‘Rainy day’ fund to funnel Zambia’s copper bounty from this year

Zambia, Africa’s second-biggest copper producer, will use larger-than-expected mining revenues to start a stabilization fund this year, a senior treasury official said, ensuring the government has a buffer when a red-hot rally in the metal fades.

The mechanism, which Secretary to the Treasury Felix Nkulukusa referred to as a “rainy day” fund, is intended to capture state mining revenues expected to surge with production rising to a record at a time when prices hover near all-time highs. Mineral revenues above what was budgeted for the year will flow into the account.

“That differential will not be immediately used in the budget,” Nkulukusa said in an interview on Tuesday in Cape Town, where he was attending the African Markets Conference. “So that the time that we will have challenges on the price and the budget, we will then be able to use those revenues to smoothen the budget process.”

The government will complete the fund’s framework this year, after which it can start depositing surplus cash, he said.

The International Monetary Fund, meanwhile, said in a report this month that the government should prioritize introducing a fiscal rule and accelerate public financial management reforms.

Yet constraints such as a fiscal rule would be politically difficult to implement ahead of the general elections scheduled for August, said Nkulukusa, who added the stabilization fund is essentially “the same thing” when looking at the outcomes.

“The stabilization fund is saying even before we go to the fiscal rule, can we start preparing ourselves?” Nkulukusa said. “It’s not an issue of either or. It’s an issue of sequencing.”

Zambia is seeking a fresh IMF program after successfully completing the prior one in January. A mission from the Washington-based lender arrives in Lusaka, the capital, on Wednesday for early talks. The two sides will only be able to finalize any deal after the vote, according to Finance Minister Situmbeko Musokotwane.

Zambia, which in 2020 became Africa’s first pandemic-era sovereign defaulter, has staged a strong economic comeback after restructuring its external debt and pushing through reforms. Those decisions are now paying off, just as global demand for copper soars, along with local production of the metal.

Its currency is the world’s best performer against the dollar this year, offshore investors are piling into its domestic government bonds, and the local stock market index ranks among the top four gainers globally over the past 12 months.

(By Matthew Hill)