Tuesday, December 25, 2007

IMF emphasises importance of raising electricity tariffs

IMF emphasises importance of raising electricity tariffs
By Laura Mushaukwa
Monday December 24, 2007 [03:00]

THE International Monetary Fund (IMF) directors have emphasised the importance of raising electricity tariffs to levels consistent with the full cost recovery. According to the 2007 IMF executive directors’ assessment of Zambia’s development and policies, the directors considered development of the energy sector as vital to achieving a vibrant private sector and reducing poverty.

They commended Zambia for pursuing sound macroeconomic policies, which, together with high copper export prices and debt relief, had contributed to a strong economic performance.

They also noted that Zambia’s economic growth was robust, inflation had been brought under control, public finances and the external position had both improved.
The directors encouraged the government to take advantage of the favourable outlook to step up their efforts to further strengthen growth and reduce poverty in the context of the Fifth National Development Plan.

The IMF directors stressed the need for Zambia to focus on improving budget execution and creating fiscal space for increased spending on infrastructure and social sectors, strengthening project evaluation, implementation capacity, diversifying the economy to reduce the vulnerability to fluctuations in copper prices and further improving the conditions for private sector growth.

They further advised Zambia to manage the effects of high foreign exchange inflows as a way of maintaining macroeconomic stability.

However, the IMF directors warned against complications for liquidity management that could arise from weaknesses in budget execution and recent lowering of statutory reserve requirements.

They observed that the current exchange rate was consistent with external stability and aligned with economic fundamentals including a significant improvement in the terms of trade.

The IMF directors commended Zambia’s fiscal discipline, welcoming the targeted increase in revenues and shift towards capital spending and arrears reduction in the preliminary 2008 budget.

They noted that the projected growth in the government wage bill heightened the need to accelerate civil service and pay reform.

The IMF directors emphasised the importance of strengthening tax administration and widening the tax base and welcomed the efforts underway to increase revenue by aligning the fiscal regime for mining companies with international standards.
They saw further progress on strengthening public expenditure management as crucial to enhancing the effective use of public resources encouraging the government to step up implementation of the public expenditure management

They went on to stressed the importance of aligning the budget cycle with the fiscal year and finalising the new Procurement Act in order to improve budget execution.

The directors called for accelerated implementation of reforms to improve the business environment and welcomed governments’ commitment to an open trade regime to accelerate export development.

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