GOVERNMENT needs to be fiscally prudent in periods of copper price highs and only consume foreign currency reserves for effective exchange rate intervention measures, International Growth Centre (IGC) country economist Herryman Moono has said.
He said fiscal policy played a key role in determining the efficacy of monetary policy in times of crises for a commodity dependent economy such as Zambia.
Mr Moono was speaking at the IGC and Economics Association of Zambia, economic outlook forum.
He said there was a strong link between foreign reserves and fiscal policy and that there was strong need to pay closer attention to the management of proceeds from Copper during boom periods.
“Foreign currency reserves need to be put in place for effective exchange rate intervention measures. For this to happen government needs to be fiscally prudent in periods of Copper price highs and this call for responsible spending,” he said.
Mr Moono said Government needed to plan for the long term by holding foreign exchange reserves and only use them for stabilisation purposes. He stressed that monetary policy was impotent without prudential fiscal policy. “It is quite clear for the Zambian case, as for most of the countries in the world too that monetary policy cannot achieve much without prudential fiscal policy,” Mr Moono said. He said monetary policy as a short-term stabilisation measure, should be supported by credible fiscal policy aimed at addressing long term growth concerns, which, among them will be poverty reduction and inclusive growth. “Monetary policy’s potency in stabilising the economy is limited. Without prudential fiscal policy, monetary policy is impotent in achieving sustainable macroeconomic objectives of any country,” he said