Statement by the IMF Staff Mission at the Conclusion of a Visit to Zambia
Press Release No. 07/62
April 2, 2007
An International Monetary Fund (IMF) mission to Zambia, lead by Mr. Francesco Caramazza, made the following statement on March 28 in Lusaka:
"An IMF mission visited Zambia during March 14-28, 2007 for discussions on the fifth and sixth reviews of Zambia's three year economic program supported by the IMF's Poverty Reduction and Growth Facility (PRGF). The mission reviewed economic and financial developments and held productive discussions with the Zambian authorities on economic performance in 2006 and on policies and prospects for 2007. The mission also met with representatives of the private sector, civil society, and Zambia's cooperating partners.
"The Zambian economy continues to perform well. Strengthened macroeconomic policies and a favorable external environment have been major factors behind the improved performance in recent years. Annual real GDP growth is estimated to have reached almost 6 percent in 2006, led by solid expansions in the mining and construction sectors and a strong recovery in agriculture. Inflation slowed to single digits for the first time in three decades, largely owing to stable food prices following a bumper maize harvest in early 2006. The renaissance of the copper sector and extensive debt relief have markedly strengthened the economy's prospects.
"The stance of fiscal policy remained appropriately prudent in 2006, as indicated by the decline in the budget deficit excluding grants. However, government domestic borrowing substantially exceeded the planned amount because a sizeable portion of budgetary releases made in 2005 were not spent until 2006. Monetary expansion was significantly greater than targeted during the last few months of 2006, leading to a substantial buildup of liquidity, which the Bank of Zambia is now addressing.
"Looking ahead, economic prospects are favorable. Bolstered by sizable investments, particularly in mining and manufacturing, and by construction, real GDP is projected to grow by about 6 percent a year over the medium term. Depending on the quality and extent of implementation of the Fifth National Development Plan growth could be higher still. Sustaining robust growth, however, hinges on maintaining macroeconomic stability, making more effective use of public resources, and undertaking the improvements in infrastructure and the financial and private sector reforms which are essential to enhance productivity and competitiveness. The government's revenue base needs to be boosted to provide scope for increased spending on infrastructure and social programs to meet the national development goals.
"The 2007 budget appropriately targets a decline in net domestic financing. This is necessary to contain domestic debt and create scope for the expansion of credit to the private sector. Tax revenue is projected to increase by about 1 percentage point of GDP, mainly from the mining sector, where some companies have started to declare taxable profits, and VAT collections. The announced changes in the fiscal regime for the mining sector are welcome, as is the government's intention to remove fiscal terms from future development agreements. Zambia's tax system is very competitive in the region. While targeted tax incentives for investment can be appropriate under special circumstances, inefficient use of tax incentives, in particular tax holidays, entail significant costs. Therefore, great care needs to be taken to ensure that such incentives associated with multi-facility economic zones do not erode the tax base over time. In this respect, the monitoring and reporting of tax expenditure would be helpful."
"It is essential to consolidate the gains that have been made on the inflation front in recent years. While fluctuations in the inflation rate are inevitable, not least because of the volatility of food prices which account for more than half of the consumer price index, Zambia should be able to sustain single digit inflation. This outcome depends, of course, on the pursuit and consistent implementation of an appropriate monetary policy. The Bank of Zambia's efforts in the first few months of 2007 to absorb excess liquidity are thus welcome."
"The mission will continue its work in Washington D.C., in close consultation with the Zambian authorities, with a view to completing the fifth and sixth reviews under the PRGF arrangement in early June."
Tuesday, 3 April 2007
IMF Assessment on Zambia
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This comes high on the heels, of the political mileage that the west has made of President Mwanawasa's statements on Zimbabwe, which have been universally and knowingly misinterpreted as a statement against President Mugabe.
ReplyDeleteIt is no coincidence that the illegal 'demonstration' by the MDC coincided with run-up to renewal of sanctions against Zimbabwe. And what portion of the economic situation in Zimbabwe belongs to the sanctions, and by implication, the people who advocate sanctions - Tony Blair and Morgan Tsvangirai?
Or, as 'The Tear Fund' put it back in 2002:
" Good news for Zimbabwe - the European Union (EU) has decided to renew sanctions against President Mugabe and his regime, sending a message of continued disapproval from the international community to the president. "
Source: http://www.tearfund.org/News/World+news/Zimbabwe+sanctions+renewed.htm
From the same page: " It is estimated that more than 80 per cent of Zimbabwe’s 12 million people are now living in poverty. "
As opposed to 80% of the people of Zambia, thanks to the IMF and 'structural adjustment'. The same IMF policies that are in store for Zimbabwe if Morgan Tsvangirai/the MDC come to power.
