Zam­bian econ­omy is un­der in­tense pres­sure: IMF

The Pak Banker - - COMPANIES/BOSS -

At the in­vi­ta­tion of the au­thor­i­ties, an In­ter­na­tional Mon­e­tary Fund (IMF) team led by Tsidi Tsikata vis­ited Zam­bia dur­ing March 9-18 to re­view re­cent macroe­co­nomic de­vel­op­ments and dis­cuss with the au­thor­i­ties how best to ad­dress the cur­rent eco­nomic chal­lenges fac­ing the coun­try.

At the end of the mis­sion, Mr. Tsikata said, the Zam­bian econ­omy is un­der in­tense pres­sure. Lower cop­per prices, elec­tric­ity short­ages, and poor rain­fall have damp­ened the pace of eco­nomic ac­tiv­ity. More­over, in­fla­tion has in­creased, ex­pen­di­ture pres­sures have risen, and fi­nanc­ing con­di­tions have tight­ened sub­stan­tially. The mis­sion es­ti­mated that eco­nomic growth de­clined to about 3 per­cent in 2015. Res­o­lute ac­tion is needed as quickly as pos­si­ble to re­store macroe­co­nomic sta­bil­ity and pave the way for a re­turn to high sus­tained growth.

Govern­ment fi­nances are un­der im­mense stress. Ex­pen­di­ture is run­ning far above bud­get, in large part as a re­sult of fuel sub­si­dies and con­tracted emer­gency elec­tric­ity im­ports that to­gether are es­ti­mated to cost the trea­sury about US$660 mil­lion a year at the cur­rent pace (equiv­a­lent to 3.2 per­cent of GDP).

At the same time, do­mes­tic and ex­ter­nal fi­nanc­ing op­tions have be­come more lim­ited along with ris­ing in­ter­est rates. Mount­ing do­mes­tic ar­rears are adding to con­cerns about debt sus­tain­abil­ity.

Tight­en­ing of mon­e­tary pol­icy has been ef­fec­tive in sta­bi­liz­ing the ex­change rate but tight liq­uid­ity con­di­tions have con­trib­uted to per­sis­tent un­der-sub­scrip­tion of trea­sury bills and bonds. How­ever, there is lit­tle scope to loosen mon­e­tary pol­icy as long as fis­cal im­bal­ances are not ad­dressed. A key chal­lenge go­ing for­ward will be to nor­mal­ize ac­tiv­ity in the in­ter­bank for­eign ex­change mar­ket while avoid­ing a re­turn of last year's ex­treme volatil­ity in the ex­change rate.

The mis­sion and the au­thor­i­ties reached a shared un­der­stand­ing of the chal­lenges and risks as­so­ci­ated with the cur­rent eco­nomic sit­u­a­tion. The au­thor­i­ties stressed that, not­with­stand­ing the up­com­ing gen­eral elec­tions, they are com­mit­ted to ad­dress­ing the bud­getary pres­sures, in­clud­ing mov­ing to cost-re­flec­tive en­ergy pric­ing, and scal­ing back on dis­cre­tionary spend­ing while safe­guard­ing so­cial pro­tec­tion pro­grams. They in­di­cated that strong near-term mea­sures are be­ing eval­u­ated and that, at the IMF/World Bank Spring Meet­ings in mid-April, they would pro­vide fur­ther guid­ance on the pol­icy di­rec­tion and re­forms, and their plans for an IMF-sup­ported pro­gram.

"The mis­sion is con­fi­dent that Zam­bia's cur­rent eco­nomic chal­lenges can be over­come with res­o­lute pol­icy ac­tion, al­low­ing a re­sump­tion of growth in line with the coun­try's abun­dant po­ten­tial. In par­tic­u­lar, a pack­age of mea­sures that makes clear that the fis­cal pres­sures are be­ing tack­led would boost mar­ket con­fi­dence and pave the way for in­creased in­vest­ment and growth. How­ever, de­lays in im­ple­ment­ing cor­rec­tive mea­sures will only worsen the sit­u­a­tion, in­crease the ad­just­ment cost and post­pone the re­cov­ery.

"The team met with Fi­nance Min­is­ter Alexan­der Chik­wanda, Bank of Zam­bia (BoZ) Gov­er­nor Denny Kalyalya, other se­nior govern­ment and BoZ of­fi­cials, mem­bers of par­lia­ment, lead­ers of political par­ties, as well as rep­re­sen­ta­tives of the pri­vate sec­tor, la­bor unions, civil so­ci­ety or­ga­ni­za­tions, and Zam­bia's de­vel­op­ment part­ners. The mis­sion thanks the au­thor­i­ties and the other stake­hold­ers it met, for their open­ness and the con­struc­tive spirit in which all dis­cus­sions were held."

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.