign exchange in relation to 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: 1) 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,” Mwanakatwe said.
“2) The timely undertaking of programmes and projects by the civil service; 3) The need to hasten the dismantling of arrears to address liquidity challenges; 4) The hastened reforms at ZESCO Limited and the conclusion of the cost of service study by the ERB that has delayed; and, 5) 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: 1) All Ministers will now be allocated tasks and associated timelines to ensure effective implementation; 2) 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, 3) Cabinet resolved that this is not business as usual and that tough times call for tough measures.”
She said Cabinet further discussed the advent of fake news in the country and 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,” said Mwanakatwe. “As a Ministry of Finance, we will now on the basis of the decisions of cabinet move to expeditiously implement reforms.”