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Friday, 4 September 2009

IMF - Zambia Watch (September 4, 2009)

Statement at the Conclusion of an IMF Staff Mission to Zambia
Press Release No. 09/297
September 4, 2009

An International Monetary Fund (IMF) mission visited Zambia August 31-September 4, 2009 to review economic developments in 2009 and the government’s plans for the 2010 budget. The mission met with the Minister of Finance and National Planning, Hon. Situmbeko Musokotwane; Governor of the Bank of Zambia, Dr. Caleb Fundanga; other senior officials; as well as with representatives of the business community and Zambia’s cooperating partners. At the conclusion of the visit, Mr. George Tsibouris, mission chief for Zambia, released the following statement in Lusaka today:

“Zambia was hard hit by the recent global economic crisis. The collapse in copper prices in the second half of 2008 put pressure on the mining sector that resulted in significant job losses. Moreover, the reduced inflows of foreign exchange, along with withdrawals by portfolio investors, led to a sharp depreciation of the exchange rate in the first months of 2009. This, in turn, led to a sharp contraction in imports and a shortfall in import-related government revenue relative to budgeted levels. As some donor support was also delayed, execution of spending proved to be challenging.

“The worst of the global recession appears to be over, although the pace and extent of the recovery is not yet well established. With a strengthening external environment, the outlook for the Zambian economy is beginning to improve. The more-than-doubling of copper prices since the beginning of the year, along with some improvement in other sectors, will underpin somewhat higher GDP growth in 2009 than previously forecast and strengthen the balance of payments. The improved outlook is already being reflected in the appreciation of the Kwacha since May of this year. The recent exchange rate appreciation should, over time, help rein in inflation, as should the expected deceleration in food price increases given the bumper harvest.

“The shortfall in revenue in 2009 has resulted in the government accessing financing from the Bank of Zambia, supported by the increased access to IMF resources, in order to meet its capital spending targets. Depending on revenue performance in the second half of the year, additional recourse to such financing may be necessary to achieve preserve proper execution of budgeted spending.

“The authorities and the mission agreed on a framework for the 2010 budget which maintains the focus on increased spending on priority capital projects and social sectors, while remaining consistent with macroeconomic stability. The authorities and the mission had a preliminary discussion on the IMF’s recent allocation to Zambia of Special Drawing Rights (SDR) in an amount equivalent to about US$600 million, which, in the first instance, greatly expands Zambia’s international reserves and provides a stronger foundation for exchange rate stability going forward.

“The mission will return to Lusaka in mid-October to conduct the discussions for the 2009 Article IV consultation and the third review of the Poverty Reduction and Growth Facility (PRGF) arrangement. This will provide an opportunity to revise, if necessary, the targets of the economic program for end-2009 and to set targets for 2010. At that time, the mission will re-assess whether Zambia would need further financial assistance from the international community.”


  1. Neither the Government nor the IMF understands what development is. The Govt was bragging the other day about a new "Development" a factory to process malaysian palm oil for sale in Zambia. This is not development. Development would be processing Zambian oil seeds for export to other countries. Unfortunately this is not possible because it cannot be done at a profit because of unfavorable policies and excessive tax. Another example is the governments pride every time the Kwacha strengthens, Is a strong Kwacha beneficial? Only if we want to import everything and kill all export business such as coffee, cotton, veg tobacco etc. What happens when we run out of copper to pay for the imports?
    Ruth Henson

  2. Ruth,

    Its sometimes difficult to understand whether the government genuinely believes its rhetoric or its the pressure of politics.

    I recall when the Kwacha was very strong, Magande said what a brilliant thing (everyone was saying "dutch disease"). The air of a strong Kwacha was meant to give "political confidence" that the forex flows represented renewed confidence in the government policies. When the Kwacha plummented, Musokotwane claimed it was good because it helped "diversification" (everyone was saying "keep your eye on that inflation").

    Deep down Musokotwane probably understands the trade-offs involved with whatever level of the Kwacha. Fundanga for his part does not care about the level of the Kwacha. His role is to reduce violatility. Plenty of debate on the logic of his position. For example,his Fundanga really prepared to allow extremes at either end? We'll see what independence he gets from the NCC.

    On development, I couldn't agree more. I have had the same problems with the MFEZs.

    Incidentally, the price for tea has reached a 15 year high! Where is Kawambwa Tea?

  3. Any legal activity which creates jobs is development. Due to various reasons a country may not be able to produce and manufacture everything. However if it is able to "add value" through a processing stage, then it will create jobs. Case in point - the mobile phone assembly plant in Zambia. Or the diamond processing industry in India:

    That is why MFEZs are important.

  4. Kafue,

    "Any legal activity which creates jobs is development.

    I think you need to be more specific on that, otherwise it's very debatable.

    "Due to various reasons a country may not be able to produce and manufacture everything. However if it is able to "add value" through a processing stage, then it will create jobs."

    I largely concur with you on that, however I think it depends on just how much 'value' the stage in question brings. For instance, the FTJ administration engaged the services of some Malaysian construction company to build the "OAU" village in preparation for a summit some years ago, and the govt allowed this company to bring in Malaysian labourers to do the work. The justification (from none other than Richard Sakala), was that the Malaysian labourers had a certain 'unique technique' they used to make pre-fabricated concrete walls, or whatever they're called.

    Indeed the construction work created some value to the country in that it hired a few Zambian workers, but it is arguable that that value was reduced significantly because not as many Zambians were employed as many people would have liked. In other words, it was less than optimal value from the people's perspective.

    Hence the question of quantifying "value" is very important.

    Ruth has raised some very interesting examples on this "value" in terms weighing perspectives.

    Incidentally, how is the mobile phone factory doing?

  5. Zedian,

    "I think you need to be more specific on that, otherwise it's very debatable."

    In other words for example, it does not matter where the inputs are sourced from, as long as they are the best value for the processor. More important is that jobs which add value are created. The importance of "who owns the means of production" is much less than how value is added to a product and jobs created in the process. That is why for example, only 20 cents in a $2.69 loaf of bread goes to the wheat farmer.,0,w

    Most of the economic activity in creating a loaf of bread occurs after the wheat is grown, in the form of processing and distribution.

    Regarding the OAU village, one theory could be that the Malaysians had to meet construction deadlines and may have thought it would take too long to train local labor.

    The mobile phone factory seems to be doing fine, with a lot of exports to Zimbabwe:

  6. Kafue,

    "Regarding the OAU village, one theory could be that the Malaysians had to meet construction deadlines and may have thought it would take too long to train local labor."

    I can assure you, in other parts of the world, especially Europe, there would have been protests if not rioting over that. It's not like the need for accommodation in time for the OAU summit came from the blue. The leadership had ample time.

    The main point is about taking govt to task when the perceived value is unclear or questionable, as Ruth and I have highlighted. The govt may well have a point, but it's up to the people to question the govt 'wisdom'. It's about maximising value out of govt policies and regulations.

    While I agree that it matters less who owns the means of production than the value created, which is especially true in a neo-liberal capitalist world, under certain circumstances there are exceptions.

    Another case in point is a recent scenario involving Total in the UK when one of their sub-contractors shipped in hundreds of workers from Italy to work on a project in the UK. As far is EU law is concerned, they were legally entitled to do that. Nonetheless, the resulting protests by British workers threatened to paralyse the entire UK fuel distribution!

    How do you deal with that? You weigh the "value".


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