State of the economy is challenging – Chikwanda admits

Zambia’s economy is likely to grow by less than 5 percent in 2015 due to a power crunch that has hit output from mining companies already grappling with a slide in global copper prices, Finance Minister Alexander Chikwanda said.
Chikwanda, in an interview with Reuters, also said the government was reluctant to acquire more debt due to rising servicing costs, but if necessary would prefer longer-term loans as opposed to short-term IMF money.
We have to move fast to try and diversify our sources of export earning
Africa’s second biggest copper producer has suffered power shortages due to low water levels at its main Kariba hydro plant and also faces reduced exports due to lower metal prices.
“The state of the economy is challenging,” said Chikwanda, whose budget a year ago projected growth of 6 percent.
“Now GDP by year end could have reduced to something around 5 percent. It might even be slightly below 5 percent.”
While mineral output only contributes 15 percent to Zambia’s budget and less than 10 percent to GDP, it accounts for a lofty 70 percent of export earnings.
Mining only employs 60,000 people directly but many more work for firms supplying goods and services, increasing the industry’s importance.
“This state of affairs is not very satisfactory. We have to move fast to try and diversify our sources of export earning,” he said, identifying agriculture as the greatest potential.

The cash-strapped administration would clamp down on spending to cut the 2016 budget deficit and limit borrowing as external debt servicing costs had risen to 10 percent of the budget.
“Beyond that will mean that Zambia does not have the means to service the external debt, which is an obligation you cannot side-step,” Chikwanda said.
“It means that you service the external loan but the other domestic programmes will suffer.”
Sufficient sense of responsibility
Zambia issued a $1.25 billion 10-year Eurobond in July at a hefty 9.375 percent interest rate to finance a budget deficit expected to swell to 20 billion kwacha by the end of 2015 from an initial forecast of 8.5 billion.
If forced to borrow more, the government would still prefer to borrow internationally rather than in the domestic market where rates are between 19 and 24 percent, Chikwanda said.
Loans from the International Monetary Fund were cheaper, but short repayment periods were not ideal, he added.
“If there are lenders who will talk in terms of a repayment period of 20 years, those are the kind of borrowings we will patronise,” Chikwanda said.
He also urged mining companies that have signalled job cuts to be responsible, but ruled out punitive government measures.
Glencore’s Zambian unit, Mopani Copper Mines (MCM), is planning to cut 4,300 jobs while China’s CNMC Luanshya Copper Mines wants to send 1,600 workers at its Baluba operation on forced leave.
Government spokesman Chishimba Kambwili threatened on Sunday to revoke CNMC’s licence if it did not rescind its decision.
However, Chikwanda cautioned against “draconian measures”.
“We hope that the mines have a sufficient sense of responsibility to the country in which they have operated and made some money,” he said.
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