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
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