Monday, June 27, 2011Zambia received thumb up from global lender on economic reform program
Zambia, Africa’s leading copper producer, fourth world metal producer and reputed one of the southern African countries resilient in economic reform program received a thumb up from global lender it approved yet again, USD 29.3 million for the country's reforms.
The global lender in a statement on June 24th 2011 stated that its Executive Board completed the sixth and final review of Zambia’s economic performance under the Extended Credit Facility to enable the Bretton Woods institution release Special Drawing Rights 18.395 million.
The decision by the lender’s board entails that Zambia will be eligible to receive USD 29.3 million and ultimately bringing the total disbursements under the arrangement to SDR 220.095 million.
Mr Naoyuki Shinohara deputy MD and acting chair in completing the review by the board stated that the decision meant that the decision making board had further approved a waiver for the non observance of a performance Criterion related to the net domestic financing. Zambia’s 3 year ECF arrangement which was approved in June 2008 comes to an end. The government is studying the options available for future IMF support.
Mr Shinohara said that the IMF, one of Zambia’s key economic partners in its growth programs added that it was impressed with the country’s fiscal and monetary agenda. The Zambian economy continues to gather strength and performance under the ECF supported program continues to be satisfactory. Growth accelerated further in 2010, private sector credit has recovered to pre global financial crisis levels, the current account is in surplus and international reserves are solid. Prospects of strong growth provide an opportunity for more rapid poverty reduction and employment creation. Enhanced access to social and economic facilities including health and water, transportation, markets, and financial services is needed, particularly in rural areas where poverty is still high.
The fiscal program for 2011 is appropriate and the expenditure mix is set to shift toward social and capital spending. As the authorities tap the sovereign bond market to finance capital spending, it will be important to strengthen debt and liquidity management capacity. Containing spending pressures, including with regard to wages and maize purchases, is critical to safeguard priority poverty related and investment spending.
The IJMF said that sequential bumper crops have revealed the limitations of the current maize pricing and marketing system. The government needs to modulate its maize marketing role to minimize distortions, contain fiscal risks and provide incentives for the private sector to develop. It further recognized Zambia’s fight to reduce inflation to single digit as part of the growth program. This despite the Central Bank’s skepticism that inflation targets were under threat from external factors.
The authorities’ inflation target for 2011 is appropriate. Keeping inflation low and stable requires close attention to underlying inflation developments. As inflation expectations, nonperforming loans and operating costs are reduced, and credit risk concerns ease, bank lending rates should come down.
Inaccurate data on net domestic borrowing provided in June 2010 for the fourth review under the ECF resulted in a non complying disbursement. In view of corrective actions taken to bring domestic borrowing back in line with the program, and to improve data compilation and monitoring, the Board decided to waive the non-observance of the performance criterion that gave rise to the non complying disbursement.
During a recent media meeting the Lusaka based bank of Zambia noted that the impact of the international oil prices and the oncoming political elections in Zambia this year posed challenges to the country’s ability to sustain reduced year end and single digit inflation.
Ms Brenda Mwanza an acting assistant director expressed skepticism that Zambia may not attain the projected inflation target of seven percent this year because of various external factors that include a rise in international crude oil, among others. While the country remained positive to attain 7% inflation target at the end of the year the high international oil prices due to political turmoil in north Africa and the Middle East and the planned tripartite elections in Zambia before the end of the year could have an effect on the country’s positive outlook for a dropped inflationary rate.
Ms Mwanza said that there are general uncertainties that may exert pressure on the exchange rate and also challenges to the Consumer Price Index developments. She was however optimistic of the central bank’s ability to implementing appropriate monetary policies to ensure that the monetary targets are met with a view to achieving the end year inflation target of 7%.
According to data, the stability in the exchange rate supported by high copper prices coupled with the expected 2010 to 2011 crop bumper harvest will result in lower food prices are likely to reduce inflationary pressures for the rest of the year and assist in achieving the end year target of 7%.
Zambia's economy has experienced strong growth in recent years, with real GDP growth in 2005 to 08 about 6% per year. Privatization of government owned copper mines in the 1990s relieved the government from covering mammoth losses generated by the industry and greatly improved the chances for copper mining to return to profitability and spur economic growth.
Copper output has increased steadily since 2004, due to higher copper prices and foreign investment. In 2005, Zambia qualified for debt relief under the Highly Indebted Poor Country Initiative, consisting of approximately USD 6 billion in debt relief. Poverty remains a significant problem in Zambia, despite a stronger economy.
Declining world commodity prices and demand slowed GDP growth in 2008, but a sharp rebound in copper prices and a bumper maize crop helped Zambia recover. Lack of economic diversity subjects Zambia to fluctuations in copper prices and in the weather.
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