Zambia
Technical Assistance Report-Report on External Sector Statistics Mission

This Technical Assistance Report on Zambia highlights the dissemination of external sector statistics during the Department for International Development—Enhanced Data Dissemination Initiative 2 Project Module 1. The mission recommended breakdowns in the International investment position (IIP) table that are of analytical relevance, such as government securities issued abroad and issued domestically, and loan liabilities of the government and other sectors. The integrated IIP is key to verifying the consistency between the positions, the transactions, and other changes. The accuracy of the components within the international reserves in the balance of payments and in the IIP can be further improved. Valuations changes in positions are being included in the balance of payments for some components, such as government external debt and reserve assets, and should be removed from transactions. In order to support progress in different work areas, the mission recommended a detailed action plan with several priority recommendations.

Abstract

This Technical Assistance Report on Zambia highlights the dissemination of external sector statistics during the Department for International Development—Enhanced Data Dissemination Initiative 2 Project Module 1. The mission recommended breakdowns in the International investment position (IIP) table that are of analytical relevance, such as government securities issued abroad and issued domestically, and loan liabilities of the government and other sectors. The integrated IIP is key to verifying the consistency between the positions, the transactions, and other changes. The accuracy of the components within the international reserves in the balance of payments and in the IIP can be further improved. Valuations changes in positions are being included in the balance of payments for some components, such as government external debt and reserve assets, and should be removed from transactions. In order to support progress in different work areas, the mission recommended a detailed action plan with several priority recommendations.

Summary of Mission Outcomes and Priority Recommendations

1. A technical assistance (TA) mission on external sector statistics (ESS) was conducted in Lusaka, Zambia, during March 4-15, 2019. This fifth mission, as part of the United Kingdom’s Department for International Development (DFID)—Enhanced Data Dissemination Initiative (EDDI) 2 Project Module 1 on improving balance of payments statistics, was carried out in consultation with the IMF’s African Department (AFR).

2. The Bank of Zambia (BOZ) has made commendable progress on the dissemination of external sector statistics (ESS) during the DFID-EDDI2 Project. The international investment position (IIP) statistics, associated metadata, and release calendar, as well as the revised balance of payments, have been published on the Bank’s website after the mission was conducted and ahead of the scheduled plan. The mission worked closely with the Balance of Payments Division of the BOZ on assessing and revising the internally produced IIP statement for 2015-16 annual data and 2017/Q3-2018/Q3 quarterly data. The main revisions, as a result of the mission’s work were on the treatment of deposits of nonfinancial enterprises, using data sourced from the Bank for International Settlements (BIS), the market-price valuation of Eurobonds issued by the Government of Zambia, and the classification of loans from fellow enterprises.

3. The mission recommended breakdowns in the IIP table that are of analytical relevance, such as government securities issued abroad and issued domestically, and loan liabilities of the government and other sectors. The IIP statement compiled during the TA mission was published following the mission’s conclusion (Table 1). The BOZ has also published IIP metadata and an IIP release calendar on its website, in line with the TA mission’s recommendations.

Table 1.

IIP (End of Period - USD Millions)

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Source: BOZ (https://www.boz.zm/international-investment-position.htm)

4. The integrated IIP is key to verifying the consistency between the positions (opening and closing stocks in the IIP), the transactions (flows in the balance of payments), and other changes. The BOZ has begun the compilation of the integrated IIP statement, which reconciles the changes in positions between two periods with the balance of payment’s financial account transactions and other changes not caused by transactions. Its compilation will be instrumental in fostering closer collaboration between the IIP compilers and the balance of payments compilers within the BOZ and improving the Balance of Payments Division staff’s command of both position and flows compilation methodology. The mission recommends that the BOZ compile the integrated IIP statement on a quarterly basis starting from 2017.

5. The BOZ has made continued progress on the collection of source data for both the balance of payments and the IIP. The BOZ relies on a robust framework for collection of transactions and positions with nonresidents, the quarterly Private Capital Flows (PCF) survey. The survey form is broad in terms of coverage of both flows and positions, and the data collection process, with emphasis on large enterprises, especially in quarterly surveys. Direct contact with data reporters helps secure overall timeliness, coverage, and accuracy of the reported data. Follow-up on reporting compliance should nonetheless remain a central task of the BOZ, as there are periods for which companies report either incomplete or no data.

