THE suspension of mine production by Mo1 pani Copper Mines and Luanshya Mine will depress economic growth and reduce proceeds from exports and royalties, Moody’s has observed.
Moody’s, a rating agency and investor advisor, says the recent announcement by Glencore, which owns Mopani copper mines in Kitwe and Mufulira, and the decision by China’s Luanshya Copper Mines plc to interrupt operations at its Baluba mine on the back of falling copper prices on the global market, will also put pressure on the sovereign’s fiscal and external positions.
According to a statement issued by senior editor for media relations Peter Griffiths, Zambia’s growth prospects are being undermined by global trends, and the developments in the mining and energy sector, will worsen the situation.
“Zambia is already facing challenges from subdued global copper demand, depressed copper prices, which Moody’s expects to persist, and drought-induced electricity shortages. The suspension of some mining operations now introduces downside risk to the government’s revised growth projections,” the statement reads.
Moody’s observes that lower growth and tax revenues will negatively pressure government’s already rising budget deficit and debt levels.
“Although copper production contributes only about 10 percent of total value added , it generates more than two thirds of export revenues and, under a new tax regime in Zambia, about 20 percent of tax revenues, or the equivalent of three percent of GDP [gross domestic product]”.
“Lower growth and tax revenues will negatively pressure the government’s already rising budget deficit and debt levels, continuing a trend of missed fiscal targets that were among factors behind our May 29 decision to assign a negative outlook,” Moody’s says.
The rating agency also projects that next year’s fiscal deficit will widen by an additional 0.75-1.00 percentage points of GDP owing to the reduced copper tax base alone.
Reduced export proceeds will further exacerbate the trade deficits that have emerged in recent months.