The International Monetary Fund (IMF) backed Tuesday plans by Zambia to change it mining tax system, but warned that only further tightening of fiscal and monetary polices would contain the country’s large deficits.
The Southern African nation increased underground mining royalties to 8% from 6%, and open pit taxes to 20% from 8%, as part of major overhaul to the industry’s tax system announced last year, which triggered closures threats and temporary suspension of operations.
“The IMF welcomes President Zungu’s directives calling for a review of the mining tax regime that came into effect in the beginning of this year,” the IMF’s mission chief to Zambia Tsidi Tsikata was quoted as saying by Reuters.
Zambia turned to the IMF last after the kwacha fell to record lows against the U.S. dollar and the government battled a fiscal deficit, blamed largely on excessive public spending.
Africa’s second-largest copper producer has also been hit by the sharp decline in prices for the metal, which accounts for about 70% of export earnings.