Zambia in bid to restore confidence

ZAMBIAN Finance Minister Alexander Chikwanda is seeking to restore confidence in the economy to help reverse the world’s worst currency decline, record borrowing costs and sliding growth.

The two things that matter the most to the outlook are the copper price and power supply, which he has little control over.

Chikwanda is to present a budget today that would give investors clues on how authorities plan to keep spending in check in the face of plunging copper revenue and the most severe power shortages on record. The government started the year with an estimate for the fiscal shortfall of 4.6 percent of gross domestic product, gradually raising that to 6.9 percent. Barclays is projecting a deficit of 8.4 percent. “What will hurt fiscal consolidation is the growth impact of electricity shortages,” Raza Agha, an economist at VTB Capital in London, said. “Coupled with a contraction in the mining sector from lower copper production and international prices, power shortages have exacerbated investor concerns around headline growth.”

After expanding an average of 7 percent annually over the past five years, the International Monetary Fund has cut its growth forecast for Zambia to 4.3 percent this year from 5.6 percent. The kwacha has dropped 45 percent against the dollar this year, the most of 155 currencies tracked.

A 22 percent plunge in copper prices in the past year has prompted Glencore to suspend operations in Zambia and the Democratic Republic of Congo, Africa’s biggest producers of the metal. Glencore owns more than 70 percent of Mopani Copper Mines, Zambia’s biggest employer after the government. The company is in talks with the government and labour unions about cutting 3 800 of the 20 000 jobs at Mopani. – Bloomberg