Statement by the IMF Staff Mission at the Conclusion of a Visit to ZambiaPress Release No. 10/341
September 15, 2010
An International Monetary Fund (IMF) mission visited Lusaka September 2-15, 2010 to conduct discussions for the fifth review under the Extended Credit 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 partners.
At the conclusion of the mission in Lusaka today, Mr. George Tsibouris, mission chief for Zambia, released the following statement:
“The Zambian economy has been performing well. Real GDP growth is projected at 6.6 percent in 2010, boosted by a record maize harvest, a rebound in tourism, and a continued increase in copper output and construction. This year’s bumper harvest has helped bring inflation down to 8.2 percent through end-August. The trade balance has been in surplus for twelve consecutive months, primarily as a result of strong copper exports, and the current account deficit is projected to narrow to 2.4 percent of GDP in 2010. International reserves remain relatively strong at about 3.3 months of imports. There are early signs of improved financial sector conditions, with credit to the private sector slowly picking up, but nonperforming loans remain high.
“Macroeconomic policy implementation has contributed to strong economic performance so far in 2010. As of end-July 2010, the fiscal program is broadly in line with original plans. Any repercussion on the exchange rate stemming from the recent economic difficulties in Europe has been handled well by the Bank of Zambia, which has managed liquidity conditions with a view to containing inflation while providing an enabling environment for robust economic activity.
“Growth is expected to remain strong in 2011 and over the medium term. There is some risk of rising inflation towards the end of 2010 and into 2011, given the onset of the lean agricultural season and still high non-food prices. The current account deficit is expected to widen to almost 4 percent of GDP in 2011, as large energy and infrastructure projects with high import content come on line. Reserve coverage is targeted to improve to 3½ months of imports by end-2011.
“Looking forward, the government faces the challenging task of providing fiscal space for increasing priority capital spending, within a macroeconomic framework that would preserve financial stability, single-digit inflation, and debt sustainability. The upcoming 2011 budget presents an opportunity to put in place measures aimed at boosting revenue collections, as well as to seek savings and efficiency gains in the area of current spending, including importantly on wages and goods and services. The government’s role in handling the surplus maize crop will need to be carefully considered to ensure that market incentives are preserved and direct costs are minimized.
“The mission will continue its work in Washington, D.C., in close consultation with the Zambian authorities, with a view to taking the fifth review under the ECF arrangement to the IMF’s Executive Board at the earliest opportunity.”