Zambia’s worse than expected trade deficit, triggered by poor copper prices, will worsen poor people’s living conditions, says the Civil Society for Poverty Reduction (CSPR).
And CSPR has called on government to focus on economic stimulation policies that will be targeted towards the private sector.
Last week, in a report, the World Bank predicted that Zambia would suffer a worse than expected trade deficit and foreign exchange position due to the on-going tariff war between China and the United States, which could lower copper prices.
Commenting on the Bank’s forecast, CSPR executive director Patrick Nshindano said CSPR remained concerned that the trade deficit outlook would undermine efforts being made to reduce poverty.
“The Civil Society for Poverty Reduction is highly concerned by the slowed economic growth and increase in trade deficits. The World Bank has recently indicated in its economic report that in addition to an increase in Zambia’s trade deficit, growth is likely to further reduce from projected 2.7 per cent to about 2.5 per cent for 2019. CSPR notes this development with concern owing to the fact that this is going to impact the poor the most and undermine efforts to reduce poverty,” Nshindano explained.
“Growth is essential to not only stimulate economic activity, but also reduce poverty. With the reduced growth, we expect reduced productivity at household-level, especially stemming from slowed growth for SMEs and the informal sector due to reduced liquidity in the economy. Further to this, we anticipate an increase in unemployment due to reduced economic activities. Among other factors, this will reduce citizens’ disposable incomes, but also reduce the rate at which incomes raise in response to raising cost of living, thereby, reducing the already-low disposable incomes for the poor and vulnerable leading to rationalisation of expenditures at household-level. This is likely to lead to serious deprivation at household-level, including food and nutrition insecurity.”
He observed that a widening trade deficit would equally put pressure on Zambia’s already-constrained national reserves in order for government to meet the foreign exchange demand for imports.
“One of the major risks that would arise from continued reduction in foreign reserves is the devaluation of the kwacha as foreign reserves are used to maintain the value of the local currency by meeting the demand, including in times of shocks, and failure to do so will see the kwacha depreciate and make the country’s imports expensive; being a net importer, leading to an increase in the cost of leaving further hurting the poor and vulnerable citizens who are barely copping with the current cost of leaving,” he said.
He expressed further concern that Zambia’s current economic slowdown could impede spending in key social areas as they were continually crowded out due to high debt repayments.
“Further to this, with the current slowdown in economic growth, the country’s ability to generate domestic revenue will be compromised and further undermine the government’s ability to not only meet its debt obligations, but to also provide key social services, such as health, education and social protection, among others. This is extremely worrying in the current context given that already, social sector spending continues to be crowded out due to high debt repayments. Coupled with weak social protection mechanism and poor agriculture season, we are likely to see more people falling into the poverty trap if urgent action is not taken to mitigate the effects and stimulate the economy,” he added.
And Nshindano called on government to focus on economic stimulation policies that would target to stimulate the private sector.
“We call on government as part of the ongoing reforms to stabilise the economy to ensure that they firstly, ring-fence resources meant for the poor, and secondly, focus on economic stimulation policies, especially for the domestic private sector, more targeted towards the SMEs. Most policies, currently, especially around taxation remain unfavourable to the domestic private sector and there is urgent need to re-orient the fiscal policy measures from tax collection to economic stimulus, which with increased productivity will even give the government more revenue to not only meet its debt obligations, but most importantly provide the much-needed services to citizens, especially the poor and vulnerable,” said Nshindano, who also urged newly-appointed Finance Minister Dr Bwalya Ng’andu to accelerate the planned fiscal reforms.