Statement at the Conclusion of an IMF Staff Mission to ZambiaPress Release No. 09/55
March 4, 2009
An International Monetary Fund (IMF) mission visited Zambia during February 18-March 4, 2009 to continue discussions for the first and second reviews of the Poverty Reduction and Growth Facility (PRGF) arrangement that was approved in June 2008. The mission met with the Minister of Finance and National Planning, Hon. Dr. Situmbeko Musokotwane, Bank of Zambia Governor, Dr. Caleb Fundanga, and other senior officials, as well as representatives of the business community, labor unions, 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:
"Following an extended period of robust expansion, economic growth in Zambia is slowing as a result of the global financial crisis. The mining sector, a mainstay of the Zambian economy, has been hard hit by the sharp fall in copper prices since mid-2008, which has resulted in cutbacks in production and the scaling back or suspension of expansion projects. Sectors with links to the copper industry are also being adversely affected, as are other sectors facing weaker external or domestic demand. The reduced foreign exchange inflows from the mining sector, along with outflows of portfolio capital, have led to a steep depreciation of the Kwacha. The depreciation is part of the necessary adjustment to the deterioration in Zambia's terms of trade. Zambia's strengthened macroeconomic position in the past several years, the fruit of sound policies, provides a solid basis from which to adjust to the weaker external environment.
"The government is responding appropriately to the changed economic circumstances. Within the framework of a narrower fiscal space, due to reduced tax revenue, the proposed 2009 budget strikes a balance between increasing domestically-financed infrastructure spending in support of diversification of the economy and maintaining macroeconomic stability. Moreover, the required domestic financing of the budget deficit leaves room for substantial private sector credit growth. Monetary policy continues to aim at bringing inflation down to single digits over the medium term. The easing of inflation in the first two months of the year indicates that significant progress towards this objective should be attainable this year.
"The exchange rate of the Kwacha will continue to be market-determined. Since October 2008, the Kwacha has depreciated broadly in keeping with the changed fundamental determinants of the exchange rate. However, persistent uncertainty about global economic prospects and their impact on the domestic economy, in a thin market with volatile expectations, has, at times, resulted in intense pressure in the foreign exchange market. The Bank of Zambia has responded appropriately to exchange market pressures by providing, when necessary, foreign exchange to the market from the reserves it has built up in recent years. To ease the adjustment to the external shock Zambia has experienced and support the Bank of Zambia's ability to maintain orderly foreign exchange market conditions, the IMF stands ready to provide substantial additional balance of payments support under the PRGF arrangement.
"The authorities and the mission reached agreement on structural measures for 2009 to complement the macroeconomic framework. The program will continue to focus on improving public financial management, advancing financial sector development, and implementing policies to ensure an adequate and reliable supply of electricity.
"The mission will continue its work in Washington, D.C., in close consultation with the authorities, with a view to completing the first and second reviews under the PRGF arrangement in late April or early May."