Zambia’s growth for 2019 has been forecast to decelerate from 3.7 percent in 2018 to 2.3 percent in 2019, according IMF’s End-of-Mission press release.
The press release from the IMF staff teams that convey preliminary findings after they visited Zambia, do not necessarily represent the views of the IMF’s Executive Board indicating that the forecasts may be subject to revision.
“Our discussions on Zambia’s 2019 Article IV were frank and collaborative. This has been a valuable opportunity to take stock of the current situation and outlook for the economy and to gain a shared appreciation of current challenges and policy options going forward”, read the statement issued by Ms. Mary Goodman, leader of an IMF staff team that recently visited Zambia during April 16-30, 2019 to conduct the 2019 Article IV consultation. “Growth is projected to slow from 3.7 percent in 2018 to 2.3 percent in 2019, lower than earlier envisages due to the impact of the drought on agricultural production. Inflation is close to the Bank of Zambia’s upper band and is projected to rise over the course of 2019. Reserves stood at 1.7 months of imports at end-March 2019.”
The IMF visit came on the back of Zambia’s fiscal and monetary stakeholders concluded their 2019 Spring meetings with the IMF and World Bank Group in Washington DC.
The Zambian delegation that traveled to Washington for the annual event, were Minister of Finance Margaret Mwanakatwe, MP, Minister of National Development Planning, Alexander Chiteme, MP, Secretary to the Treasury, Fredson Yamba, Deputy Secretary to the Cabinet, Christopher Mvunga, Bank of Zambia Governor, Dr. Denny Kalyalya, Ministry of Finance Permanent Secretary for Economic Management and Finance, Mukuli Chikuba, Ministry of National Development Planning Permanent Secretary, Chola Chabala, Zambia Revenue Authority Commissioner General, Kingsley Chanda, according to a statement issued by the Ministry of Finance on 28th April 2019.
“Through sustained fiscal consolidation and enhanced domestic resource mobilisation, we will rebuild fiscal buffers, be flexible and growth-friendly, and strike the right chord between ensuring debt sustainability, supporting demand while avoiding procyclicality, and safeguarding social objectives”, the Minister of Finance said in a reflection statement on the communique issued in respect of the International Monetary and Finance Committee (IMF) meeting that was held while she and her team were in Washington. ”To protect Zambia’s economic transformation and expansion progress, the Government will also target efforts at risk mitigation, enhancement of resilience, and prompt action in upscaling growth so that we attain our annual Gross Domestic Product [GDP] target”.
The upbeat Finance Minister also gave a timely interview with Bloomberg TV which came at a time external onlookers were probing the countries reserves that now sit at 1.7 months cover analogous to a national that was in default when no record or report of default has been issued by internal or external stakeholders.
Convergence of Ministry of Finance and IMF in thought process going forward
Analysing the two statements issued by the IMF and the Ministry of Finance, there is clear convergence on the thinking around what is the way forward for Zambia.
“Discussions focused on policy options to lower debt-related vulnerabilities and support economic growth”, IMF Staff said following their visit. “To reduce risks, staff recommended a large up-front and sustained fiscal effort, including: avoiding contracting any new non-concessional debt, steps to raise revenues, halting the buildup of new arrears, and aligning the pace of spending on well-targeted public investment projects with Zambia’s available fiscal space.”
“Zambian Government agrees with the IMFC that advancing financial and structural reforms is critical to boosting potential growth and employment, and enhancing resilience and financial inclusion“, said the statement from Ministry of Finance. “As stipulated in the Economic Stabilisation and Growth Programme, we will continue with initiatives aimed at achieving cost reflectivity for fuel and electricity pricing. We look forward to the results of the cost of service study by December, 2019”.
Convergence is evident in the desire to close the fiscal gap from both ends. Evidence of a retreating invisible hand is a signal of commitment to the cause. “Therefore, we will refrain from manipulation and will not target our exchange rates for competitive or feel-good purposes. The exchange rate will be allowed to respond to the fundamentals of supply and demand”, the Ministry of Finance further stated as a signal of commitment to allowing market forces of supply and demand dictate without exogenous pressure.
However, the next significant announcement will come this May when Governor Denny Kaylalya of the Central Bank presents MPC’s decision at Q2 will be the most important barometer of whether forecasts for growth will be bearish or bullish for 2019.