Economist Chibamba Kanyama says Zambia’s projected three per cent growth rate for 2020 will have no major impact on the economy.
Last week, Finance Minister Dr Bwalya Ng’andu said the country had projected an over three per cent economic growth rate for this year, down from four per cent projected in 2019.
Reacting to the pronouncement in an interview, Kanyama said only a high growth rate of seven per cent can provide government with enough finances to meet the country’s needs.
“First of all, a three per cent growth rate for a country whose GDP is relatively small, about US$27 billion, hardly has impact on addressing the high unemployment levels. A growth rate is an additional wealth that a country creates every year above the previous season. It has a direct relationship on the size of the national budget as well as direct revenues by the Zambia Revenue Authority. When we consider the amount of money that remains when government services its debts and pays salaries for civil servants (10 percent to be realistic), only a high growth rate we previously enjoyed 10 years ago of around seven per cent can provide government enough change to meet all other national needs,” Kanyama said.
He said the attainability of the three per cent growth rate was dependent on the copper pricing that will vary throughout the year and the monetary policies that will be placed in 2020.
“The reason the growth rate will be subdued in 2020 is because of the following reasons: The price of copper remains uncertain after giving us false hope earlier this year when it hit US$6,200/tonne. Should there be a rise in demand for copper, with a subsequent rise in the price, the three per cent growth rate will be realized. But if the average price remains below US$6,000 /tonne in 2020, growth will remain subdued at around 2.3 per cent,” Kanyama added.
“The economic slump in 2019 means recovery will take longer than anticipated. The private sector somehow grew cold feet in recapitalization of their businesses owing to economic uncertainty. The power load-shading hit the manufacturing [sector] very seriously and they will most likely only operate full capacity in the second quarter of 2020. The aggressive monetary measures announced by the Bank of Zambia in order to induce economic stability and investor confidence have raised the cost of capital. Economic growth is primarily a function of private sector investment. The Bank of Zambia Monetary Policy Committee Will shortly be sitting to review the MPC rate. This will be a do or die announcement for the private sector and my advice is that the Bank should not increase the rate to give breathing space to market players to respond to liquidity challenges.”
He said the government needed to seriously implement fiscal consolidation if the country was to realise the intended growth rate.
“The real challenge that requires serious attention by the Ministry of Finance is failure to achieve fiscal consolidation. The Minister of Finance projects to achieve the target fiscal deficit of around 5.1 per cent but the spending cylinders show that we are heading the opposite direction. All key performance indicators, particularly on the containment of debt, show that 2019 was not a good year. There still exists a threat of about US$7 billion worth of non-disbursed funds hitting the government’s balance sheets. The Minister plans to cancel about US$5 billion worth of this figure. This is a realistic and positive step that the government should be commended for but quite too late to have an impact,” said Kanyama.
“Moreover, some of the contracts are legally binding and I am not sure if the cancellation will not come at a huge price. But if we successfully negotiate without a price, well and good. If we fail, it means the 10 per cent currently remaining for government to spend will reduce further, implying the government will be over-dependent on domestic borrowings through issuance of government securities to fund government operations. The higher the deficit, the more likely government will borrow and the less the money the private sector has to borrow for operations. We heard the lamentations of Mr John Samaras, the President of the Ndola Chamber of Commerce, about how the government intervention in the market through borrowings is affecting the private sector-led growth.”