20 Apr Summary of Ministry of Finance Economic Update – Further Measures to Mitigate Impact of Covid-19
The minister started off his address by painting the picture of where Zambia is as a nation in the fight against the pandemic. He stressed the point of Covid-19 being both a health and an economic catastrophe. He reiterated the point that the Governments key priority was to preserve human capital over everything else. The Minister reminded the audience that from his initial address, the confirmed cases of the infection had risen to over 2.4 million from 470, 000 and the number of deaths had increased to around 165,000 from about 20,000 globally.
Impact of Covid-19
The Minister reported that the International Monetary Fund (IMF) has projected that the world will record the worst economic fallout since the Great Depression of the 1930s. This crisis will be much worse than the 2007/2008 financial crises. He added that based on the assumption that Covid-19 pandemic would be cleared by the second half of 2020, the global economy will grow at a negative 3% in 2020 while Sub-Saharan Africa is expected to grow at negative 1.6%.
The Minister further narrowed down the report to Zambia and highlighted that the economy will grow by a negative 2.6% in 2020 from the earlier growth projection of 3.6%. Furthermore, he reported that the estimated budget revenue will fall short of target by at least K14.8 billion or 19.7 % of the approved 2020 budget. Ministry of Finance has projected that the negative impact on revenue will continue until December 2020.
The Minister indicated that forecasts are showing that mineral royalty and income tax payments from mining companies will decline because of reductions in the price of copper on the London Metal Exchange which will continue until June. He continued to mention that Pay as You Earn (PAYE) from the mining sector is also expected to fall as some contractors may lose their contracts going forward.
In concluding the impact assessment, the minister went on to say that economic activity was expected to cut across all sectors including manufacturing, transport, power generation and transmission, wholesale and retail trade, tourism and the hospitality industry in general. This will basically translate into a reduction in all tax and non-tax revenues among them PAYE, VAT, customs duty, excise duty, fuel levy, export duty, road user charges, fees and fines.
Additional Measures by Government
- Government has decided to waive tax penalties and interest on outstanding tax liabilities. The Zambia Revenue Authority will soon issue guidelines on the criteria on who qualifies, the period of relief and other related modalities.
- Suspension of customs duties and VAT on additional medical supplies used in the fight against Covid-19
- To ease liquidity, Government has already released;
- a) K500 million to the Public Service Pensions Fund to pay over 1,500 retirees or their beneficiaries;
- b) K170 million to Banks to clear third party arrears; and
- c) K140 million to various road contractors.
Zambia has applied to the World Bank, the African Development Bank and Afreximbank to be considered for support under their various Covid-19 Emergency Funds. The Minister indicated that they are engaging the IMF with the view to benefit from other appropriate facilities to which Zambia qualifies. The Minister concluded by urging the private sector to continue to engage Government on further initiatives to help businesses pull through the current challenges.