The Zambian economy needs to take emergency measures to restore high levels of growth as it gets battered by low copper prices, an IMF team has found.
The team’s report found the Zambian economy to be under intense pressure from electricity shortages and poor rainfall as well as copper prices which have halved in around 10 years, factors which have combined to slow growth to 3% in 2015.
Increased inflation, pressure on spending and financing have added to poor economic conditions, the report said.
“Resolute action is needed as quickly as possible to restore macroeconomic stability and pave the way for a return to high sustained growth,” said the IMF.
The team led by Tsidi Tsikata described government finances as being “under immense stress”. Expenditure was exceeding budget largely due to fuel subsidies and emergency electricity imports costing an estimated $660 million a year (equivalent to 3.2% of GDP).
However the team added that it was confident Zambian could meet its economic challenges by taking “resolute action” and said that despite upcoming general elections the government was committed to cutting discretionary spending while safeguarding social protection programs.
“A package of measures that makes clear that the fiscal pressures are being tackled would boost market confidence and pave the way for increased investment and growth. However, delays in implementing corrective measures will only worsen the situation, increase the adjustment cost and postpone the recovery,” said the report.
A drought in Zambia has caused plunging water levels at hydro-electric dams worsening the country’s power supply difficulties.
Refined copper accounts for 55% of Zambia’s total exports of $12.2bn. Raw copper accounts for a further 14%.
Copper production at the country’s older mines is expensive, which has exacerbated the impact of falling copper prices.