Saturday, November 29, 2008

Statement at the Conclusion of an IMF Staff Mission to Zambia

Press Release No. 08/227  - September 30, 2008

An International Monetary Fund (IMF) mission visited Zambia during September 17-26, 2008 to conduct the first review of the Poverty Reduction and Growth Facility (PRGF) arrangement that was approved in June 2008. 

The mission met with Acting President Rupiah Banda, Minister of Finance and National Planning Ng'andu Magande, Bank of Zambia Governor Caleb Fundanga, and other senior officials, as well as with representatives of political parties, the business community, civil society, and Zambia's cooperating partners.

Birgir Arnason, IMF Resident Representative to Zambia, issued the following statement at the conclusion of the mission:
"The Zambian economy continues to perform strongly despite several adverse shocks. Growth may slow somewhat this year due to the relatively poor harvest and extensive load shedding while inflation has accelerated on account of increases in world fuel and food prices. Beyond 2008, prospects for strong growth and declining inflation remain broadly favorable. The main risks to the outlook stem from a significantly slower rate of global growth and a sharper decline in copper prices than currently anticipated.

"Implementation of fiscal policy has been weaker than planned. Large amounts of supplementary expenditures have been undertaken and the lowering of fuel taxes will result in sizable revenue losses. The persistent difficulties with implementing capital projects highlight the urgent need to strengthen budget execution, including cash management through the establishment of a Treasury Single Account and Treasury Department at the Ministry of Finance and National Planning. Fiscal discipline in the period ahead requires that decisions that would further undermine the attainment of the 2008 fiscal targets be avoided.

"Zambia's economic resurgence in recent years owes much to improved economic management. Continued adherence to prudent macroeconomic policies is essential for sustaining this achievement. For 2009, the use of revenue flows from the new fiscal regime for mining should take into account constraints in the absorptive capacity and uncertainty about the implementation of the new regime needs to be resolved. Monetary policy needs to ensure that only the immediate impact of the surge in food and fuel prices is accommodated, and in the face of strong wage pressures that an upward spiral of wages and prices be prevented.

"The ongoing electricity crisis threatens to stifle economic growth. Current electricity tariffs are too low to meet the cost of supplying electricity and to support investment in new generating capacity. However, improved services and greater efficiency by ZESCO, the state-owned electric utility, are also necessary to contain the cost of electricity.

"The mission will continue its work in Washington, D.C., in close collaboration with the Zambian authorities, and anticipates returning to Lusaka as soon as possible after the presidential elections to finalize discussions on an economic program for 2009 that could be supported by the PRGF arrangement."