Statement by the IMF Mission to ZambiaPress Release 06/241
November 6, 2006
The following statement was issued on November 2 in Lusaka by the International Monetary Fund's mission to the Republic of Zambia on the conclusion of discussions with the authorities:
"An IMF mission headed by Mr. Francesco Caramazza visited Zambia during October 18-November 1, 2006 for discussions on the fifth review of Zambia's three year economic program supported by the IMF's Poverty Reduction and Growth Facility (PRGF). The mission reviewed economic and financial developments and held productive discussions with the Zambian authorities on economic policies and prospects for the remainder of this year and 2007. The mission also met with representatives of the private sector, civil society, and Zambia's cooperating partners.
"The Zambian economy continues to perform well. Strengthened macroeconomic policies and a favorable external environment have been major factors behind the improved performance in recent years. Annual real GDP growth exceeded 5 percent for the third consecutive year in 2005 and is expected to increase to 6 percent in 2006, led by solid expansions in the mining and construction sectors and a strong recovery in agriculture. Inflation, at around 8 percent, is at its lowest point in three decades. The renaissance of the copper sector and extensive debt relief have markedly strengthened the economy's prospects, both of which contributed to a substantial appreciation of the kwacha.
"The stance of fiscal policy has remained appropriately prudent, but budget execution needs to be further strengthened; in particular, to minimize the carryover of unspent balances from one year to the next. Monetary expansion has been faster than programmed in recent months and corrective action is being taken to meet the end-year targets. In 2007 and subsequent years, tax revenue should be boosted so as to contain government's domestic borrowing while providing scope for increased spending on infrastructure and social programs to meet the national development goals. The authorities have already initiated a comprehensive review of the tax system with the aim of broadening the tax base, improving the efficiency and equity of the tax system, and improving compliance and the effectiveness of tax administration.
"Looking ahead, economic prospects are favorable. Bolstered by sizable investments, particularly in mining and manufacturing, and by residential construction, real GDP is projected to grow at about 6 percent a year over the medium term. Indeed, depending on the quality and extent of implementation of the Fifth National Development Plan, economic growth could strengthen further and living standards rise at a quicker pace. Sustaining robust growth, however, hinges on maintaining macroeconomic stability, making more effective use of public resources, and undertaking the improvements in infrastructure and the financial and private sector reforms which are essential to enhance productivity and competitiveness.
"The mission will continue its work in Washington D.C., in close consultation with the Zambian authorities, with a view to completing the fifth review under the PRGF arrangement in early January."