Zambia’s economy under intense pressure -IMF

ZAMBIAs economy is under intense pressure as a result of low copper prices, electricity shortages and poor rainfall and resolute action is needed as quickly as possible to restore macroeconomic stability and pave way for a return to high sustained growth, the International Monetary Fund (IMF) has acknowledged.

The IMF has however observed that Zambia’s current economic challenges can be overcome with resolute policy action of a package of measures that would boost market confidence and pave way for increased investment and growth.

IMF team leader to Zambia Tsidi Tsikata said apart from lower copper prices, electricity shortages and poor rainfall which had dampened the pace of economic activity, the country’s economic activity had been slowed by increased inflation, a rise in expenditure pressures and financing conditions which had tightened sustainably.

Mr Tsikata said in a statement yesterday that Government finances were under immense stress as its expenditure was running far above the budget largely as a result of fuel subsidies, and contracted emergency electricity imports which have together cost the treasury about US$600 million a year.

He observed that domestic and external financing option had become more limited along with rising interest rates as well as mounting domestic arrears which were adding to concerns about debt sustainability.

“The Zambian economy is under intense pressure. Lowe copper prices, electricity shortages, and poor rainfall have dampened the pace of economic activity. Moreover, inflation has increased, expenditure pressures have risen, and financing conditions have tightened sustainably. The IMF estimated that economic growth declined to about three (3) percent in 2015. Resolute action is needed as quickly as possible to restore economic stability and pave way for a return to high sustained growth,” Mr Tsikata said.

He however state that there was little scope to loosen monetary policy for as long as fiscal imbalances were not addressed and advised that the key challenge would be to normalize activity in the Interbank foreign exchange market.

“The IMF mission and the Zambian authorities reached a shared understanding of the challenges and risks associated with the current economic situation. The authorities (Zambian) stressed that, notwithstanding the upcoming general elections, they are committed to addressing the budgetary pressures, including moving to cost-effective energy pricing and scaling back on discretionally spending while safeguarding social protection programmes,” Mr Tsikata said.

Mr Tsikata however said Zambia’s current economic challenges could be overcome by allowing the resumption of growth in line with the country’s abundant potential.

He said the IMF team was in the country at the invitation of Government to review its macroeconomic developments and to discuss with the authorities how best to address the current economic challenges facing the country.

The IMF team met with Finance Minister Alexander Chikwanda, Bank of Zambia (BoZ) governor Denny Kalyalya, Members of Parliament, leaders of political parties as well as representatives from the private sector.Police post burnt as residents riot over multiple murders

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