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IMF calls for resolute policy action to tackle Zambia's economic woes

Xinhua, March 19, 2016 Adjust font size:

The International Monetary Fund (IMF) and the Zambian government on Friday agreed on the necessity to take resolute policy action to tackle the economic woes currently facing the southern African nation.

"A package of measures that makes clear that the fiscal pressures are being tackled would boost market confidence and pave the way for increased investment and growth. However, delays in implementing corrective measures will only worsen the situation, increase the adjustment cost and postpone the recovery," the Ministry of Finance said in a statement after an IMF mission visit.

Fredson Yamba, Zambia's secretary to the treasury, said in the statement that his government agrees that the country's budget deficit is not sustainable and has begun talks with the IMF on an aid program, hoping to conclude negotiations during the IMF's annual spring meeting in April.

Due to falling copper prices on the international market and a crippling electricity deficit, the budget deficit widened to 8.1 percent in 2015 compared to a target of 6.9 percent.

The statement also said the government has agreed to address budgetary pressures by moving towards cost-reflective energy pricing and scaling back on discretionary spending while safeguarding social protection programs.

Government finances are under immense stress as expenditure is running far above budget largely due to fuel subsidies and contracted emergency electricity imports that cost the government about 660 million U.S. dollars a year, which is equivalent to 3.2 percent of the gross domestic product (GDP), the statement said.

"Domestic and external financing options have become more limited along with rising interest rates. Mounting domestic arrears are adding to concerns about debt sustainability," it added.

In his address to the parliament last month on the state of the economy, Zambian Finance Minister Alexander Chikwanda said the budget deficit would be contained around 3.9 percent of GDP.

He also revised the expected economic growth rate for 2016 down to 3.7 percent from a previous projection of around 7 percent. Endi