Low international copper prices and a severe electricity shortage have strained Zambia’s economic activity, the International Monetary Fund (IMF) has observed.
But the IMF has blamed the Government for the delayed implementation of critical policy pronouncements such as ensuring cost reflective of petroleum prices products and electricity which has continued to impact negatively on the budget.
The IMF however said yesterday that it remained confident that a resolute implementation of credible policies to lower the fiscal deficit would restore market confidence, bring stability to the
economy, enable a speedy recovery in economic growth, and ensure debt sustainability in Zambia.
IMF mission to Zambia chief Tsidi Tsikata observed at a press briefing in Lusaka that the Zambian Kwacha had lost half of its value since the beginning of the year, causing difficulties for many segments of the economy and population and putting upward pressure on inflation.
“Monetary policy has been appropriately tightened to counter the pressure on the exchange rate and rising inflation, but success will depend on complementary tightening of fiscal policy,” he said.
Mr Tsikata said IMF was ready to assist the Zambian Government in finding solutions to its economic challenges.
“The mission and the Zambian authorities reached a shared understanding on the current economic challenges and the implications of alternative policy choices,” he said.
Mr Tsikata said domestic and external financing condition had tightened markedly with increased interest rates on Zambian Government debt.
“In recent month’s, the pressure on the economy has not only reflected the impact of external shocks but also waning market confidence,” Mr Tsikata said.
He added that Zambia had undermined fiscal discipline by additional spending commitments that stood in contrast to lower-than-budgeted revenue.
Mr Tsikata said Zambia had a record of peace and political stability and abundant natural resources and remained a country with great potential to achieve strong and inclusive growth.
Meanwhile, Secretary to the Treasury Fredson Yamba said Government shared the views of the IMF mission and fully acknowledged that fiscal consolidation was paramount in ensuring sustained macroeconomic stability, growth and poverty reduction.
“The Zambian Government recognizes that risks remain and mainly relate to the need to contain fiscal pressure, particularly those related to costs related to electricity imports should weather conditions continue to be adverse,” Mr Yamba said. He also added that the risk included the attainment of cost reflective fuel pricing following the steep depreciation of the Kwacha, increased spending on subsidies partly due to the depreciation of the Kwacha and the need to complete ongoing infrastructure projects.
“Government further takes cognizance of the fact that fiscal consolidation is inevitable to support the attainment of the monetary policy objectives,” Mr Yamba said.
He said Government would ensure that it re-aligns expenditures to counter some of the fact if the pressure outlined in view of the limited scope for new revenue measures and the challenges in the mining sector. Mr Yamba said Government would also limit its borrowing to domestic markets with the objective of addressing imbalances in parameters such as lending rates and availability of credit to the private sector.
“Government will also regularly review budget implementation with the objective of taking other corrective policy actions and undertake consultation to define the forms of further engagement with the funds.
Mr Yamba also took time to thank the mission for the fruitful discussions during the visit.
The International Monetary Fund was in Zambia and met with President Edgar Lungu, Finance Minister Alexander Chikwanda, Bank of Zambia (BOZ) Governor Denny Kalyalya, senior Government officials, members of parliament, the labour movement and the civil society organisations.