The International Monetary Fund (IMF) says prospects for Zambia’s economy in 2013 look good but has warned that a rise in civil service wages beyond what has been budgeted for would make it difficult for Government to finance planned activities.
Under the current monetary policy stance, the mission projects that the country’s inflation will be six percent.
Speaking at a media briefing in Lusaka after concluding a review of the 2012 economic developments and prospects, IMF chief of mission John Wakeman-Linn said the Zambian economy has performed well this year.
The IMF staff mission that visited Lusaka from October 25 to November 5, 2012 had fruitful discussions with the Minister of Finance Alexander Chikwanda, Bank of Zambia (BOZ) Governor Michael Gondwe and other senior Government officials and representatives from the private sector.
Wakeman-Linn said the mission supports the aggregate targets in the 2013 budget.
“Given spending and projected tax revenues and grants, the fiscal deficit is likely to be close to four percent of the gross domestic product (GDP), in part due to one-time capital expenditures financed from the recent Eurobond issuance,” he said.
Wakeman-Linn said it is important that civil service wages are kept in line with the budget.
He also noted that the budget allocation for the pension fund is insufficient to prevent the accumulation of new pension arrears.
He also noted that there are near-term downside risks for the Zambian economy, arising from uncertainty in the global economy.
He said while the Zambian economy has performed well, further deterioration in the global economic conditions could squeeze trade credit lines, reduce demand for Zambian exports and lower copper prices.
Wakeman-Linn said it is important for the Zambian authorities to prepare contingency plans, in the event that one or more of these pessimistic scenarios materialise.
He further pointed out that while the aggregate budget for 2012 figures was encouraging, there are some expenditure areas that indicate challenges such as expenditure on maize purchases.
“While recorded expenditure on maize purchases were as budgeted [K300 billion], roughly K1.4 trillion was needed to pay for the purchase of the 2012 maize harvest.
To finance these purchases, it was necessary for Government to guarantee commercial banks loans to the Food Reserve Agency of over K900 billion,” he said.
Wakemann-Linn also welcomed the introduction of the BoZ policy rate, as a step towards modernising the implementation of the monetary policy in Zambia.