Zambia is today facing one of its worst economic crises since independence in 1964. The indications are that this crisis is just beginning and will deepen over the next 6 months:
- The Zambian kwacha is under immense downward pressure – reflecting both external developments (U.S. dollar strength and lower copper prices) as well as domestic factors (growing fiscal deficit, depleting government deposits, unstable fiscal regime, unprioritized spending, high levels of corruption and the electricity crunch).Over the past 4 years monetary policy, through the Bank of Zambia (BOZ), has overstretched itself in containing inflation and trying to stabilize the Kwacha. With low reserves at its disposal, the options for BOZ have narrowed down. We do not therefore reckon with active interventions of the central bank in stabilizing the Kwacha. Fiscal policy has therefore to play a significant role. However, the fiscal policy of the PF government has not been is still is not supportive. The end result is that the Kwacha is now the worst performing currency in the world. As we stated in the last Press Release by the Rainbow Party General Secretary two months ago, this has pushed the currency risks to unprecedented levels and will critically hurt the entire economy.
- Growth is projected to decline to below 5% as businesses reduce capacity or close – rendering thousands of workers jobless. Key risks to this outlook being a volatile currency, the electricity crisis, absence of fiscal adjustment especially with the pending general elections in 2016, persistent low copper prices, and policy uncertainties that continue to undermine investment in the economy.
- Inflation will rise; induced by a weaker Kwacha, increase in food prices and essential commodities and high electricity bills. This will push the cost of living upwards and exacerbate the prevailing poverty conditions of the masses of the Zambian population.
This crisis requires urgent and informed action that goes beyond what the PF government has today exhibited:
- There is need for strong efforts to ensure macroeconomic stability with focus on fiscal consolidation to reduce the deficit, stabilize debt, and create conditions for lower interest rates.
- We are calling for sustained expenditure efforts, including efforts to contain international travel, the never-ending workshops, unprioritised spending, procurement of vehicles, office furniture, etc.
- The government should postpone the setting up, equipping and staffing of the newly created Ministries for at least 10 months.
- All ongoing infrastructure projects should be reviewed with the aim of halting a number of them until the economic conditions improve.
- The Bank of Zambia should continue to maintain a tight monetary policy stance to contain inflationary pressures, continue with exchange rate flexibility and resist demands to deplete the little remaining reserves.
- The Zambian government should stop contracting any more commercial debt for the next 12 months. We also demand to see and provide input to a comprehensive debt management strategy that will help mitigate the risks of public debt vulnerabilities.
- The economic policy “messages” being sent to the public and financial markets should be informed and well-though out. The treasurer and BOZ should take the lead. State House and the Ministry of Information should take a back-stage – their involvement to date has been catastrophic.