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Inevitability of the Economic Recovery
Programme
MEDIA EDITORS’ LUNCH
Radisson Blu Hotel
16th March 2017
“Working Towards the formulation of Sound Economic Policies”
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Is the economic recovery programme dubbed
Zambia Plus necessary?
Is IMF support necessary or is it too risky for
Zambia?
“Working Towards the formulation of Sound Economic Policies”
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1.1 The Debate
Debates in the media, in the general public, among key
players like CSOs (NGOs, FBOs), donors, etc.

Is an economic recovery really necessary for Zambia?

If yes, is IMF support really necessary or is the IMF too
risky so that we should “go it alone”?
We say Zambia Plus and IMF are both very necessary…
 Our paper is a step back, to understand why…
“Working Towards the formulation of Sound Economic Policies”
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1.2 Zambia: Macro-economy in 2015
External shocks:

Copper prices collapsed, falling by 35% in 2015, & cause
trade & current account deficits.

In July, severe electricity shortages set in (load-shedding:
8hrs/day); manuf. & agro-processing productivity dropped
by 30-70% and US$4.3 billion in current GDP was lost.

The Kwacha collapsed, depreciating by 26% in Sept and
60% over the year. Inflation rose from 7.7% in Sept to
21.1% by Dec, due to imported inflation.
“Working Towards the formulation of Sound Economic Policies”
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1.3 Zambia: Macro-economy in 2015
Domestic policy responses:

Monetary policy became tighter – inflation &
exchange rate came under control but interest
rates rose & squeezed out the private sector.

Fiscal policy remain expansionary (“spending what
we did not have”) – very little fiscal adjustment.
“Working Towards the formulation of Sound Economic Policies”
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1.4 Zambia: Macro-economy in 2015
Growth performance decline (real GDP growth rates):
6.9%
2.9%
1999-2014
2015
3.4%
2016*
For a small open economy, 2015 was a big slowdown!!
 Zambia Plus is necessary to lock out possible
instability & to recover our growth path.

“Working Towards the formulation of Sound Economic Policies”
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2.1 Consequences of Inaction
Without a deliberate programme to ‘force’ discipline,
Zambia’s fiscal slippages will continue…
0.0%
(% of GDP)
-2.0%
-4.0%
-6.0%
-3.8%
-4.1%
-5.7%
-6.9%
-8.0%
-10.0%
-10.0%
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
-12.0%
Fiscal balance target
Fiscal balance outcome, cash basis
Fiscal balance outcome, commitment basis
Fiscal balance projection, commitment basis

Without Zambia Plus, budget deficits will remain deep
“Working Towards the formulation of Sound Economic Policies”
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2.2 Consequences of Inaction
To sustain the huge budget deficits, Govt. will have to
keep borrowing over 2017-2019.
 But the debt burden is already very heavy!!

Budget allocations:
 External &
domestic debt
servicing & arrears
payments are 23%
of 2017 National
Budget.
12.5%
13.4%
Road infrastrcture
External Debt Interest
Domestic Debt Interest
6.8%
10.1%
6.7%
7.7%
Dismantling of Arrears
5.1%
Farmer Input Support… 1.9%
4.4%
1.5%
Public Service Pension Fund
2.6%
Strategic Food Reserve (by… 1.4%
1.5%
0.6%
Social Cash Transfer (SCT)
0.9%
0.7%
Economic Empowerment Fund
0.3%
Rural Electrification… 0.2%
0.2%
“Working Towards the formulation of Sound Economic Policies”
2016 (K53.1
billion)
2017 (K 64.5
billion)
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2.3 Consequences of Inaction

The debt burden means Zambia will use nearly ¼ of
the budget on debt servicing/arrears in 2017.

This is equivalent to each of the 16.4 million women,
men & children in Zambia paying K896 (or a family of
six paying K5,391 as debt servicing) in 2017.

But as of 2015, 54.4% of Zambians were poor; could
not afford the minimum annual consumption basket –
K2,568 (or K214 per month) – needed to kept a family
of six above the income poverty threshold.
“Working Towards the formulation of Sound Economic Policies”
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2.4 Consequences of Inaction

When shocks happen, from a budget point of view,
5.0
120%
who suffers?
90%
(K millions)
Economic
empowerment
fund (82%
underspending
 SCT (18% under)
 Public pension
fund (13%
under)

4.0
80%
58%
40%
3.0
Budget
approved
0%
2.0
1.0
-13% -18%
-82%
0.0
“Working Towards the formulation of Sound Economic Policies”
-40%
-80%
Preliminary
release
-120%
%
difference
between
release &
budget
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3. Is the IMF Relevant to Zambia Plus?
Yes, the IMF is relevant. Three reasons why…
 Zambia is eligible to a US$1.3 bn interest-free loan
from IMF; this can cover Zambia’s total external debt
service needs (US$1.36 bn) for the next two years.

IMF also offers technical support on macroeconomic
policy design and implementation (also automatic
checks and balances for Govt.)

IMF also signaling that Zambia is serious about
recovery & open for business; brings extra resources
from donors & FDI
“Working Towards the formulation of Sound Economic Policies”
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3. Is the IMF Relevant to Zambia Plus?

Risks of IMF programme  stringent fiscal adjustment
and other conditionalities… (recalling SAPs);
 IMF has reformed, but…

But the solution is not for Govt. to run away from
them; Govt. simply needs to manage the risks…
“Working Towards the formulation of Sound Economic Policies”
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4. In Closing…

Zambia Plus is absolutely necessary for full recover:
locking in stability; and re-establishing robust growth.

IMF is key for: extra extermal resources; technical
assistance (& accountability); & signaling about
Zambia.

But Zambia also needs: rational & consistent fiscal
policy; strong, insulated & accountable institutions &
policy-makers; and political will & social restraint.
p/s: Please look out for the macroeconomic imbalances paper…
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“Working Towards the formulation of Sound Economic Policies”
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