Diversify for stronger economy

THE World Bank says Zambia needs to accelerate its economic diversification programme to cushion a possible decline in copper prices and the anticipated tighter global financing conditions that will increase the cost of finance over the medium term.

Outlining possible risks to Zambia’s economic outlook, World Bank senior economist Gregory Smith said factors will include both domestic and external downside and upside risks.
“The external risk is that recent copper price gains will be reversed as global supply increases to match demand, and will severely affect Zambia’s prospects.
“Furthermore, tighter global financing conditions will also increase the cost of raising domestic and external financing over the medium term,” Mr Smith said in an interview after presenting the half-year economic brief recently.
The main domestic downside risks will relate to slippage with the planned structural and fiscal reforms and if there can be U-turn on the request for an International Monetary Fund programme.
“For example, a repeat of 2015 events, when electricity tariffs increases, were quickly reversed. Also continued political tensions could dent market confidence and investment levels if they continue.
“On the upside, if the government sticks to the bold reforms, while also sticking to the fiscal consolidation path, then confidence in the economy will continue improving,” Mr Smith said.
On policy challenges, Mr Smith said low inflation, exchange rate stability and its recent appreciation have created space for a potential further easing of the monetary policy to support the recovery.
“Tackling this challenge and making progress with Government economic recovery plan is essential if debt levels are to remain at sustainable levels over the medium term, and leading up to 2022-26 period when Eurobonds have to be refinanced or repaid.
“What is critical is that reduction in the fiscal deficit is planned and managed carefully. Since a disorderly and incomplete adjustment will not restore market confidence, a quick adjustment will undermine growth,” he said.
The World Bank has since suggested wide-ranging structural reforms are needed to boost the non-copper economy and to ensure inclusive growth.
Notable proposals include the need to clear arrears and prevent future build-up, strengthen debt management, ensuring revenue mobilisation reforms and reducing unproductive expenditures.


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