GOVERNMENT needs to slow down in debt contraction and concentrate on targeting a 2 per cent Gross Domestic Product (GDP) to grow the economy, the University of Zambia (UNZA) head of economics Chrispin Mphuka has said.
Dr Mphuka said Zambia’s economic outlook was not promising because of the country’s US$4.8 billion external debt.
He said as a result, Government needed to slow down in contracting new debts and stay in acceptable debt limits.
“I think the economic outlook is not very good because we have a huge external debt. So we need to start slowing down in contracting new debt and stay in acceptable limits. What we mean by acceptable limits in terms of figures is that we have to target 2 per cent of GDP,” Dr Mphuka said.
He said Zambia’s economy and balance of payments would be positive if the GDP was in line with the fiscal deficit.
Dr Mphuka said Government would attain the equal GDP and fiscal deficit if it tightened monetary policy.
“What we are saying is that we need to align fiscal and monetary policy by tightening them. The fiscal consolidation should not just be rhetoric but it should have indicators out in place,” he said.
Dr Mphuka said there was need to regulate strict ownership equity laws for Zambians to be able to have access to shares in companies once investors showed interest.
He cautioned that there was need to be careful on how fiscal policy was monitored as it would lead to negative balance of payments.
Dr Mphuka said Zambia’s balance of payment suffered from capital account problems due to commercial debts which had contributed to loss of investor confidence.
He explained that the two factors contributed to large outflows because investors in financial assets became reluctant to roll over the maturing loans.
Meanwhile, Dr Mphuka said deterioration in the fiscal position stemming from increasing Government expenditure had contributed to the wider current account deficits.
He said large proportions of the deficit went to foreign suppliers of services that externalised the funds.
“For instance, much of Government projects have focused on road construction. This work is largely undertaken by foreign contractors with bloated expatriate workers who repatriate their profits and earned incomes to their home countries,” he said.
Dr Mphuka observed that Zambia paid more to foreign owners of domestic companies.
He said the foreign outflow reflected high level participation of foreign owned companies across all sectors including the booming construction sector arising from Governments fiscal stance.