IMF Executive Board Concludes 2019 Article IV Consultation with Zambia
IMF News, August 2, 2019
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- Published: August 2, 2019
Macroeconomic outcomes and near-term outlook
- Economic growth was estimated at 3.7 percent in 2018.
- Inflation averaged 7 percent in 2018; currency depreciation late in 2018 and in spring 2019 coupled with food price rises pushed inflation above 8 percent.
- Fiscal revenues exceeded budget targets in 2018, but the deficit widened:
- Above 10½ percent on a commitment basis in 2018.
- Over 8 percent of GDP on a cash basis in 2018.
- Total public and publicly-guaranteed (PPG) debt including arrears at end-2018 was 78 percent of GDP.
- Current account deficit widened to 2.6 percent of GDP in 2018.
- Reserves declined from 2.4 months of import cover in 2017 to 1.9 months at end-2018.
- Outlook and near-term projections:
- Growth is projected to slow to 2 percent in 2019.
- Inflation is projected to remain above the top of the Bank of Zambia’s (BoZ) target band in 2019 and 2020.
- The BoZ increased the policy rate by 50 bps to 10.25 percent in May.
- Reserves are projected to decline to 1.6 months of import cover by end-2019.
- Key risks identified:
- Ongoing drought and its impact on hydro power production and agriculture.
- Heightened debt vulnerabilities from rapid accumulation of non‑concessional debt.
- Potential tightening of global financial conditions.
- Further escalation in trade tensions.
- Uncertain growth dividend from recent infrastructure investments.
Executive Board assessment and policy advice
- Directors agreed with the thrust of the staff appraisal and noted deterioration in macroeconomic outcomes and heightened vulnerabilities due to drought and policy slippages.
- Debt and fiscal concerns:
- Public debt is on an unsustainable path under current policies.
- Heavy reliance on non‑concessional debt to finance large infrastructure investment has increased public debt and debt service while growth has lagged.
- Financing constraints have started to force disorderly fiscal adjustment, with mounting expenditure arrears.
- There is a narrow window for an orderly, planned fiscal adjustment.
- Recommended fiscal strategy:
- Large front‑loaded and sustained fiscal adjustment centered on stronger control and prioritization of public investment projects.
- Postpone the contracting of new non‑concessional debt.
- Enhance revenue mobilization and scale back exemptions and tax expenditures.
- Reduce domestic expenditure arrears.
- Aim to minimize drag on growth and contain the impact on priority social spending.
- Some Directors urged careful consideration of shifting from a value‑added tax to a sales tax.
- Actions welcomed and further recommendations:
- Welcome for the Cabinet decision in late May to indefinitely postpone contracting of all new non‑concessional loans, cancel some committed but undisbursed loans, enhance control and management of disbursements of foreign‑financed loans, and to strictly adhere to public financial management rules under the 2018 PFM Act.
- Strong actions needed to reduce debt‑related vulnerabilities; continued efforts to enhance debt management and transparency.
- Address weaknesses in procurement and in project selection and management to ensure prioritization and greater investment efficiency.
- Strengthen procedures to ensure budget execution reflects fiscal goals; utilize ongoing and future technical assistance to enhance authorities’ capacity.
- Monetary and financial sector advice:
- Welcome recent monetary tightening by the Bank of Zambia.
- Emphasize forward‑looking monetary policy to secure macroeconomic stability and support reserves, in conjunction with fiscal reorientation.
- Commend BoZ’s implementation of 2017 FSAP recommendations, including strengthening supervisory capacity and enhancing crisis preparedness.
- Urge close monitoring of macrofinancial linkages between the financial system and the sovereign and continued efforts to address nonperforming loans.
- Growth and structural policies:
- Potential for growth acceleration over the medium term with appropriate fiscal adjustment.
- Achieving inclusive growth and reducing poverty requires focus on improving the investment climate, promoting productivity and human capital, and addressing the risk of corruption.
- Develop proactive strategies to respond to drought and climate‑related risks and promote well‑functioning agricultural support programs to enhance resilience.
Selected economic indicators (highlights from table)
- GDP growth at constant prices:
- 2017: 3.5
- 2018: 3.7
- 2019 (Proj.): 2.0
- 2020 (Proj.): 1.7
- 2021 (Proj.): 1.6
- 2022 (Proj.): 1.5
- 2023 (Proj.): 1.4
- Mining sector growth:
- 2017: 3.0
- 2018: 6.3
- 2019 (Proj.): -2.0
- Non‑mining sector growth:
- 2017: 3.6
- 2018: 3.4
- 2019 (Proj.): 2.5
- 2020 (Proj.): 1.4
- 2021 (Proj.): 1.3
- GDP deflator:
- 2017: 10.1
- 2018: 9.5
- 2019 (Proj.): 10.0
- 2020 (Proj.): 9.7
- 2021 (Proj.): 8.2
- 2022 (Proj.): 8.3
- 2023 (Proj.): 8.0
- 2024 (Proj.): 7.7
- GDP at market prices (millions of kwacha):
- 2017: 246,252
- 2018: 279,441
- 2019 (Proj.): 313,496
- 2020 (Proj.): 349,831
- 2021 (Proj.): 385,196
- 2022 (Proj.): 423,750
- 2023 (Proj.): 464,432
- 2024 (Proj.): 507,929
- Consumer prices (average):
- 2017: 6.6
- 2018: 7.0
- 2019 (Proj.): 9.9
- Consumer prices (end of period):
- 2017: 6.1
- 2018: 7.9
- 2019 (Proj.): 12.0
- External current account balance (percent of GDP):
- 2017: -1.7
- 2018: -2.6
- 2019 (Proj.): -3.6
- 2020 (Proj.): -3.4
- 2021 (Proj.): -2.9
- 2022 (Proj.): -2.3
- Gross international reserves (months of prospective imports):
- 2017: 2.4
- 2018: 0.9
- 2019 (Proj.): 0.6
- 2020 (Proj.): 0.5
- Total central government debt, gross (end‑period, percent of GDP):
- 2017: 65.5
- 2018: 78.1
- 2019 (Proj.): 91.6
- 2020 (Proj.): 95.5
- 2021 (Proj.): 98.0
- 2022 (Proj.): 97.6
- 2023 (Proj.): 96.7
- 2024 (Proj.): 95.1
- External central government debt (percent of GDP):
- 2017: 38.2
- 2018: 48.1
- 2019 (Proj.): 59.9
- 2020 (Proj.): 65.6
- 2021 (Proj.): 69.5
- 2022 (Proj.): 70.8
- 2023 (Proj.): 71.5
- 2024 (Proj.): 71.3
Press Release No. 19/311 — August 2, 2019 — IMF Communications Department
