KALONDE NYATI, Lusaka
LAST year, this time around, Zambia’s economy was under pressure with high inflation, high interest rates and weak Kwacha tight liquidity among other challenges characterising the market.
Like most commodity-driven countries, Zambia was not spared from the effects of the falling copper prices, which traded far below US$5,000 and contributed to fiscal deficit which continued to widen and was projected to hit 12 percent by the end of last year.
Zambians from all walks of life had a share of the challenges, for some, it meant they could not import various goods and services because the Kwacha-dollar exchange was unfavourable.
For others, it meant that they could not borrow from the banks to undertake various projects because the interest rates were high averaging 29.42 percent, although some individual commercial banks were charging as high as 35 percent.
For majority Zambians, prices of basic commodities such as mealie-meal were unaffordable hitting over K100 as inflation escalated to a double digit.
With all these challenges, it was only prudent for Government to make certain decisions to help recuperate the economy, with some decisions being unpopular.
Minister of Finance Felix Mutati said the revival of the economy require prudent fiscal management with Government placing emphasis on the removal of unnecessary subsidies.
Mr Mutati said subsidies remained a huge expenditure for the country, with close to US$1 billon being spent on them hence the need for the gradual removal if the country is to achieve its economic transformation agenda.
As part of the economic revival strategy, Government also developed the Zambia-plus, which among other inventions involves the strengthening of tax policy and administration, increased budgetary allocation to social protection, strengthening of regulations and laws to ensure transparency in economic and spending decisions.
Other interventions included improving budget credibility through better planning, adherence to expenditure plans, improved Government spending and economic stability because stability creates a platform for economic growth and job creation.
“Our strategy is clear. First of all, we need to construct a home-grown recovery programme with the key elements that are troubling the economy as a platform for engaging with IMF. The strategy is that we need to secure a stable recovery platform to grow the economy,” he said.
Mr Mutati said as Government plans to take the economy to sustainable levels, reducing the fiscal deficit remains crucial as it will help reduce on borrowing and bring down interest rates.
Indeed the interventions are producing fruits, notable is the appreciation of the Kwacha, which was trading in the K12 levels but is now below K9.00.
Commenting on the appreciation of the Kwacha, Economics Association of Zambia (EAZ) national secretary Herryman Moono said, “Measures put in place by the Bank of Zambia aimed at reducing inflation have impacted positively on the local unit. All in all, the appreciation needs to be sustained.
Similarly, interest rates are beginning to go down although commercial banks need to reduce them further in line with the monetary policy rate.
Inflation has also reduced to 6.6 percent year-on-year in July of 2017 from 6.8 percent in June mainly driven by a drop in prices of mealie meal.
According to the Central Statistical Office (CSO) monthly bulletin for July, on a monthly basis, a comparison of retail prices between July 2017 and June 2017 shows that the national average price of a 25 kg bag of breakfast mealie meal decreased by 8.1 percent from K96.37 to K88.58 while the national average price of a 25 kg bag of roller mealie-meal decreased by 11.9 percent from K74.73 to K65.84.
The International Monetary Fund (IMF) mission,which was in the country from May 30 to June 10, 2017 noted that the near-term outlook for the economy has improved in recent months, driven by good rains and positive sentiments in the financial markets as evidenced by increased foreign investor participation in the government securities market.
A bumper harvest and increased hydroelectricity generation are expected to boost economic activity by more than previously projected; IMF staff project real GDP growth to improve slightly from the revised official rate of 3.4 percent in 2016 to 4.3 percent in 2017.
The IMF team that was led by Tsidi Tsikata also projected that the annual inflation rate will remain at single-digit levels, notwithstanding the impact of the move toward cost-reflective electricity tariffs.
Mr Tsikata however said, “Improved fiscal performance and discipline are needed to sustain market confidence. Fiscal performance in the first four months of 2017 was mixed relative to budget estimates. Total domestic revenue (tax and nontax) fell short of the projected level while total expenditures appeared to be broadly in line with the budget. On the expenditure side, while the Government has cleared substantial arrears, it appears that new arrears may be emerging,”
World Bank executive director for Zambia and Africa Group one Andrew Bvumbe, who was in the country last week hailed Zambia’s economy.
“We are delighted with the fundamentals, the way the economy is going, we have seen inflation is down, the Kwacha is stabilised, so for us, these are key fundamentals. Broadly speaking, I am happy to be here, I am happy that the macroeconomic fundamentals are good, so I think we have a good foundation to move forward and make a difference in Zambia for the ordinary Zambian,” he said.
Efforts have been made to revive the economy and with the expected IMF bailout programme, on its way, it is hoped that the country will achieve its targeted goals of making Zambia a prosperous nation.