Statement at the Conclusion of an IMF Staff Mission to ZambiaPress Release No. 08/314
December 10, 2008
An International Monetary Fund (IMF) mission visited Zambia during December 2-10, 2008, to continue discussions for the first review of the Poverty Reduction and Growth Facility (PRGF) arrangement that was approved in June 2008. The mission met with Minister of Finance and National Planning, Hon. Situmbeko Musokotwane, Bank of Zambia Governor Caleb Fundanga, and other senior officials, as well as with representatives of the business community, civil society, and Zambia's cooperating partners.
Mr. Francesco Caramazza, mission chief for Zambia, issued the following statement at the conclusion of the mission today:
"The Zambian economy has grown strongly in recent years owing to highly favorable external circumstances and significant progress toward macroeconomic stability. In 2008, the external environment has become progressively more difficult. Rising world food and fuel prices early in the year pushed inflation up steeply. More recently, the sharp fall in copper prices, in the wake of the global financial crisis and slowing world growth, has adversely affected export proceeds, the profitability of the mines, and government revenue from the mining sector. The slump in copper prices will inevitably have a detrimental effect on Zambia's economic prospects in view of the mining sector's central role in the economy.
"In these circumstances, it is essential to calibrate macroeconomic policies carefully. A loosening of fiscal and monetary policies aimed at supporting economic activity needs to be balanced against the risks for macroeconomic stability over the medium term. Moreover, fiscal policy should be guided by the need to create the fiscal space necessary to increase spending on infrastructure so as to encourage diversification of the economy. Monetary policy should continue to be oriented toward bringing inflation firmly down to single digits over the medium term.
"While the fiscal policy stance has generally been prudent in recent years, budget execution has exhibited weaknesses. In particular, the pattern of spending has deviated significantly from what has been budgeted, notably in regard to capital spending. The authorities are committed to managing and using its available resources more effectively in order to sustain growth and poverty reduction.
"The tight resource constraints and challenging environment that Zambia faces in the near term further underscore the urgency of structural reforms that would allow the most effective use of available resources and enhance the competitiveness of the Zambian economy.
"Notwithstanding the narrower fiscal space than had been anticipated only a few months ago, infrastructure investment remains key to enhancing Zambia's competitiveness and growth prospects. Transportation and electricity generation and transmission stand out as sectors in need of increased investment. Measures to stimulate private sector investment in infrastructure need to be strengthened. In this respect, recent steps to establish a framework for public private partnerships is encouraging.
"The IMF stands ready to assist Zambia in these challenging times. The authorities and the mission reached an understanding on the macroeconomic framework for 2009 and anticipates returning to Lusaka soon after the presentation of the 2009 budget to finalize discussions on a complementary structural measures."