Statement by the IMF Staff Representative

The Zambian economy has performed well owing to its strong macroeconomic policies, high copper export prices, and extensive debt relief. Executive Directors encouraged the authorities to reduce poverty and attain the Millennium Development Goals (MDGs) under the Fifth National Development Plan (FNDP), and emphasized to authorities to improve budget execution and create fiscal space for increased spending on infrastructure and social sectors. They commended the tight monetary policy and fiscal stances, revenue reforms, and efforts to strengthen debt management. They welcomed financial sector reforms and also the trade regime to accelerate export development.

Abstract

The Zambian economy has performed well owing to its strong macroeconomic policies, high copper export prices, and extensive debt relief. Executive Directors encouraged the authorities to reduce poverty and attain the Millennium Development Goals (MDGs) under the Fifth National Development Plan (FNDP), and emphasized to authorities to improve budget execution and create fiscal space for increased spending on infrastructure and social sectors. They commended the tight monetary policy and fiscal stances, revenue reforms, and efforts to strengthen debt management. They welcomed financial sector reforms and also the trade regime to accelerate export development.

December 7, 2007

1. This statement provides information that has become available since the staff report was issued to the Board. The thrust of the staff appraisal remains unchanged.

2. Macroeconomic indicators remain robust. Inflation fell further in November, to 8.7 percent year-on-year, mostly on account of lower growth in food prices. International reserves have continued to increase and by mid-November 2007 exceeded US$900 million (2.5 months of imports). While the kwacha has remained stable against the US dollar since mid-summer, the real and nominal effective rate depreciated by around 3 percent from July to September 2007. Annual broad money growth slowed to 24 percent at end-September 2007 from 36 percent at end-June 2007.

3. Reserve money growth has remained volatile. While reserve money declined as projected immediately following the reduction in reserve requirements on October 1, in recent weeks, reserve money has risen to well above the end-year projection.

4. Revenue performance remained strong through October. Revenue collections were 0.2 percent of GDP higher than projected, because of higher income tax collections. While current expenditures were broadly in line with the budget, releases for domestically-financed capital expenditure continued to record a shortfall relative to the revised budget projection. Based on preliminary information, the overall fiscal position through October continued to be in surplus due to slow implementation of domestically-financed capital projects.

4. A recently published living conditions survey indicates a decline in overall poverty. The poverty headcount declined from 68 percent of the population in 2004 to 64 percent in 2006. While poverty in the urban areas declined significantly, the survey shows a slight increase in poverty rates in the rural areas.

Zambia: 2007 Article IV Consultation: Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Zambia
Author: International Monetary Fund