President Lungu is in the process of tabling a revised Budget as Cabinet abandons elements of the Sata mining fiscal regime following pressures from mining companies. Full press statement from the Lungu administration below :
Cabinet has today approved changes to the Mineral Royalty Tax regime and His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia directed ministers to bring to Cabinet next Monday details to be presented to Parliament for approval.This follows extensive consultations with the mining industry in the light of significant changes in the fundamental assumptions upon which the law was based and the sudden fall in the price of copper on the international market.
The budget approved by Parliament had the assumption that the price of copper was going to be US$6,780 per tonne but this has reduced to US$5,665 representing a reduction of $1,115. Production, which was also assumed to likely, stay at a peak of 959,696 tonnes has since dropped to 839,000 tonnes representing a drop by 130,696 tonnes.All administrative and legislative procedures to effect the changes will be completed before the next cabinet meeting.These measures will have revenue implications given the fact the basic assumptions in the budget regarding the price of copper and production have changed downwards.The changes to the MRT regime will have revenue implications requiring rationalization of expenditure, which the Minister of Finance has been directed to present to Parliament.The President has also directed that the Technical Committee he appointed to interrogate the challenges that arose from the MRT regime will continue with consultations with stakeholders to ensure a robust and predictable mining tax regime, which will be linked to the Medium Term Expenditure Framework.The President hopes that the changes will promptly eliminate market anxieties in the mining sector and forestall any potential instability.(Source: State House)
We will wait to see the details of the proposal. The fiscal position is as expected. As we have previously noted without the current fiscal regime the Budget collapses and more borrowing will be necessary. Keeping the current fiscal regime also translates in monetary and fiscal chaos and more borrowing. It is chaotic policy making at its worst.
What is more puzzling is that the press statement is not even honest about the reasons for this reversal. It seems to blame poor projections at the Ministry of Finance. If that is the case, shouldn't someone be fired? We have long predicted lower copper prices, it is difficult to see how the Ministry of Finance can make such basic errors. And the reduction in copper production as a result of the regime was also easy to predict given the bargaining power of mining companies and scale of changes.
Copyright © Zambian Economist 2015