Zambia May Need Spending Cuts If Mine Royalty Payments Deferred

Zambia might need to reduce expenditure this year if the government defers any royalties due from mining companies struggling to pay, Secretary to the Treasury Fredson Yamba said.

The government in Africa’s second-biggest copper producer has said mining companies that prove financial distress resulting from a new tax system can seek to delay payments. Zambia removed corporate income tax for mines and raised royalties from a uniform 6 percent to 20 percent for open-pit operations and to 8 percent for underground mines.

Zambia is targeting a 4.6 percent budget deficit this year, and any royalty deferrals could lead to lower revenues and would require spending cuts, Yamba said on Friday.

“Immediately then you would also need to be looking at the expenditure” to meet the deficit target, he said by mobile phone from Lusaka, the capital. “You would need to do a review of the budget and take it to cabinet and scale down on certain expenditures.”

The government reduced the deficit to 4.8 percent last year, beating a target of 5.5 percent, the Bank of Zambia said Thursday, citing preliminary data. This was mainly because of expenditure cuts following the October death of President Michael Sata, Yamba said.

Mines in Zambia are strained by the royalty regime that became effective last month at a time when prices are near five-year lows. The Zambia Chamber of Mines intends to pursue talks with the government about the new system, which it estimates may cause 12,000 job losses this year, Jackson Sikamo, president of the lobby group, said Feb. 10.

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