Zambia needs to rebuild buffer, banking system

ZAMBIA should urgently create a counter-cyclical buffer to cushion the economy whenever the mining output has been affected by low copper prices and other negative factors, a senior economist has said.

In her opinion paper titled ‘The truth about Africa’s rising middle-class’ released yesterday, Standard Chartered Bank chief economist for Africa Razia Khan said the emergence of the middle or consumer class is helping to propel growth to the next level.
Ms Khan said with sustained supportive demographics, a rising middle-class will make demand grow, businesses prosper, employment increase and economies flourish.
Middle-class households are defined as those that spend at least half of their income on goods and services beyond just food and basic necessities.
“The expectation is that this segment of the market will dominate for at least another decade,” she said.
She advised Zambia to rebuild counter-cyclical buffers.
“In Zambia, mining output and the price of copper have often played a disproportionate role in determining growth outcomes. If fiscal deficits are moderate during the good years, then Government can play a greater role in supporting growth in less buoyant times.
“All too often, Zambia has not had the necessary support in place when mining revenue is hit, so too is employment and government revenue,” Ms Khan said.
She said the build-up of Government payment arrears often has a negative impact on the banking system.
“By introducing public financial management reforms, as Zambia now intends, the hope is that future years will be more resilient to these boom-bust episodes. The reforms that will need to be put in place may be tough, requiring more stringent spending controls.
“But if the result is higher savings, a better buffer in place against tough times and a more resilient banking system, then all Zambians stand to benefit since this may well be a recipe for accelerated middle-income growth,” Ms Khan said.


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