Zambia can still achieve a GDP growth rate of 4.5 percent

Economist Chibamba Kanyama says Zambia can still achieve a Gross Domestic Product (GDP) growth rate of 4.5 provided inflation rate remains below the 7.6 threshold.

Kanyama told News diggers in an interview that the current inflation rate of 8.1 was a source of concern for investors and that it should be arrested sooner than later.

“Though not an alarming figure, it requires significant attention and response by the authorities so that inflation does not compromise the economic growth target. I am not fully aware of the reasons why inflation has breached the 8 percent mark at the time we expected it to drop given that the maize crop for 2018 is now in the market. Maize has significant weighting in the inflation basket and the price announced by the principle buyer, FRA, is non-inflationary. However, I can only speculate that the fuel price increases made in April are beginning to have an effect in the general price level by both the transport sector and manufacturing. There is usually a lag in industry responses to fuel price adjustments. There is also a possibility [that] residential accommodation has had an impact on inflation,” he said.

“The withholding tax requirements on rent income is now beginning to hit landlords, more so ZRA is understood to have appointed an agent to manage the process. Many landlords are refusing to lose an income and are, therefore, adjusting rent upwards to cushion the cost. The service industry has generally responded aggressively to withholding tax. Remember this new approach of withholding tax at source has sealed all loopholes of tax evasion and avoidance and you will now find invoices that compute tax as a fee adjustment to the client. In a way, withholding tax for services has translated into an increase in fees. You may wish to know, as I understand, that accountants have significantly increased audit fees. This alone has marker implications. If Zambian Breweries, Chilanga Cement, Zambia Sugar for example, are to pay twice or thrice more in audit fees than before, I do not see any reason why they will not pass on this extra cost to the consumer.”

He warned that failure to control inflation rate would downgrade expected real GDP growth rate.

“This may have happened to some companies in the past few months in anticipation of what they will pay in audit fees. Inflation has also been driven by scarcity in certain consumables such as tomato in April, May, June as well as Kapenta. The whole issue is that 8.1 is a move towards double inflation, something we do not want to experience after the 2015/16 economic challenges. The rate also breaches the anticipated threshold by the Bank of Zambia. Remember recently BoZ indicated we may end the year at around 7.4 inflation rate and this is within the 2018 budget projections. If we do not arrest the increase in the rate of inflation, we risk downgrading our expected real GDP growth rate, a number that is closely watched by investors and creditors to government,” Kanyama said.

“The rate as it stands may also tempt the BoZ to respond more aggressively through its monetary instruments to bring down inflation. What Zambia does not need at the moment is a strong handed monetary policy approach. So far, the BoZ has been pro-Economic activity, maintaining its policy rate to slow for expanded loan books by commercial banks. This has somehow yielded positive results towards productivity and all hints remaining equal such as the exchange rate remaining at less than K10/dollar and the copper price remains at above US$6000/Tonne, Zambia can achieve a growth rate of 4.5 percent, not bad when we consider the fact that maize output was lower than last year. If BoZ intervenes in the market, it will impact on interest rates and availability of loanable funds to industry.”

He said any instability in the economy currently would adversely affect members of the public and make investor lose confidence in the government.

“In addition, this is not the time for Zambia to experience instability in macroeconomic variables particularly inflation, exchange rates and inflation rates given the huge debt stock. We also do not want to see a response from unions for cushion-backed salary increments because it will compromise the current strategy on economic austerity. All this requires a pragmatic and strategic approach that ensures inflation does not break into the double-digit figures as we close the year a snit has potential to affect investor confidence. As things stand, inflation is arrestable and my anticipation is that it will be around 7.6 by end of October,” said Kanyama.

         

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