By BUUMBA CHIMBULU
THE executive board of the International Monetary Fund (IMF) have concluded 2017 Article IV consultation with Zambia where they have commended recent economic improvements and has since advised Government to capitalise on the current favourable conditions to achieve higher and inclusive growth.
The directors have however expressed concern at the pace at which public debt, especially external debt, has increased and saying it put Zambia at high risk of debt distress.
In the Article IV released, the directors advised Government to take advantage of the current favourable conditions by implementing decisive and prudent macroeconomic policies, reforms to place public finances and debt on a sustainable path, build international reserves, increase the economy’s resilience to shocks, and achieve higher and inclusive growth.
“The near-term outlook for the Zambian economy has improved in recent months, driven by good rains and rising world copper price. The economy was in near-crisis from the fourth quarter of 2015 through most of 2016, reflecting the impacts of exogenous shocks and lax fiscal policy in the lead up to general elections,” they said.
The directors also welcomed the launch of the Economic Stabilisation and Growth Program and the Seventh National Development Plan.
Directors further commended Government for taking strong measures to phase-out regressive fuel and electricity subsidies, and for scaling-up spending on social protection programs.
Other measures which the directors welcomed were recent easing of monetary policy, Bank of Zambia (BoZ’s) positive response to implementing the Financial Sector Assessment Program (FSAP) recommendations, including taking steps to strengthen supervision capacity and the crisis preparedness framework.
They endorsed BoZ’s plans to complete on-site inspection of all banks within 12–18 months, and advised the BoZ to take action to address weaknesses that may be revealed.
They had since encouraged Government to accelerate the process of revamping the BoZ Act, to give the central bank more operational autonomy while enhancing its transparency and accountability.
“Authorities should address policy uncertainties that are clouding the investment climate, including clarifying the roles of the state and the private sector in the energy and agriculture sectors,” they emphasised.
Meanwhile, the directors said it was critical to slow down on the contraction of new debt, especially non-concessional loans, strengthen debt management capacity, and improve project appraisal and selection processes.
They expressed concern at the pace at which public debt, especially external debt, had increased and putting Zambia at high risk of debt distress.
The directors noted that achieving the Government’s fiscal consolidation goals would require stronger efforts to increase domestic revenues, including by addressing widespread exemptions and broadening the Value Added Tax (VAT) and income tax bases.
Directors emphasised the importance of containing recurrent spending, improving commitment controls, phasing out subsidies, and strengthening public financial management.