Lungu faces rising budget shortfall, stagnant economy as he resumes control of Zambia
ZAMBIAN President Edgar Lungu, who was inaugurated yesterday after his narrow re-election last month, faces two immediate challenges: boosting an economy that’s expanding at the slowest pace in 17 years and reining in a ballooning budget shortfall.
“We will remain focused on facilitating a conducive business and investment environment,” Lungu said in his inauguration speech in front of an audience that packed the 60 000-seat National Heroes stadium in Lusaka.
“You will see me doing more in the fight against corruption going forward.”
Lungu’s job will not be easy. He must quickly negotiate an aid package from the International Monetary Fund (IMF) that could top $1.2 billion (R17.30bn) and will probably require cuts in energy and farm subsidies that helped push the budget deficit to nearly 10 percent of gross domestic product last year.
Zambia, which depends on copper for more than 70 percent of its export earnings, is among a number of African countries that are struggling after commodity prices plunged, leading to weakened currencies and gaping budget shortfalls.
‘We will remain focused… facilitating a conducive business and investment environment.’
Economic expansion slowed to 3.2 percent last year from 5 percent in 2014.
The government borrowed about $500 million from the central bank in bridge loans to plug the deficit this year, according to S&P Global Ratings.
In March, the finance ministry said that it would seek aid from the IMF, but formal talks were put off until after the elections.
“Definitely it’s going to be quite tough,” said Irmgard Erasmus, an economist at NKC African Economics in Paarl.
“He’s looking at quite a difficult term. They need to do more than just talk the talk with regards to fiscal consolidation,” Erasmus said.
Lungu was re-elected by a close margin, winning 50.4 percent of the vote to 47.6 percent for Hakainde Hichilema in an August 11 vote that the opposition has tried and failed to contest in the courts.
Lungu first became president in January last year after winning the ballot to replace Michael Sata, who had died while in office.
“There is no time and latitude to settle scores,” Lungu said.
“We’ve got work to do. Let us seize the opportunity to rise above the different points of view that divided us during campaigns.”
The kwacha fell for an eighth day out of nine yesterday and was 0.6 percent weaker at 10.085 per dollar by 11.16am in Lusaka.
Yields on Zambia’s $1bn of 2024 bonds fell for the first time in three days, dropping six basis points to 8.74 percent.
Foreign exchange reserves declined to $2.4bn by the end of June, the lowest level in four years, from $3.9bn in July last year.
Eroded reserves
Interest payments on the $3bn in Eurobonds Zambia has sold since 2012 have eroded the reserves, as have the energy and farm subsidies.
Selling fuel and power for less than the government buys it for could cost the country $660m annually, according to the IMF.
In reducing subsidies, Lungu’s government will also need to take into account an inflation rate that is hovering close to 20 percent.
“My administration will not leave anyone behind,” Lungu said. “Every region in the country and all Zambians are entitled to receive the benefits of development,” he added. – Bloomberg.