PRESS STATEMENT

ZICA PRESIDENT’S QUARTERLY BRIEF ON THE STATE OF THE ZAMBIAN ECONOMIC AFFAIRS

INTRODUCTION

The Zambia Institute of Chartered Accountants (ZICA), a body that represents all Accountants in Zambia, is a governance institution that promotes transparency and accountability in the use of resources in the country. ZICA was established under the Accountants Act Number 13 of 2008, as amended.  Section 5 (2) (l) of the Accountants Act states one of the functions and powers of the Institute as, and I quote “Advise Government on matters relating to the economic development of Zambia”.  Pursuant to this mandate, ZICA is duty bound to comment on the state of the Zambian economy and share its perspectives on how the Government can strengthen the economic prospects of the country.

STATE OF THE ZAMBIAN ECONOMY

ZICA has observed with happiness the continued and sustained positive trend in the state of the economy since the beginning of the 2017 fiscal year.  Inflation has continued its downward trajectory having fallen from 7.5% at the end of 2016 to 6.3% at the end of August 2017.  The Bank of Zambia Monetary Policy Rate has also dropped from 15.5% at the end of 2016 to 11% as at the end of August 2017 while the statutory reserve ratio now stands at 9%. The exchange rate of the Kwacha has shown resilience since the turn of the year and is currently trading around K9 to the US$ [United States Dollar].

The appreciation of the Kwacha is a reflection of increased supply of foreign exchange arising from, amongst others, the favourable copper prices on the international market, and greater acquisitions of government securities by foreign portfolio investors.

It is also welcome news to note that the rating agency Standard & Poor’s recently revised Zambia’s outlook on the ‘B’ long-term foreign and local currency sovereign ratings to Stable, from Negative. At the same time, the ‘B’ long-term and ‘B’ short-term sovereigns have been affirmed. According to the report on Zambia issued by S&P Global on 25th August, 2017, and I quote “although still tight, the government’s fiscal financing position appears more assured, with domestic liquidity conditions continuing to improve.”

S&P Global has also observed in the report that the country’s economic growth prospects are improving, as a result of which, they were revising their “outlook on Zambia to Stable from Negative and affirming the ratings at ‘B/B’.”

Another positive decision by government is the tax amnesty initiative announced by the Zambia Revenue Authority (ZRA) which is aimed at increasing tax compliance amongst citizens and the business community as well as enhancing domestic revenue collection.  We believe that this measure, combined with structural policy measures taken to address subsidies in the energy sector are critical to reducing the overall budget deficit and are critical elements for fiscal consolidation efforts.

ZICA’s PERSPECTIVES AND REFLECTIONS

Despite the positives in the economy highlighted above, the Institute wishes to make the following observations:

  1. Although the inflation rate has dropped from 7.5% to 6.3% as observed, most of Zambia’s macro-economic positive developments have made only a marginal impact on rural and urban poverty levels; the trickle-down effect has not been that obvious over the last two decades. Our understanding is that the Central Statistical Office (CSO) uses a formula in calculating the year-on-year inflation, which uses, amongst others, the prices of essential commodities such as kapenta, charcoal, mealie meal etc. Whereas this basket of essential goods/services used by CSO may be on a positive trajectory, inflation-wise; the experience of most members of the general public is that of increased cost of living and doing business as evidenced by increases in electricity tariffs in order to make them cost-reflective, road toll fees etc. Whilst the Institute appreciates the positives associated with the removal of subsidies in the energy sector in that more investment is likely to flow into the sector, it raises the question as to what progress has been made with developing alternative sources of energy such as solar.

 

Therefore, the Institute believes that there is need for the government to continue addressing the impact of inflation reduction on the citizenry.  While we are alive to the government’s social protection programmes that are aimed at cushioning the less privileged against the adverse effects of the high cost of living, social protection is only sustainable on the back of a vibrant SME sector and an income upswing based on higher productivity and production of goods and services. The focus should therefore be on revenue enhancement measures that seal the tax leakages and increase the tax base.  In the same vein, we would appreciate an update on the progress made towards achieving the Government’s target of 100,000 jobs as outlined in the 2017 National Budget. What challenges have been faced in achieving that target? The job creation challenges could hold the answers hidden to help us tackle the ever present imperative of expanding the tax base and increasing government revenue.

 

The Institute also wishes to appeal to the banking sector to respond to Government’s initiative of easing monetary policy, which has resulted in the reduction in both the monetary policy rate and the statutory reserve ratios to 11% and 9.5% respectively, by reducing lending rates which are rather high at an average of 28%.

 

  1. In the report issued by S&P Global, it was noted that Zambia’s “stable outlook, balances an improving macroeconomic picture against a number of negative rating pressures, including a still large fiscal deficit and substantial debt stock.” They cautioned that the rating could be lowered if the government materially deviated from its fiscal consolidation target.

It is therefore important that the government continues to monitor its debt position whilst resisting the temptation to contract fresh debt.  In this vein, the Institute looks forward to the expeditious enactment of the Planning and Budgeting Act and review of the Loans and Guarantees (Authorization) Act.

  • The Constitution of Zambia confers certain powers on the Minister of Finance to enter into and negotiate key agreements and pacts on behalf of the Zambian people. In this regard, we note that the Minister of Finance has reached an advanced stage in the engagement with the International Monetary Fund (IMF) on a possible programme based on the need to support the external sector, increase market confidence, enhance investment flows and leverage more resources from cooperating partners.  In his recent Ministerial statement to the National Assembly, the Minister indicated that the Government and the Fund had agreed on remaining actions needed to reach staff-level agreement on a programme that could be supported under the IMF’s Extended Credit Facility. The major issues required to be addressed mainly relate to higher than projected budget deficits, accumulation of arrears and an increase in debt levels.

 

The Institute would appreciate an update on the status and progress with the IMF programme as it is critical to attaining the macro and micro economic targets for the year 2017.   As you may be aware, the Minister is due to present the 2018 National Budget to the National Assembly on 29 September 2017.  In our view, any concerns about who oversees (the country’s economic performance) should be addressed so that there is no unnecessary detraction from the important mandate of overseeing the country’s economic management.

 

  1. The Institute wishes to further express concern at the continued adverse findings in the reports of the Auditor General. The Auditor General’s report for parastatals and other statutory institutions for the year ended 31 December 2015 raised among other issues instances of unsupported payments, unaccounted for stores, questionable procurements, irregular procurements, questionable payments and failure to recover staff and other loans.  These financial leakages have the effect of undermining the progressive measures put in place by the Government in improving the economy.  The Institute therefore urges Government to decisively deal with civil servants who are found guilty of perpetrating these negative vices and ensure that controlling officers pursue a “zero audit query” approach to managing public finances.

 

We as ZICA believe in our core values of protecting the Public Interest and take a zero tolerance view against undisciplined members found wanting and therefore, wish to ask for the Government to forward the names of those of our members who are found guilty of professional misconduct to the Institute for disciplinary action.  On the other hand, ZICA wishes to call for more Value for Money (VFM) Audits which are more useful for public benefit organisations such as the Government as opposed to concentration only on Conformance Audits which focus on strict adherence to rules and regulations that in some cases may undermine effective public service delivery.

CONCLUSION

I wish thank you members of the press for coming.  This is our first quarterly statement since our election as Council of the Institute. I would be willing to clarify any aspect of our statement.

I wish to extend an invitation to you to attend the budget analysis dinner event on the night of the budget address by the Minister of Finance.

 

 

Jason Kazilimani, Jr

PRESIDENT

ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS