IMF says Zam­bian econ­omy per­formed well so far in 2012

The Pak Banker - - Front Page -

WASH­ING­TON

An In­ter­na­tional Mone­tary Fund (IMF) mis­sion vis­ited Lusaka Oc­to­ber 25Novem­ber 5, 2012 to re­view eco­nomic developments and prospects. The mis­sion had fruit­ful dis­cus­sions with Hon. Alexan­der Chik­wanda, Min­is­ter of Fi­nance and Na­tional Plan­ning; Dr. Michael Gondwe, Gover­nor of the Bank of Zam­bia, and other se­nior of­fi­cials as well as rep­re­sen­ta­tives from the pri­vate sec­tor.

At the con­clu­sion of the visit in Lusaka to­day, Mr. John Wake­man-Linn, mis­sion chief for Zam­bia said the Zam­bian econ­omy has per­formed well so far in 2012. Real gross do­mes­tic prod­uct (GDP) growth is likely to be around 7.3 per­cent, which is par­tic­u­larly im­pres­sive in the cur­rent un­cer­tain global eco­nomic en­vi­ron­ment.

In­fla­tion is likely to slightly ex­ceed the Bank of Zam­bia tar­get of 7 per­cent for end2012 as a re­sult of food price rises, but re­mains well un­der con­trol.

The mis­sion wel­comes the fact that the bud­get deficit for 2012 is likely to be close to the tar­geted level of 4.1 per­cent of GDP. Rev­enue per­for­mance has been bet­ter than expected, a re­sult of im­proved rev­enue ad­min­is­tra­tion.

To­tal ex­pen­di­tures have been some­what larger than bud­geted, with spend­ing over- runs on wages and goods and ser­vices par­tially off­set by a short­fall in cap­i­tal spend­ing.

While ag­gre­gate bud­get fig­ures are thus gen­er­ally en­cour­ag­ing, there were some ex­pen­di­ture ar­eas that in­di­cate chal­lenges.

While recorded ex­pen­di­tures on maize pur­chases were as bud­geted (K300 bil­lion), roughly K1.4 tril­lion was needed to pay for the pur­chase of the 2012 maize har­vest.

To fi­nance these pur­chases, it was nec­es­sary for the gov­ern­ment to guar­an­tee com­mer­cial bank loans to the Food Re­serve Agency of over K900 bil­lion. In ad­di­tion, the bud­get al­lo­ca­tion for the pen­sion fund was in­suf­fi­cient to pre­vent the ac­cu­mu­la­tion of new pen­sion ar­rears.

The mis­sion wel­comes the in­tro­duc­tion, by the Bank of Zam­bia, of the pol­icy rate, as a first step to­ward mod­ern­iz­ing the im­ple­men­ta­tion of mone­tary pol­icy in Zam­bia, and com­mends the cen­tral bank for keep­ing in­fla­tion in check.

In ad­di­tion, the ac­cu­mu­la­tion of gross in­ter­na­tional re­serves in 2012 is likely to be broadly in line with the Bank of Zam­bia's tar­get of just over $425 mil­lion.

Im­ports, how­ever, have grown sig­nif­i­cantly more than expected, with the re­sult that on cur­rent trends re­serve cov­er­age is likely to be only 3.0 months of im­ports at end2012, un­changed from end2011 and well be­low the Bank of Zam­bia's medium-term goal for re­serve cover of four months of im­ports.

The mis­sion con­grat­u­lates the au­thor­i­ties on the suc­cess­ful launch of Zam­bia's first Eu­robond.

The mis­sion also wel­comes the de­ci­sions the au­thor­i­ties have taken for the use of these funds in 2012 and 2013.

Us­ing this com­mer­cial fi­nanc­ing to fi­nance high pri­or­ity cap­i­tal spend­ing in­clud­ing the re­pay­ment of a short­term debt to fi­nance roads in­fra­struc­ture de­vel­op­ment re­flects pru­dent fis­cal man­age­ment. It will be im­por­tant to keep civil ser­vant wages in line with the bud­get.

Fur­ther in­creases in civil ser­vice wages, be­yond what has been bud­geted, would make it ex­tremely dif­fi­cult for the gov­ern­ment to fi­nance the planned and nec­es­sary in­creases in cap­i­tal spend­ing, as well as spend­ing on health and ed­u­ca­tion, in 2013 and be­yond.

It would also in­ten­sify ex­ist­ing pres­sures on pri­vate sec­tor wages, with po­ten­tially ad­verse con­se­quences for em­ploy­ment cre­ation and in­fla­tion. Fi­nally, the bud­get al­lo­ca­tion for the pen­sion fund is again in­suf­fi­cient to pre­vent the ac­cu­mu­la­tion of new pen­sion ar­rears.

The mis­sion thanks the au­thor­i­ties for their hos­pi­tal­ity, co­op­er­a­tion, and con­struc­tive dis­cus­sions.

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