July 15, 2019 / 4:31 AM / a month ago

Abruptly appointed Zambian finance minister to review sales tax plan

LUSAKA (Reuters) - Zambian President Edgar Lungu abruptly fired his finance minister on Monday, appointing in her place the respected deputy head of the central bank, who said he might further delay a sales tax designed to rebalance its economy.

New minister Bwalya Ng’andu, seeking to mend fences with the country’s powerful mining industry in the face of calls from the IMF to shrink a hefty debt pile, said addressing budgetary issues would be his first challenge.

President Edgar Lungu sacked his predecessor Margaret Mwanakatwe hours earlier without giving a reason. There was no immediate comment from Mwanakatwe.

The early market response to Lungu’s actions was positive, and Chibamba Kanyama, an economist with local brokerage Bridges, said the president was looking to reassure investors by appointing an experienced executive who has also held senior posts in commercial banking.

The 9% across-the-board tax on sales of goods and services, which was originally due to be introduced in April, would help rein in the external debt of Africa’s second largest copper producer, which hit $10.05 billion at the end of 2018, and a fiscal deficit running at 7.5% of gross domestic product.

But the government postponed it until September for further consultation, and Ng’andu said that deadline would now also be reviewed.

“We need to restore the fiscal health of the economy,” he said during his swearing-in ceremony. “We will look at whether it is prudent to implement ...(the new tax) three quarters into the year.”

It has become the latest focal point in a dispute between the government and the miners.

Zambia’s Chamber of Mines says the tax, combined with other levies imposed specifically on the industry, will stymie investment, push some producers into the red and lead to the loss of 100,000 tonnes of copper production this year.

The International Monetary Fund, meanwhile, has repeatedly warned that Zambia’s high debt and shrinking foreign exchange reserves leave its economy vulnerable.

Ng’andu said he would also press ahead with austerity measures embarked upon by Mwanakatwe, including a moratorium on the issuance of new debt.

Bridges’ Kanyama said investor concerns had risen that Zambia had appeared unconcerned about reigning in its soaring deficits.

While Ng’andu - whose previous posts also include managing director of the Development Bank of Zambia - had limited exposure to the fiscal side of the economy, he “has the capacity to gain the respect of various stakeholders who include cabinet ministers as well as donors and the IMF,” the economist said.

Zambia’s dollar-denominated government bonds jumped after news of his appointment.

The government is also embroiled in an ownership dispute over a copper mine with Mumbai-listed Vedanta (VDAN.NS), which has sparked concerns among international investors that it might nationalize some of the country’s natural resources.

Mark Bristow, CEO of Barrick Gold Corp (ABX.TO), told Reuters the company looked forward to engaging with the new minister, adding it had already had a very constructive discussion with the minister of mines over the new taxes.

Reporting by Chris Mfula in Lusaka; Writing by Emma Rumney; Editing by John Stonestreet

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