THE INTERNATIONAL MONETARY FUND (IMF) says Zambia’s Gross Domestic Product (GDP) is projected to rise by 7.7 percent, reflecting strong growth in copper production and non-maize agriculture, and an expansionary fiscal policy in 2012.
The IMF says the inflation is projected to remain close to its current level of around 6 percent in 2012 more especially that the 2012 budget targets a deficit of 4.1 percent of GDP and a significant increase in investment.
It notes that more than half of budget financing is expected to come from a US$500 million sovereign bond issue, and net domestic financing is targeted to remain low at about 1 percent of GDP.
Meanwhile the IMF Executive Directors has commended the Zambian government for the sound macroeconomic management and welcomed Zambia’s strong economic performance in recent years.
The Directors have noted that while the outlook for the economy is favorable, it is subject to risks arising from volatility of copper prices and delays in implementing measures needed to meet the 2012 budget deficit target.
The directors have advised that to safeguard macroeconomic stability and to make growth more inclusive, there is need for continued commitment to strong policies and implementation of structural reforms.
They have agreed that fiscal policy should aim at prioritizing growth enhancing expenditures and mobilizing revenues to create the space needed to achieve the fiscal objectives.
The IMF directors have emphasized the importance of implementing reforms to maize marketing and pricing, fertilizer subsidies, and public sector pension funds.
They have said that these measures should help restore fiscal sustainability and correct market distortions that have created overdependence on maize production.
The Directors have noted that revenue enhancing measures, including strengthening tax administration and reducing subsidies and incentives will also be critical for achieving the fiscal targets.
In addition the IMF directors have stated that the reinstatement of the automatic petroleum price adjustment mechanism and the implementation of the multiyear electricity tariff framework are needed to minimize fiscal risks associated with the current pricing below cost recovery.
They have underscored that public financial management reforms are essential to improve budgetary planning and execution and prioritizing spending.
The directors have welcomed the plan to complete the implementation of the Treasury Single Account and urged the authorities to continue to strengthen their investment and debt management capacity.
They have added that these measures would support the planned scaling up of infrastructure spending and increased use of non-concessional financing.
The Directors have also endorsed the plans to further enhance the monetary policy framework in support of a low inflation objective while remaining vigilant to inflationary pressures and tighten policy if needed.
Directors agreed that the introduction of the monetary policy rate, combined with use of a broad set of economic indicators to assess the monetary policy stance, should make monetary policy more flexible and forward looking and enhance liquidity management.
The Bank of Zambia (BOZ) recently changed its monetary policy framework from reserve money targeting to the use of a policy rate as the main monetary policy tool.
The Directors have noted that the flexible exchange rate regime has helped Zambia weather external shocks.
They have welcomed the authorities’ efforts to strengthen the financial sector and improve access to financial services.They urged the authorities, however, to work closely with key stakeholders to minimize any risks to the financial sector stemming from the implementation of the new minimum capital requirement for commercial banks and the redenomination of the local currency