6. Further work is needed to identify the major causes of errors and omissions. The balance of payments compilation includes procedures to mitigate errors and omissions, which are currently not justifiable. The procedure, which is the “reclassification” of a large share of errors and omissions to other investment, is based on the assumption that unidentified outflows result from the accumulation of trade credit assets, which is nonetheless not reflected in the data reported through the PCF. The mission provided guidance on further assessing whether payments made directly abroad for goods and services provided domestically, and which therefore are not reported under current PCF guidelines, may be the reason for these errors and omissions.

7. The accuracy of the components within the international reserves in the balance of payments and in the IIP can be further improved. Valuations changes in positions are being included in the balance of payments for some components, such as government external debt and reserve assets, and should be removed from transactions. Pooled assets are being included under reserves deposits, and should be properly classified as other reserve assets.

8. To support progress in the above work areas, the mission recommended a detailed action plan with the following priority recommendations (see Table 2). Further details on the priority recommendations and the related actions/milestones are found in the action plan under Detailed Technical Assessment and Recommendations.

Table 2.

Priority Recommendations

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Detailed Technical Assessment and Recommendations

A. Action Plan

9. This action plan includes steps to accomplish milestones as well as target completion dates (Table 3). Actions are prioritized (high, medium) and priority recommendations (PR) are identified.

Table 3.

Detailed Action Plan

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H = High M = Medium

B. Revision and Compilation of the IIP

10. The mission assisted the BOZ with its work plan to compile IIP statistics. This is the fifth TA mission delivered to the BOZ under the five-year EDDI 2 project1 funded by DFID. The main objectives within the project, launched in August 2015, are to improve the accuracy, availability, comparability, and timeliness of balance of payments and IIP statistics in the participating countries and to increase participation in the IMF’s Coordinated Direct Investment Survey and the World Bank’s Quarterly External Debt Statistics (QEDS) database.

11. The compilation of the IIP statement was completed during the mission and was almost ready for dissemination. The mission worked with compilers on the assessment and revision of the IIP statement for annual data for 2015-18 and quarterly data for 2017-2018 (first two quarters) (see Annex 1). In May 2019, the BOZ disseminated the IIP statement on its website: https://www.boz.zm/international-investment-position.htm.

12. Key IIP components were revised for 2015-18 during the visit. Table 4 lists the main IIP revisions resulting from the work of the mission and BOZ compilers.

Table 4.

List of Revised IIP Components

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13. The main data gap remaining relates to position data on external assets of nonfinancial corporations. This gap is more evident in the balance of payments. The integrated IIP shows that the change in the assets, measured by means of data sourced from the BIS LBS, does not match the estimates for these flows in the balance of payments. The reason for this gap will be further investigated during the next TA mission.

The other identified gap is Zambia’s participation in international organizations.

14. The mission also recommended breakdowns, already implemented, in the IIP table, which are of analytical relevance. Debt securities issued by the government are broken down between those issued abroad, and therefore repaid in foreign currency, and issued domestically. Also broken down are loan liabilities, of the government and of other sectors.

Recommendations:

  • Ensure, when more than one source is available for the balance of payments and the IIP, that the same source is used or that they are compatible;

  • Use market value for the Eurobonds; include a footnote in IIP publications informing the face value, used by the MOF in its publications, and explaining that the market value follows BPM6 guidelines;

  • Incorporate in the IIP information that were missing in the first dissemination;

  • Verify if the carry-over procedure of data for companies that missed to report to the PCF during certain quarters is functioning properly; identify outliers and investigate whether data were not reported.

C. Dissemination of IIP Data and Metadata

15. The mission recommended that the BOZ should disseminate IIP metadata with the IIP statement. The TA mission conducted in 2018 shared with compilers a copy of the IIP metadata questionnaire used to submit key IIP compilation details to STA. Notwithstanding its relevance, if the metadata are not complete by the dissemination deadline, this should not delay the dissemination of the IIP. In such case, the BOZ should publish the metadata shortly after the first release of the IIP.

16. The BOZ published IIP metadata and the IIP release calendar on its website in May 2019: https://www.boz.zm/international-investment-position.htm. The BOZ should ensure that the release calendar is kept up-to-date and that any changes in the release schedule are reflected on the website as promptly as possible.

Recommendations:

  • Disseminate annual 2015-17 and quarterly 2017-18 IIP statistics on the BOZ website (Completed in May 2019).

