Maravi

Economist disagrees with IMF's stance on Zambia

Economist disagrees with IMF's stance on Zambia
By correspondent
Monday July 02, 2007 [04:00]

AN economist has disagreed with the International Monetary Fund’s (IMF) stance on Zambia pursuing tight monetary policy to keep inflation on a downward path. In an interview last week, Gregory Chikwanka said the level of inflation necessary for Zambia’s growth is above the single digit that the IMF is propagating.

“I do not share the Fund’s (IMF) view on tight monetary policy in order to keep inflation on a ‘downward path’…the Fund should be reminded that a certain level of inflation is necessary for economic growth and this level is certainly above the single digit level being propagated by them,” he said.

“What is necessary is to maintain price stability at a certain optimal level - the level which does not compromise output. The tight monetary policy route that the Fund has been insisting on has had a cost in terms of generating the economic growth required for development and poverty elimination,” Chikwanka said.

He further urged the IMF to again take a look at its current exchange rate policy on Zambia.

“The Fund should also re-examine its position on Zambia’s current exchange rate policy which makes maintenance of macroeconomic stability difficult due to constant fluctuations in the price of the kwacha,” he said.

“Fighting inflation cannot be separated from a credible exchange rate regime.”

IMF deputy managing director Takatoshi Kato in a June 8, 2007 statement said Zambia’s “monetary policy will need to remain firm in the months ahead to keep inflation on a downward path.”

Chikwanka however agreed with the IMF on Zambia broadening its tax base.
He said this marks a departure from the recommendation that the IMF had made last year on Zambia imposing value added tax on basic goods and services.
“We have been speaking about broadening the country’s tax base and ensuring efficiency in the collection of taxes for some time now. The greatest scope for broadening the tax base exists in the now lucrative mining industry,” Chikwanka said.

“Addressing the low taxes, particularly the royalties, being levied on copper mining in this country now requires a sense of urgency. This is a potential source of higher revenue for the government which the IMF is talking about. High international copper prices will not be with us forever.”

He said the positive macroeconomic environment Zambia is experiencing cannot be separated from happenings in the copper mining industry.

“Assuming government was able to collect enough revenues as a result of high copper prices, we could probably be talking about a better situation.”

Labels: DEVELOPMENT AGREEMENTS, IMF, MINING CONTRACTS, TAXATION

posted by MrK @ 11:22 PM