They have complied with the IMF, with the result that the huge boom in copper prices has left them standing on the sidelines. What were once their mines, are now owned by Equinox Corporation (Australian and Canadian), Vedanta (India), KCM, etc. Because of conditions demanded by the IMF, these companies ALSO PAY NO TAXES. They have 'stability periods' of 15 to 20 years, meaning that unlike domestic companies, they will not pay taxes for one and a half to two decades.
No one is saying out loud, that a rise to power of Morgan Tsvangirai or the MDC would be a return to IMF austerity measures.
I think the IMF assessment has a lot of meat in there. In my view it is fairly balanced. Here are the key phrases for me:
ReplyDelete"The renaissance of the copper sector and extensive debt relief have markedly strengthened the economy's prospects".
This is the usual IMF jibberish and blowing up of their trumpet. The IMF always want to take credit for things. The impact of Zambia's debt relief will only be felt this year onwards at the earliest. We have seen its effect on the budget, but to say the IMF debt relief is the key is a bit over-egging it. Also they forget that our copper sells suffered mainly because of the way we privatised as advised by them.
"Zambia's tax system is very competitive in the region. While targeted tax incentives for investment can be appropriate under special circumstances, inefficient use of tax incentives, in particular tax holidays, entail significant costs. Therefore, great care needs to be taken to ensure that such incentives associated with multi-facility economic zones do not erode the tax base over time."
Glad to see the IMF noting that care must be exercised. Whilst the Chambishi economic zone and others have their advantage, we have to make as the IMF say that it does not affect our tax base over time. We are not taxing the Chinese for these activities. Also I think we have to make sure we get the "lost tax" in some other way, through requiring them to invest in road and energy infrastructure. The Chinese influence clearly must be a worry for the IMF!
"Zambia should be able to sustain single digit inflation."
A posititive preceeded by caution that inflation will always flactuate, given the composition of the food basket.
" The Zambian economy continues to perform well. Strengthened macroeconomic policies and a favorable external environment have been major factors behind the improved performance in recent years. "
ReplyDeleteHow can anyone state that 'the Zambian economy _continues_ to perform well', when 70% of the people live on less than $1,- per day?
When the benefits of the country's natural resources disappear abroad?
Who is this economy supposed to benefit anyway?
" Annual real GDP growth is estimated to have reached almost 6 percent in 2006, led by solid expansions in the mining and construction sectors and a strong recovery in agriculture. "
Six percent growth would be impressive in an economy like Switzerland, which is fully developed. However, it is a very poor reflection in the context of the massive underdevelopment of Zambia's natural resources.
And what does this 'strong recovery in agriculture' exist of? Good rains?
" Inflation slowed to single digits for the first time in three decades, largely owing to stable food prices following a bumper maize harvest in early 2006. "
There is another glaring contradition. How can you have healthy economic growth, with falling inflation? This in itself shows that the economic growth is not really impacting supply and demand in a natural way. You would expect that strong growth would at least lead to slightly higher inflation, because increased demand for goods and services, educated employees, etc. So there is another disconnect right there.
The problem is that the MMD, neoliberal government doesn't have the guts to deal with the real economic problems of the country: foreign ownership of the mines; gross underutilisation of arable land; lack of irrigation; lack of infrastructure; lack of involvement of ordinary people in the economic process.
I think the MMD has discovered a new strategy - investment without benefit.
" The government's revenue base needs to be boosted to provide scope for increased spending on infrastructure and social programs to meet the national development goals. "
So the IMF really means, that taxes should be higher. Why don't these 'development plans' include getting people into jobs?
Have you read that the MDC plans to increase taxation to 30% of GDP? I seriously hope the MMD isn't heading in the same direction.
(See: http://www.mdczw.org/index.php?option=com_content&task=view&id=34&Itemid=32 )
And the last paragraph...
" "It is essential to consolidate the gains that have been made on the inflation front in recent years. While fluctuations in the inflation rate are inevitable, not least because of the volatility of food prices which account for more than half of the consumer price index, Zambia should be able to sustain single digit inflation. This outcome depends, of course, on the pursuit and consistent implementation of an appropriate monetary policy. The Bank of Zambia's efforts in the first few months of 2007 to absorb excess liquidity are thus welcome." "
Does Zambia strike anyone as a country or economy with 'excess liquidity'? Low inflation is not only a sign of good housekeeping. It is a sign of an absence of real economic activity too. The so-called activity in the mines does not impact Zambia's domestic economy at all. The gains in agriculture are from the rains. This is not economic growth, and the combination of '6% economic growth' and falling inflation simply highlight that. Rising inflation in the right places (housing prices, land prices, machinery, agricultural inputs) can actually be a sign of economic expansion.
You know if the IMF was so concerned about government expenditure, why don't they address the issue of this bloated central government, instead of healthcare and education expenditures?