Zambia’s budget is under stress – IMF

The International Monetary Fund (IMF) says Zambia’s budget is under stress from significant obligations that have emerged in relation to fuel and agricultural subsidies, pensions and road construction.

Tsidi Tsikata who is Head of an IMF team that visited Zambia from March 19-31 said there is need for quick action by the Zambian government to contain the fiscal deficit in order to alleviate financing pressures that are keeping interest rates high and crowding out lending to the private sector.

Mr. Tsikata said the Bank of Zambia’s recent action of increasing the reserve requirements for banks is helping to stabilize the local currency, the Kwacha.

Mr. Tsikata said the economy in Zambia is experiencing strong headwinds adding that policy un-certainties at home and external shocks are dampening economic activities in the country.

ZANIS reports that Mr. Tsikata said this in a press statement released in Lusaka today.

He observed that the Kwacha has depreciated sharply against the US Dollar since the beginning of this year reflecting the general strength of the dollar and low copper prices on the international market.

‘The annual rate of inflation has been falling steadily in recent months, helped by a series of reductions in fuel prices. The recent depreciation of the Kwacha and the need to raise fuel prices will put upward pressure on inflation,’’ Mr. Tsikata said.

He added that the mission which his team undertook welcomes the recent easing of documentation requirements for VAT refund claims of exporters and urges the authorities to resolve the large stock of outstanding claims.

He further welcomed President Edgar Lungu’s directive calling for a review of the mining tax regime that came into effect at the beginning of this year, which has had a negative impact on the mining sector.

“Pressures on the Zambian economy have grown, the challenges are not insurmountable. Resolute actions to contain the budget deficit, resolve the mining tax disputes, foster policy coherence and stability would go a long way toward boosting investor confidence and unlocking the country’s high growth potential,” He said.

Mr. Tsikata pledged IMF’s commitment and remains to working closely with the authorities in Zambia on pressing issues.

He disclosed that the IMF’s Executive Board is scheduled to release a report in May, this year.

While in the country, Mr. Tsikata and his delegation met Finance Minister Alexander Chikwanda, Central Bank Governor Denny Kalyalya, the private sector and development partners as well as other senior government officials.