An International Monetary Fund (IMF) mission visited Lusaka February 17–March 2, 2010 to conduct discussions for the fourth review under the Extended Credit Facility (formerly the Poverty Reduction and Growth Facility). The mission had fruitful discussions with Hon. Situmbeko Musokotwane, Minister of Finance and National Planning; Dr. Caleb Fundanga, Governor of the Bank of Zambia; and other senior officials, as well as with representatives of the business community, civil society, and Zambia’s cooperating partner
At the conclusion of the mission in Lusaka, Mr. George Tsibouris, mission chief for Zambia, released the following statement:
“The Zambian economy has been holding up well, despite the sharp decline in copper prices in 2008 and early 2009. Growth exceeded 6 percent in 2009, boosted by a significant increase in copper output, a bumper crop, and continued strong construction activity. Inflation has been below 10 percent since December 2009, helped by the bumper crop. In the wake of the global financial crisis, tighter lending standards have led to a marked slowdown in credit to the private sector and in broad money growth. As a result, market interest rates have dropped sharply in recent months. A sharp decline in imports and a recovery of copper prices led to a narrowing of the current account deficit.
“The government is to be commended for its handling of fiscal policy in 2009.The overall budget deficit in 2009 was in line with expectations. Additional domestic financing compensated for lower tax revenues and allowed capital spending to be implemented as envisaged in the budget.
“The economic outlook is positive. Copper prices have strengthened significantly relative to the lows experienced in late 2008. Zambia’s international reserves are higher than they have been in almost four decades (at 4 months of prospective imports), thanks in part to the recent SDR allocation from the IMF. Growth is projected in the range of 6 percent and inflation is targeted to moderate further to 8 percent by the end of 2010. Credit to the private sector should pick up, as broad-based economic activity gains strength. The budget for 2010 maintains an appropriately supportive stance. The main risks in the period ahead include possible adverse developments in world copper and oil prices, and aid inflows.
“Looking forward, the key challenge will be to create fiscal space to allow for an increase in priority expenditures, while preserving macroeconomic stability and debt sustainability. Enhanced tax collections, including from the mining sector, will be critical for providing space for increased capital and social spending. This will also require measures to enhance the efficiency of current spending, to ensure that the wage bill does not end up displacing other high priority needs, and to avoid subsidizing fuel products. The continued implementation of the multi-year tariff adjustment framework should help ensure a sustainable and reliable electricity supply in the years ahead.
“The mission will continue its work in Washington, D.C., in close consultation with the Zambian authorities, with a view to taking the fourth review under the ECF arrangement to the IMF’s Executive Board at the earliest opportunity.”