The International Monetary Fund has ruled out nationalization as a solution to the challenges the mining sector was facing.
The IMF has also warned that unless forceful measures are taken to address the emerging vulnerabilities, the country’s Gross Domestic Growth (GDP) risked stagnating.
IMF senior economist in the African Department Byung Kyoon Jang said while Zambia’s economy continued to grow at a rapid pace, fiscal and exchange rate developments were pointing to the fact that the economy was still vulnerable.
Mr Byung said Zambia’s economic performance had remained significantly vulnerable because of the poor fiscal and exchange rate developments the country had been experiencing in the first quarter of the year.
He said the recent steep depreciation of the Kwacha was creating inflationary pressures on the economy and that the expansionary fiscal policy had created large budgetary imbalances in the economy.
The IMF senior economist for African Development stated that maintaining strong growth in the next coming years would seriously require forceful measures to address the emerging vulnerabilities in the country’s economy.
He observed that spending overruns in certain areas would require compensating adjustments in fiscal discipline to meet the budgeted deficit target advising that there was need to find a solution to the impasse regarding VAT refunds for exporters.
Mr Byung said the IMF was working closely with the Zambian authorities to develop a plan that would anchor macroeconomic stability in the Zambian economy and was happy that government had indicated strong determination to ensure that the fiscal deficit did not go beyond the budgeted 5.2 percent of the rebased GDP in 2014.
“The economy continues to grow at a rapid pace but fiscal and exchange rate developments point to significant vulnerabilities. Rebasing of the national accounts has revealed that the economy is 20-25 percent larger than earlier estimated. However the recent steep depreciation of the Kwacha is raising inflationary pressures and expansionary fiscal policy has created budgetary imbalances. Maintaining strong growth in the period ahead will require forceful measures to address the emerging vulnerabilities,” Mr Byung said.
Mr Byung said there was need for government to take steps towards restoring confidence in the foreign exchange market stating that removing fiscal funding pressures and allowing for normalization of monetary policy as well as the reduction in interest rates would go a long way in reducing the fiscal deficit to 3 percent from 5.2 percent.
And government has admitted that there had been inconsistencies in the implementation of fiscal discipline and that the IMF advice would strictly be adhered to restore confidence in the country’s economy.
Secretary to the Treasury Fredson Yamba said Zambia was in agreement with the IMF Mission that visited Zambia that the fiscal policy was an area that urgently needed further improvement.
Mr Yamba said government had removed subsidies on maize and fuel and its efforts to stabilize the wage bill which currently stands at 52 percent of the national budget were some of the measures taken to consolidate fiscal prudence.