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Wednesday, 4 March 2009

IMF on Zambia's Economic Outlook

The IMF have concluded their mission to Zambia, with an offer for more balance of payments support to "ease the adjustment to the external shock"and "support the Bank of Zambia's ability to maintain orderly foreign exchange market conditions " :

Statement at the Conclusion of an IMF Staff Mission to Zambia Press Release, March 4, 2009 :

An International Monetary Fund (IMF) mission visited Zambia during February 18-March 4, 2009 to continue discussions for the first and second reviews of the Poverty Reduction and Growth Facility (PRGF) arrangement that was approved in June 2008. The mission met with the Minister of Finance and National Planning, Hon. Dr. Situmbeko Musokotwane, Bank of Zambia Governor, Dr. Caleb Fundanga, and other senior officials, as well as representatives of the business community, labor unions, civil society, and Zambia's cooperating partners.

Mr. Francesco Caramazza, mission chief for Zambia, issued the following statement at the conclusion of the mission today:

"Following an extended period of robust expansion, economic growth in Zambia is slowing as a result of the global financial crisis. The mining sector, a mainstay of the Zambian economy, has been hard hit by the sharp fall in copper prices since mid-2008, which has resulted in cutbacks in production and the scaling back or suspension of expansion projects. Sectors with links to the copper industry are also being adversely affected, as are other sectors facing weaker external or domestic demand. The reduced foreign exchange inflows from the mining sector, along with outflows of portfolio capital, have led to a steep depreciation of the Kwacha. The depreciation is part of the necessary adjustment to the deterioration in Zambia's terms of trade. Zambia's strengthened macroeconomic position in the past several years, the fruit of sound policies, provides a solid basis from which to adjust to the weaker external environment.

"The government is responding appropriately to the changed economic circumstances. Within the framework of a narrower fiscal space, due to reduced tax revenue, the proposed 2009 budget strikes a balance between increasing domestically-financed infrastructure spending in support of diversification of the economy and maintaining macroeconomic stability. Moreover, the required domestic financing of the budget deficit leaves room for substantial private sector credit growth. Monetary policy continues to aim at bringing inflation down to single digits over the medium term. The easing of inflation in the first two months of the year indicates that significant progress towards this objective should be attainable this year.

"The exchange rate of the Kwacha will continue to be market-determined. Since October 2008, the Kwacha has depreciated broadly in keeping with the changed fundamental determinants of the exchange rate. However, persistent uncertainty about global economic prospects and their impact on the domestic economy, in a thin market with volatile expectations, has, at times, resulted in intense pressure in the foreign exchange market. The Bank of Zambia has responded appropriately to exchange market pressures by providing, when necessary, foreign exchange to the market from the reserves it has built up in recent years.
To ease the adjustment to the external shock Zambia has experienced and support the Bank of Zambia's ability to maintain orderly foreign exchange market conditions, the IMF stands ready to provide substantial additional balance of payments support under the PRGF arrangement.

"The authorities and the mission reached agreement on structural measures for 2009 to complement the macroeconomic framework. The program will continue to focus on improving public financial management,advancing financial sector development, and implementing policies to ensure an adequate and reliable supply of electricity.

"The mission will continue its work in Washington, D.C., in close consultation with the authorities, with a view to completing the first and second reviews under the PRGF arrangement in late April or early May."


  1. Balance of Payment Support? Isn't that just another way of saying, "deferred or forgiven interest on existing loans?" How about a long term adjustment in interest rates in line with readjustment of international norms and expectations?

    And what is the deal with the idea that domestic borrowing by the central government is somehow stimulative whereas foreign borrowing is not? Since the domestic pool is presumably the only one available to domestic businesses, doesn't increased domestic borrowing by government impair the ability of local business interests to draw from the same pool of funds?

    As usual, the IMF public statements leave me more confused as to what they are trying to accomplish than before they spoke out. By the way, glad to hear that they will continue their work in Washington DC, where they will no doubt be able to keep their finger on the pulse of the Zambian economy by way of their close consultation with the authorities.

  2. I could not concur more with the previous writer. This press release underscores more than ever, the loan-shark relationship the IMF has with Zambia. I cannot imagine anyone could in good conscience and with the slightest knowledge of the Zambian economy say the following...

    "Moreover, the required domestic financing of the budget deficit leaves room for substantial private sector credit growth."

    In terms that my son would understand that's like saying, the government is going to run out of money, which creates an amazing opportunity for banks to lend them (more) money at very high interest rates, which will be good for the ridiculously counter-intuitive.


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