Save export sector, says IMF

IMF resident representative Joseph Kakoza emphasised the need to reduce the cost of doing business, which he said would be the immediate requirement to save the export industry. Zambian exporters’ income has been eroded by a third following the appreciation of the local currency. The agricultural sector alone calculated losses of more that K680 billion this year as a direct result of the strong kwacha. It is estimated that the combined losses in all productive sectors would exceed K2 trillion if the kwacha maintains its current levels of around K3 000 per US dollar. “In the short term, exporters have in varying degrees, responded by finding ways to reduce costs and improve productivity,” Kakoza said in response to a press query. “The sooner structural reforms required to reduce the systemic costs of doing business are undertaken, the sooner the improvement in exporters’ competitiveness and some of the reforms are more long term than others.” Kakoza identified the structural reforms as infrastructure development and the maintenance of relative stable macroeconomic environment that would reduce the cost of doing business in Zambia as outlined in the Private Sector Development Plan. “This underscores the critical importance of implementing the Private Sector Development plan which addresses these issues comprehensively. Maintenance of relative stable macroeconomic environment has also helped reduce inflation and interest rates. High interest rates contribute to the high cost of doing business,” he said. Kakoza said such structural reforms have become necessary on the back of the appreciation of the kwacha that has compromised the competitiveness of the country’s exports. Some analysts say the appreciation of the kwacha has further compromised the exportled strategy that the country embarked on in its development strategy. Exporters have lobbied with the government to intervene in the financial market to save their businesses, but the government has maintained that it will let market forces play the game. The IMF hopes part of its assistance to Zambia would stabilise the macroeconomic climate apart from helping Zambia attain Millennium Development Goals (MDGs). An IMF mission visited Zambia between April 25 and May 11 and, among other things, reviewed the 2006 National Budget in the scope for additional spending on poverty reducing programmes to be financed from resources freed up by debt relief under the Multilateral Debt Relief Initiative (MDRI). Kakoza said over the medium term, the MDRI would provide additional fiscal space for spending on priority poverty reduction programmes in line with the fifth National Development Plan (NDP5), which is yet to be launched. “The discussions (with government officials) centred as well on policies to ensure that the government’s medium term macroeconomic objectives are met,” he said. Under the Multilateral Debt Relief Initiative, the IMF will provide 100 per cent debt relief for Zambia on all debt incurred by Zambia to the IMF before January 1, 2005 that remains outstanding. The IMF debt relief would amount to approximately US $577 million, or US $572 million excluding remaining assistance under the Heavily Indebted Poor Countries (HIPC) Initiative. The combined debt relief from IMF, World Bank, Paris Club and other multilateral lenders due this July, will reduce Zambia’s external debt from US$7 billion a year ago to only US $502 million. The recent IMF mission discussed the three year economic support programme supported by the IMF’s Poverty Reduction and Growth Facility (PRGF) the review would allow disbursement of US $8.2 million. The IMF mission praised Zambia’s economic achievements, especially the reduction of the annual rate of inflation. Currently, the annual rate of inflation stands at 9.4 percent as at end of April 2006, the lowest in three decades, while the projected GDP growth is six per cent. Kakoza said Zambia could possibly sustain the single digit inflation rate if macro-economic performance remained on track. “Economic prospects have continued to improve in 2006. Boosted by higher copper output and prices, a recovery in agricultural production, and sustained growth in construction and tourism, the real GDP growth is projected to rise to six percent,” Kakoza observed. Copper prices lat week reached an alltime high of US$8 600 per metric tonne. This, together with the planned increase in output to 800 000 metric tonnes of copper by 2008, is likely to benefit the Zambia, the fourth largest copper producer worldwide. However, Kakoza cited Zambia’s major economic challenge as that of moving Zambia to a much higher growth rate that five percent that would quickly and substantially reduce poverty and allow for rapid employment creation. “Doing so would of course entail, among other things, comprehensively addressing the major social challenges impeding growth, including rolling back the HIV/Aids pandemic and other major diseases, and improving service delivery especially in the education and health sectors,” he said. Kakoza said the fiscal space created by MDRI debt relief was aimed at increasing public spending in these areas.

May 2006
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