  • Prepare IIP metadata and disseminate it on the BOZ website (Completed in May 2019).

  • Maintain the release calendar updated, reflecting any changes in the release schedule on the website as promptly as possible.

D. Other Issues Addressed by the Mission

17. The mission investigated with compilers the adjustment to the net errors and omissions (NEO), which implies removing a varying amount (quarter to quarter) from NEO to keep it at a low value. The amount subtracted from NEO is then added to other investment, resulting in a persistent and significant net acquisition of external financial assets (balance of payments estimates persistently point to an excess of supply over use of external funds). The mission’s conclusion was that compilers should contact large resident direct investment (DI) enterprises that provide goods and services domestically to verify whether payments for these transactions are being made directly abroad to their parent or fellow enterprises. This is because the mission identified that a most likely reason behind the need for this adjustment is that payments are being made to parent companies abroad for goods and services provided domestically by resident DI enterprises. Details on these goods and services would not be collected by the current surveys, as they are transactions between residents.

18. The mission found that some components of the balance of payments, among which reserves, are compiled based on change of position rather than transactions.

The mission explained that this is a methodologically inconsistent procedure; changes in positions not due to transactions should not be included in the balance of payments. The integrated IIP would be instrumental in identifying and separating changes in position not due to transactions. It should be underscored that this does not affect the accuracy of the position of reserve assets. It may, though, result in errors and omissions in cases in which the change in the reserve asset position does not stem from transactions, but rather from other changes that affect total reserve assets (e.g., valuation changes).

19. The mission discussed with the BOZ the adjustments made to trade in goods in relation to goods crossing the Zambian customs border in transit between foreign countries. The BOZ informed the mission that goods in transit are no longer included in trade statistics, therefore no longer requiring adjustments of trade in goods in the balance of payments.

20. The mission confirmed that it would be correct to include the so-called encumbered reserves in Zambia’s reserve assets, based on the information provided by the Assistant Director of the Economics Department. According to the BOZ, these are statutory foreign exchange deposits, and there is no legal impediment for their use for meeting balance of payments needs. In other words, notwithstanding the nomenclature (“encumbered”), these assets are in fact readily available for use to meet balance of payments needs. In order to avoid future misinterpretations, it may be advisable that the BOZ consider referring to these assets as “statutory foreign exchange deposits” rather than “encumbered reserves”.

21. The mission found that reserves assets invested under pooled schemes managed by the World Bank and the BIS were classified under deposits. The mission recommended that these assets be treated as other reserves assets based on the composition of the investment portfolio, which includes different types of assets and considering that the invested amounts are readily available to the BOZ.

Recommendations:

  • Investigate whether payments made directly abroad for goods and services provided domestically, and which therefore are not reported under current PCF guidelines, may be the reason for the large adjustments of errors and omissions allocated under other investment.

  • Include in the survey form a question breaking down services consumption by mode of payment: paid for domestically and paid for abroad; use the amount paid for abroad for adjustment.

  • Identify all balance components compiled based on change in positions and remove the changes that are not due to transactions.

  • Compile the integrated IIP on a quarterly basis starting from 2017 for assessment of consistency between the IIP and the balance of payments.

  • Reclassify reserve assets invested under pooled schemes (by the BIS and the World Bank) to other reserve assets (rather than deposits, as currently classified).

  • Consider referring to “statutory foreign exchange deposits” as such rather than as “encumbered reserves”.

22. At the request of the BOZ, the mission took part in a workshop with the Zambia Institute for Policy, Analysis, and Research (ZIPAR) and the Central Statistical Office (CSO) to discuss the compilation of Zambia’s Social Accounts Matrix (SAM) for 2010. The purpose was to discuss whether the BOZ could provide balance of payments transactions data for the compilation of the SAM. The mission and the BOZ compiler provided guidance to the other agencies on how to source the data from the balance of payments, explaining the limitations of the balance of payments breakdown and coverage (e.g., lack of breakdown between enterprises and households) for the compilation of the SAM. The mission and the BOZ were nonetheless able to provide guidance on proxy classifications based on the characteristics of Zambia’s economy and inward and outward flows.

E. Officials Met During the Mission

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Zambia: Technical Assistance Report-Report on External Sector Statistics Mission
Author: International Monetary Fund. Statistics Dept.