THE Zambian economy is this year expected to post mixed results with some splendid macroeconomic indicators amid stunted growth.
Zambia is among Africa’s fastest growing economies and for the last few years its economic performance has continued to be positive, registering the Gross Domestic Product (GDP) growth rates of 6.8 per cent in 2011 and 7.3 per cent in 2012, for instance.The rate of inflation has remained within the single-digit bracket and last month slid to seven per cent from 7.1 per cent the previous month, according to the Central Statistical Office (CSO) latest data.
Generally, the international economic bodies like the International Monetary Fund (IMF), the World Bank and World Economic Forum (WEF) are happy about the strides the government and the private sector are making in meeting some of the benchmarks.
Recently the WEF named Zambia as the continent’s number seven most competitive economy.
Last week on Tuesday an IMF team which visited Lusaka during September 17-24 period to conclude the 2013 Article IV Consultation discussions with Zambia praise the government for the country’s economy.
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with its member countries, usually every year.
A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the Executive Board.
The team said that the Zambian economy has continued to expand at a rapid pace with overall output growth, however, projected to reduce from 7.2 per cent in 2012 to six per cent under the current national budget
The 1.2-per cent is attributable to lower agricultural production. The yield for maize, the country’s staple food for instance, has gone down from 2.7 million tonnes recorded in the 2011/2012 farming season to 2.5 million tonnes in 2012/2013.
This reduction is partly attributed to poor rainfall distribution, especially in southern, eastern, Lusaka and central provinces and the army worms which raided some fields during the season.
The team had met with Finance Minister Alexander Chikwanda, Bank of Zambia (BoZ) Governor Michael Gondwe, and other senior government officials, as well as representatives from the private sector and civil society.
“The Zambian economy has continued to expand at a rapid pace, although experiencing pressures in some areas. Overall output growth is projected at 6 percent in 2013, with the decline from 7.2 percent
growth in 2012 largely due to lower agricultural production.
“Copper production has continued to increase strongly despite lower prices on the international market, and the economy has also benefitted from high levels of foreign direct investment and rapid
growth in non-traditional exports,” reads the statement at the end of the mission.
There is, however, need for the Zambian authorities to heed to the team’s advice on how to resolve the various challenges haunting the economy.
These major economic challenges are in fiscal area hence the need for the government and spending agencies to adhere to fiscal discipline to ensure that the rest of the budget is executed prudentially.
As noted by the IMF team, the government expenditure in the 2013 national budget will be considerably above the budget due to various factors including the cost of fuel subsidies incurred before the removal in May 2013.
Other factors are the newly-effected increased salaries for civil servants as well as the costs related to the running of and debts by the Food Reserve Agency.
“The main economic challenges are in the fiscal area. Government expenditures in 2013 will be significantly above budget, including from fuel subsidies incurred before retail prices were raised on May 1, the civil service wage increase that came into effect this month, and costs of covering the Food Reserve Agency’s operations and outstanding debt,” partly reads the statement.
The government has a shortfall in revenue on the projected figures.
On aggregate the budget deficit for 2013 is now expected to rise to about 8.5 per cent of GDP as opposed to about five per cent it usually hovers around.
To remedy the situation, the government is in the 2014 national budget expected to introduce measures to increase revenue and tighten expenditure controls.
These and several other measures are expected to help reduce the budget deficit in 2014 to about five per cent and ensure the economy remained buoyant.
“The mission very much welcomes the authorities’ plans to comprehensively address the fiscal challenges in the budget for 2014. With a combination of stepped-up revenue collection and tight expenditure control, the draft budget aims to bring the deficit to about five per cent of GDP, similar to what was originally planned for
2013.”
Ensuring that this budget is adhered to will be important for macroeconomic stability and hence that is the foundation that will support continued strong growth of the Zambian economy.
The IMF advises that, to maintain strong economic growth, it will also be important to safeguard competitiveness and build bumpers against external shocks.
For the increase in the salaries for civil servants to remain economically meaningful there should be a corresponding rise in production and productivity by the workers.
The workers, therefore, have to ensure that they earn (work for) their salaries so that they could help in maintaining or even increasing the competitiveness.
“Last year’s sharp increase in minimum wages and this year’s large pay award to civil servants are putting upward pressure on labor costs in both the private and the public sectors.
“Competitiveness may suffer if the higher wages are not matched by higher productivity. In addition, while recent progress in this area is encouraging, a further build-up of reserves from the current level of less than three months of imports is needed in light of risks stemming from a potentially deteriorating external environment,” further reads the statement.
The IMF Executive Board is expected to complete the 2013 Article IV consultation in late November or early December 2013.
On the same issue, Zambia’s Secretary to the Treasury Fredson Yamba says the Government has set out an extensive capital expenditure programme aimed at increasing investment in education, health, transport, energy, water and sanitation as well as social safety net.
These projects are an important prerequisite in achieving meaningful economic growth, poverty reduction and social justice.
According to Mr Yamba, in addition, there would be a divergence from the over-reliance on the mining sector to the other areas of comparative advantage such as manufacturing, tourism, agriculture and agro-processing to ensure that growth was broad based and inclusive.
MR Yamba
The mining sector has remained Zambia’s economic mainstay for some time now, accounting up to about nine per cent of the GDP and hence the need to change the scenario through economic diversification.Mr Yamba says the 2013 fiscal deficit was unavoidable as Government had to clear the backlog of arrears on fuel and maize subsidies as well as higher wage bills.
By and large, the broad medium term goals of the economic policy for Zambia now seem to be the maintaining of strong growth, lowering the budget deficit and keeping hold of low inflation rate to ensure stability in the prices of commodities locally.
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