Maravi

Govt on track to achieving macroeconomic targets

Govt on track to achieving macroeconomic targets
By Chiwoyu Sinyangwe and Joan Chirwa
Tuesday April 29, 2008 [04:00]

GOVERNMENT and Bank of Zambia (BoZ) have insisted that the country will achieve its macroeconomic targets of seven per cent growth rate and single-digit inflation this year despite increasing negative external pressures. And independent consultant Robert Liebenthal has said among the external pressures that would negatively affect the domestic economy, rising oil prices posed the biggest challenge.

The comments come in reaction to concerns that the country might not achieve its macroeconomic target of achieving Gross Domestic Product (GDP) growth rate of seven per cent and single digit annual inflation rate for this year owing to the soaring oil prices on the international market, recession in the United States’ economy and escalating global food prices.

In an interview last week, finance minister Ng’andu Magande said although the domestic economy remained vulnerable to external pressures, the government was not ready to scale down on its ambitions.

He also said increased investments in the mining sector and favourable international copper prices coupled with the expected increased output of the country’s lifeblood were expected to mitigate the negative impact of the external pressures on the local economy.

He also emphasised that it was too early for the government to start making adjustments to its macroeconomic objectives for this year.

“We shouldn’t scale down on our ambitions but move on until it happens. Yes our economy is not insulated from external pressures because we don’t produce oil,” Magande said. It is obvious that it has never happened before that oil prices have reached US$117 per barrel but then you know copper prices are US$8,000 plus now… so every commodity is going up and so in that circumstance, you just have to re-adjust within what you are doing.”

Magande said that the country’s export base was strong enough, and coupled with increased mining taxes would help to moderate high oil prices.

“Obviously, if the miners expected to finish their investment in two years’ time because of the good copper prices, they will finish earlier and that means they will bring equipment earlier,” he said. “If they do that, then we might get a bit more customs money and then we will put more into schools and that might catch up with what we are losing in the prices.

And so the dynamism of the whole thing is that unless we had nothing that we were exporting, that’s when we would be completely paralysed but we have a very big and strong export base so while we are losing by buying, we are also gaining through selling.”

He also said the government would continue to aggressively diversify the economy so as to increase its resistance to external shock.

“What we need is to diversify our economy to be able to handle the effects of external pressures, if we see our agriculture now, next season we’ll grow more crop, then that means we will be able to seal ourselves from the high prices of those who are exporting things to us that’s what we need to diversify,” said Magande. “As for food, there is no food shortage in the country.

We have enough maize in the country that we even exported maize there is plenty of it, we have a lot of sweet potatoes, sorghum, so what food don’t we have. I don’t expect people in Zambia to start rioting in Cairo road because there is no mealie meal when we have so maize around. ”

And BoZ governor Dr Caleb Fundanga has said Zambia will "sweat it out" to achieve the seven per cent inflation and gross domestic product (GDP) growth target at the end of this year.

Dr Fundanga said Zambia was likely to end the year with a single digit inflation rate despite the current inflationary pressures resulting from the worldwide commodity price increases. "When you are given a target, it has to be a challenging target. We need to sweat it out to achieve the seven per cent target we have been given for inflation this year," said Dr Fundanga. "Last year by February, inflation was above 10 per cent but by March this year, we were still in single-digit meaning the prospects are good."

And Liebenthal said it was still possible for the country to achieve the targeted seven per cent GDP growth rate despite international conditions.

He said the recent floods and the power outages posed a more adverse effect on the economy than external pressure and that increased copper output was also crucial to ensuring that the country achieves its targeted macroeconomic objectives.

He however said that the annual inflation rate for this year was likely to end high. “The biggest problem for Zambia will probably be the rise in oil prices.

The US slowdown does not seem to be having much effect on mineral prices, which are the main concern for Zambian exports. The rise in international food prices will have a limited effect so long as Zambia does not need large food imports. However, the floods and crop failure in parts of the country will have serious effects in those areas,” Liebenthal stated.

“Inflation is likely to rise because of fuel and food prices. GDP growth has been adversely affected by the floods and the power outages, rather than by international conditions, but even so, the seven per cent target could be met if mining output continues to expand.”

Liebenthal however said the government would need to take stock of the local economy after this year’s harvest and see whether it could make some adjustments to the targets.

“In July, when we will know better what happened to the 2007/2008 harvest, as well as mining output, price and fiscal and monetary developments in the first half of the year, government should take stock and see whether adjustments are needed,” said Liebenthal.
Liebenthal who also said the appreciation of the kwacha against major convertible currencies might help to cushion the huge crude oil importation for the country was however quick to note that the move would threaten the growth of the country’s export sector.

“Another short-term issue could be the appreciation of the kwacha, which could threaten export diversification, especially if it happens rapidly,” he said.

On concerns that the country’s economy remained extremely susceptible to external pressures, Liebenthal said: “Zambia’s economy is very open to trade, so there isn’t much the country can do to change that. As stated above, apart from inflation, most of the short-term problems are driven by the flooding and power problems, which are not caused by external pressures.

However, the country should continue to work for a more diversified economy, less dependent on a single economy. This is a long-term aim, the strategy for which is pretty well laid out in the FNDP – investment in infrastructure, agriculture, tourism, rural development.”

He also urged government to concentrate on investing the revenues from the new mining taxes in better infrastructure and on financial measures to cushion possible future declines in mineral prices and revenues.

Labels: BOZ, MACROECONOMICS, MAGANDE

posted by MrK @ 8:35 AM