Mutesa attributes depreciation of kwacha to poor planning
Written by Florence Bupe
Friday, February 27, 2009 9:01:53 AM
UNIVERSITY of Zambia (UNZA) Development Studies lecturer Dr Fred Mutesa has attributed the persistent depreciation of the kwacha to lack of long-term economic planning.
In an interview, Dr Mutesa said the country was unprepared to deal with challenges affecting the financial markets and the economy in general because it lacked strategies to address the problem.
The kwacha has depreciated tremendously over a short period to the current average trading rate of around K5,500 per US dollar.
“The main problem is that we have allowed ourselves to be ill-prepared for such eventualities. We have only one main source of export revenue, which is copper, and once copper prices slump, there is a decline in incoming revenue,” he said.
Dr Mutesa advised that the country should desist from being reactive and adopt a proactive approach in addressing economic challenges.
”We should stop reacting to crises and be more long-term oriented in our planning, and this can be done particularly by taking the issue of diversification of our export basket more seriously,” Dr Mutesa said.
“We also need to increase our degree of self-sufficiency in the economy. If we continue importing, we put more pressure on the kwacha.”
And Dr Mutesa said the Bank of Zambia’s intervention in the foreign exchange market had a limit.
“There’s a limit to what the Bank of Zambia can do. We can put controls, but if we do it, we’ll have people queueing for currency purchases, this has its own downs,” Dr Mutesa said. “If the Central Bank puts in place tightening measures, we should expect shortages and smuggling of currencies. We cannot afford to have measures such as South Africa’s; they will not work for our economy.”
Dr Mutesa said there was panic buying by some market players, especially importers, in a bid to protect their businesses.
He said although the depreciation of the local currency was viewed to have “winners” and “losers”, the case was not so under the prevailing trends.
“The devaluation of the currency is meant to have losers and winners… in our context, one would expect non-traditional exporters to gain, and if they gained, there would be some mitigation against losses in other areas of the economy. But what is happening is that because the response of exporters depends on other factors, the devaluation of the kwacha is just resulting in inflationary pressures with no real winners other than speculators,” said Dr Mutesa.
Labels: FREDERICK MUTESA, INFLATION, KWACHA
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Mutesa cautions govt over fuel subsidies
By Fridah Zinyama
Thursday June 12, 2008 [04:00]
UNIVERSITY of Zambia (UNZA) development studies lecturer Dr Fred Mutesa has said it is important for the government to consider the effects of removing the fuel subsidies before a decision is made. Commenting on Secretary to the Treasury Evans Chibiliti's statement that the government will this month phase out fuel subsidies because the measure was proving to be very costly, Dr Mutesa said keeping the fuel subsidies may lower the cost of production in the country and allow for expansion of the economy.
"Of course it may impact negatively on the government fiscal policy with the danger of unsustainable budget deficit," he observed.
Dr Mutesa said removing the subsidies however might drive the cost of production upward and deter further investment growth.
"It may stifle economic growth," he said.
Dr Mutesa advised the government to clearly explain where it would invest the said US$15 million and whether the benefits of that investment decision would outweigh the benefits of fuel subsidies which the country is enjoying.
"It will be good to know where that money will be used and whether it will achieve the same objectives," he said. "It will be better to consider the effects in the long run before such a decision can be fully implemented."
Dr Mutesa said the implications of such a decision might work against the future growth prospects of the country.
Chibiliti on Tuesday said the government has been subsidising fuel since around August or September last year and that the action had become unfeasible to continue.
He said in view of the escalating fuel prices on the international market, it would be better for the government to utilise the US$15 million on other economic projects instead of fuel subsidies.
Chibiliti said the other factors contributing to the decision by the government to phase out fuel subsidies were the conclusion of long-term supply and financing arrangements for crude oil importation.
Labels: FREDERICK MUTESA, FUEL, UNZA
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Govt should expect resistance to new mining taxes, warns Dr Mutesa
By Joan Chirwa
Tuesday February 05, 2008 [03:00]
MINING companies need to examine their consciences in view of the new tax regime announced by the government, University of Zambia (UNZA) Development Studies lecturer Dr Frederick Mutesa has said. And the major mining companies have maintained that they would not give any statement on the new taxes announced in this year’s budget and subsequent remarks made on the issue, adding: “The matter is sensitive and it needs to be handled carefully”.
Dr Mutesa said the government and Zambian people should expect some resistance from mining companies over the new tax regime.
He was commenting on finance minister Ngíandu Magandeís remarks that there would be no room for the mines to negotiate the new mining fiscal regime with the government.
“The minister is very correct in taking the position that he has announced because the final authority in matters of legislation, including the tax policy, is parliament,î Dr Mutesa said.
And in this country, it is high time that parliament played a more significant role in scrutinising the development policies. However, some resistance could be expected from the mining companies, but the mines should examine their consciences, if they have any.”
The major mining companies could not give their views on the new tax regime, saying the matter was still being studied at a much detailed level before their position could be made public.
The government has this year come up with a new tax regime in the national budget, pending parliamentís ratification, with a projected US $415 million (approximately K1.5 trillion) in additional revenue to the treasury in 2008.
The estimates in terms of the expected additional revenue from new mining taxes is significantly higher compared to what the government has been collecting from the mines through taxes.
In 2006, government collected slightly over K35 billion from mineral taxes when other copper rich countries like Chile gained around US $1.7 billion (approximately K6.3 trillion, half of Zambia’s national budget) as tax contributions from its 17 largest privately held mines in just one quarter of 2006.
Last year, the government engaged a team of experts to renegotiate development agreements with the mines as part of the process of introducing a new tax regime announced that year, which entailed having royalty taxes pegged at 3 per cent as opposed to 0.6 per cent.
It was however noted that even if mining companies were to move to
the 2007 tax regime, the country would still not get a fair share from its mineral resources.
It is in this vein that it was decided to have a new fiscal and regulatory regime in the 2008 budget to bring about an equitable distribution of the mineral wealth between the government and the mining companies.
Effective April 1, 2008, mining companies will be expected to pay corporate tax at 30 per cent; mineral royalty tax on base metals at three per cent of gross value; withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the sector at the rate of 15 per cent and a variable profit tax of up to 15 per cent on taxable income, which is above eight percent of the gross income, will be introduced.
A windfall tax has also been introduced at different price levels for different base metals.
For copper, the windfall tax will be 25 per cent at the copper price of US $2.50 per pound but below US $3.00 per pound, 50 per cent at a price for the next 50 cents increase in price and 75 per cent for a price above US $3.50 per pound.
Magande said these measures were “competitive, reasonable and balanced."
Labels: DEVELOPMENT AGREEMENTS, FREDERICK MUTESA, MINING AGREEMENTS, WINDFALL TAX
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