Press Release No. 14/589

Press Release: Statement at the end of an IMF Article IV Mission to Zambia

December 18, 2014

An International Monetary Fund (IMF) team led by Tsidi Tsikata visited Zambia during December 4-18 to hold discussions for the 2014 Article IV consultation.

At the end of the mission, Mr. Tsikata issued the following statement:

“The Zambian economy continues to register strong growth. Non-mining growth has remained close to 7 percent, but technical outages at some mines led to a decline in copper production that is projected to reduce overall real GDP growth to about 5½ percent in 2014. The exchange rate depreciated sharply in the first half of the year. A marked tightening of monetary policy and a boost to international reserves from Eurobond proceeds helped to partially reverse the depreciation and stabilize the exchange rate. Nevertheless, the annual rate of inflation edged up to 8.1 percent in November.

“Zambia’s growth potential remains high, but the medium-term outlook is clouded by domestic and external risks. The outlook is buoyed by several mining and electricity supply projects that are about to come on stream. However, political and social pressures for loosening fiscal policy in the run-up to the 2016 general elections are potential sources of downside risks. Moreover, lower world copper prices and the announced shift to a royalty-only mining tax regime with high rates are likely to adversely affect the mining sector. The authorities indicated that they are looking to assuage the concerns of mines and prevent closures.

“Greater policy stability and consistency would help anchor confidence in Zambia as an attractive investment destination. In this regard, the mission urged the authorities to seek a speedy resolution to the impasse over VAT refunds to exporters. More generally, it will be important to enhance dialogue between stakeholders, particularly between government and the mining sector where there is a need to build mutual trust.

“Effectively addressing the country’s fiscal imbalances is critical for maintaining macroeconomic stability and ensuring a strong foundation for sustained economic development. Despite some progress in 2014, keeping public finances in line with approved government budgets has proved challenging, and deficit financing has put upward pressure on interest rates. In the mission’s view—based on the current international and domestic environment—the 2015 financing requirement is likely to be larger than planned. The mission welcomed the authorities’ intention to take measures to keep the deficit within the budgeted level. Such consolidation would, with time, allow for a normalization of monetary policy and a reduction in interest rates.

“After the January 20 presidential by-election, the mission team will engage the incoming government to discuss its policy intentions and priorities before submitting a report to the IMF Executive Board on the 2014 Article IV consultation.

“The team met with Finance Minister Alexander Chikwanda, Bank of Zambia Governor Michael Gondwe, and other senior government officials, as well as members of parliament and representatives of the private sector, civil society, and development partners. The mission wishes to thank the authorities for their hospitality and for the open and constructive spirit in which the discussions were held. It also expresses its gratitude to all other stakeholders with whom it held discussions.”