Saturday, December 13, 2008

IMF urges prudent Zambia economic management

LUSAKA (Reuters), 11/12/2008

The International Monetary Fund (IMF) on Thursday urged Zambia to stick to prudent economic management and warned a slump in global copper prices would adversely affect stability.

While Zambia has pursued sound fiscal policy in recent years, execution of the budget has "exhibited weakness", IMF head of mission to the southern African country, Francesco Caramazza said in a statement.

"In particular, the pattern of spending has deviated significantly from what has been budgeted, notably in regard to capital spending," Caramazza said.

He said the fund had urged the government to create the fiscal space necessary to raise spending on infrastructure development so Zambia could diversify its economy, reducing dependence on mainstay copper and cobalt exports.

"A loosening of fiscal and monetary policies aimed at supporting activity needs to be balanced against the risks for macroeconomic stability over the medium term," Caramazza said.

The IMF said falling copper prices and a global economic slowdown would harm the economy and that structural reforms should be implemented urgently to allow effective use of available resources.

"Measures to stimulate private sector investment in infrastructure need to be strengthened. Transportation and electricity generation and transmission stand out as sectors in need of increased investments," Caramazza said.

Zambia has projected a budget deficit of 1.2 percent of GDP this year, but the Treasury says it will revise the figure upwards after additional huge spending in agricultural subsidies and unbudgeted expenditure on a presidential vote in October.

The Treasury is also expected to revise the 2008 growth forecast downwards from an initial target of 7.0 percent, while inflation remains at 15.3 percent as of November, against a year-end target of 7.0 percent.

The Fund will discuss further measures to enhance Zambia's macroeconomic management after the presentation of the 2009 budget in January.