Editor's note: The latest IMF statement on Zambia released on 6 June diplomatically suggests that Zambia's macroeconomic situation in the country, though potentially promising, is unfortunately a mess and needs fixing urgently. It has been poorly managed. Hence the need for "forceful measures". It bluntly says that monetary policy is currently abnormal. The real question is what can be done to restore the situation. It appears Government now wants IMF funding, possibly a bailout. That appears to be the hint of GRZ's request for an "economic program that could be supported by a Fund arrangement". The short term impact of course is that the possibility of an IMF route atleast suggests that GRZ are desperately trying to find a way of restoring policy credibility. And they seem committing themselves to an IMF programme as the best way of signalling that. At what price? We wait to see.
Press Release No. 14/264
June 6, 2014
An International Monetary Fund (IMF) team led by Byung Jang visited Lusaka during May 27–June 6 to review economic developments and discuss the macroeconomic framework with the Zambian authorities. The mission met with Finance Minister Alexander Chikwanda, Bank of Zambia Governor Michael Gondwe, and other senior government officials, as well as representatives from the private sector and civil society.
“The economy continues to grow at a rapid pace but fiscal and exchange rate developments point to significant vulnerabilities. Rebasing of the national accounts has revealed that the economy is 20-25 percent larger than earlier estimated, growth is projected to remain strong at 6.5 percent in 2014, and the medium term outlook is supported by ongoing expansion in copper production. However, the recent steep depreciation of the kwacha is raising inflationary pressures and expansionary fiscal policy has created large budgetary imbalances.
“Maintaining strong growth in the period ahead will require forceful measures to address the emerging vulnerabilities. The Bank of Zambia has already substantially tightened monetary policy in response to exchange rate developments and to address rising inflation, including by raising its policy rate and reserve requirements for banks. On the fiscal side, spending overruns in some areas will require compensating adjustments to meet the budgeted deficit target and available financing. Moreover, a solution to the impasse regarding VAT refunds for exporters is urgently needed.
“The IMF is working closely with the Zambian authorities to develop a plan that will anchor macroeconomic stability. The authorities have indicated strong determination to ensure that the fiscal deficit does not go beyond the budgeted 5.2 percent of rebased GDP in 2014 and is reduced to 3 percent of GDP over the medium term. Steps in this direction would go a long way towards restoring confidence in the foreign exchange market, removing fiscal funding pressures, and allowing for a normalization of monetary policy and a reduction in interest rates.
“The authorities have requested the IMF team to return in early September to discuss an economic program that could be supported by a Fund arrangement. The current mission has made important progress in laying the ground work for such a program.”
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