The International Monetary Fund has entered into new agreements with the Zambian government that will see the country’s treasury recovering from the budget deficit incurred in the first two months of the 2017 financial plan.
At the end of a two weeks assessment tour of the Zambian economy, the IMF team led by Tsidi Tsikata held a joint press briefing with Secretary to the Treasury Fredson Yamba at which new policy guidelines were outlined.
Yamba told journalists that the Zambian government “squarely and honestly” informed the IMF about the financial challenges the country was facing in the midst of economic woes.
“Over the past two weeks, we have held discussions on recent socio-economic developments in the country. It is important that we look at the challenges that we face squarely and honestly, and this is only possible if we hold discussions in an honest manner as we have done during this mission. On the part of the government, we highlighted the recent economic developments with focus on challenges and possible remedial measures. We have also highlighted that fiscal performance has been the major challenge, with government expenditure being higher than the budget over the past few years. Another major source of concern has been higher growth in total public debt,” Yamba reported.
“During our discussion we have indicated that government has developed appropriate policy and structural reforms needed to restore macroeconomic stability. Allow me to highlight some of the key messages in the programme: 1. Government intends to reduce the overall budget deficit so as to create space for private sector borrowing. 2. Reduce deficit to enable re-balancing of fiscal and monetary policy. 3. Phased clearance of arrears largely related to infrastructure development and energy, while curbing accumulation of new arrears. 4. Removal of subsidies in a phased manner. 5. Slowing accumulation debt. 6. Increasing social sector spending to address poverty issues. 7. Enhancing growth prospects.”
He warned the public to adjust to the changes that would be effected as a result of the IMF recovery programme.
The government and the IMF mission are in general agreement with the objective policies and needed structural reforms outlined in the economic stabilization and growth programme. As we continue engaging with the IMF, my appeal to the Zambian people is to remember that the measures that must be taken are necessary for improvement of our livelihood. We cannot continue to borrow at current levels; accrue arrears to our contractors without hurting their businesses; and continue to provide subsidies. Government officers, especially Controlling Officers are directed to play their part in curbing government excesses,” said Yamba.
Tsikata observed that the Zambian government had already spent more than planned in the first two months of 2017.
“We have had fruitful discussions with the Zambian authorities and made progress towards reaching understandings on an economic program that could be supported by an IMF arrangement,” Tsikata said.
“The mission welcomed the fiscal consultation plans outlined in the 2017 budget speech by the Minister of Finance, which aims at putting public finances on a sustainable path. However, in the first two moths of the year, expenditures outpaced revenues substantially with the deficit financed mostly by domestic borrowing.”
He added that the financial sector remained in dire stress.
“The mission also discussed findings and recommendations of the joint IMF-World Bank Financial Sector Assessment program (FSAP) mission that was in place in July 2016. The assessment found that the financial sector was under considerable stress from the combination of external and domestic shocks. Financial supervision was not fully effective and several financial sector laws are in urgent need of upgrading,” said Tsikata.
“The mission projects real GDP growth in Zambia to improve slightly from about 3 percent last year to 3 percent this year, reflecting good rains which are expected to boost agricultural output and domestic electricity generation.”
Tsikata’s delegation met with Minister of Finance Felix Mutati, Governor of the Bank of Zambia Denny Kalyalya, Minister of Health Chitalu Chilufya, and senior government and BoZ officials, members of parliament, and representatives of the private sector, labour unions, civil society organizations and Zambia development partners.