Statement by the IMF Staff Mission at the Conclusion of a Visit to Zambia

Press Release No. 07/208
September 26, 2007

Mr. Francesco Caramazza, IMF mission chief for Zambia, released the following statement in Lusaka today:

"An IMF mission visited Lusaka during September 12-26, 2007 to conduct the 2007 Article IV consultation discussions with the Zambian authorities and exchange initial views on an economic program that could be supported by the Fund. The mission met with Hon. Ng'andu P. Magande, Minister of Finance and National Planning, and other senior officials as well as with representatives of the private sector, trade unions, civil society, and Zambia's cooperating partners.

"The Zambian economy has performed well in recent years, reflecting strengthened macroeconomic policies, a marked improvement in the external environment, and extensive debt relief. Fiscal management has been significantly strengthened, which, along with prudent monetary policy and the appreciation of the exchange rate, has caused inflation to fall sharply. Debt relief under the Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) as well as the revival of the mining sector have strengthened Zambia's external position and bolstered investor confidence. The mission projects GDP growth this year to exceed 6 percent and to remain buoyant over the medium term.

"Zambia's strengthened economic situation represents a historic opportunity to build on the gains already made. Continued maintenance of macroeconomic stability through prudent fiscal and monetary policies and steadfast implementation of the development agenda laid out in the Fifth National Development Plan (FNDP), with emphasis on investment in infrastructure and human resources, should translate into sustained high economic growth that would increasingly benefit the poor. Structural reforms need to focus on improving conditions for private sector growth and public sector management. The provision of a secure and efficient supply of energy, both electricity and fuels, is critical to ensure that economic growth is not choked off by energy shortages and high costs.

"Implementation of the FNDP requires fiscal space for additional pro-poor spending, including on social services, such as health care and education, and infrastructure. In this regard, efforts should be bolstered to increase revenue, through both tax policy measures and improved administration, shift spending to high priority areas, and raise the efficiency of public expenditure. The IMF mission supports the authorities' efforts to obtain greater revenue from the mining sector through the renegotiation of the fiscal terms of existing development agreements. Greater external assistance would also provide additional fiscal space. Recourse to external borrowing on commercial terms should be limited and only be made in the context of a sound debt management strategy and only for projects that are clearly economically viable.

"Monetary policy will need to be particularly vigilant in the last months of 2007, given the risk of a large injection of liquidity into the economy if spending, particularly on capital projects, accelerates following the relatively low execution rates in the first half of the year. To ensure continued macroeconomic stability, budget planning and execution would need to be further strengthened and fiscal and monetary policy coordinated more closely.

"The IMF mission and the authorities had a useful exchange of views on an economic program for 2008 and beyond that could be supported by the IMF. The mission expects to return to Lusaka to continue discussions on a new program when the budget proposal for next year has taken firmer shape."



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