The World Bank has advised the Zambian Government to remove subsidies as a measure towards making every Zambia count following the current economic slowdown.
This is contained in the seventh World Bank Zambia Economic Brief titled: Beating the slowdown: Making every kwacha count, released yesterday.
The report states that making every kwacha count should include the removal of fuel subsidies and moves to improve the financial sustainability of the power sector.
World Bank Country Manager for Zambia Ina-Marlene Ruthenberg said international experience demonstrates that such measures are best complemented by scaling-up cash transfer programs, both in terms of the amount household’s receive and the number of vulnerable households benefiting to protect the vulnerable during any transition.
Ms. Ruthenberg observed that although Zambia is facing tough conditions for growth, investment in mineral and non-mineral sectors in the country remains attractive.
“Zambia, like many other African countries, is facing external headwinds while domestic pressures have intensified. The external headwinds include slower regional and global growth and lower copper prices. Domestic pressures include a power crisis impacting on all sectors of the economy and repeat fiscal deficits that have made achieving macroeconomic stability harder,” the report said.
The report observes that GDP growth is forecast to remain close to 3.0 percent in 2016, assuming new power generation capacity comes on line and a better harvest is achieved.
The report says the medium-term horizon for the economy looks brighter and growth of the economy is forecast to improve in 2017 to 4.2 percent and again in 2018 to 5.0 percent.
“The outlook for the Zambian economy is underpinned by an assumption that copper prices remain soft throughout 2016 and 2017. However, if global copper supply better matches demand, and prices recover once again, improved growth could be achieved.”
It added, “The return to faster growth requires that uncertainty about whether persistent and growing fiscal deficits can be reined in is met with clear and credible budget policies toward a more sustainable fiscal stance.”
And World Bank Senior Economist Gregory Smith said the changes in the global conditions for growth require that countries in the region ensure any under-utilized resources are re-allocated to where they can have greater impact.
“There is a need to carefully look at the efficiency and effectiveness of public expenditure, and ensure that every kwacha counts,” he added.
The report observes that commodity price shock highlights the need for Zambia to reduce its dependence on copper.
It says the Seventh National Development Plan provides a good opportunity to set this agenda and set a path to clear impediments to private sector activity and improving the business environment.