Maravi

IMF cautions Zambia over borrowing

IMF cautions Zambia over borrowing
By Joan Chirwa
Tuesday July 29, 2008 [04:00]

THE International Monetary Fund (IMF) has cautioned Zambia and other developing countries against huge external borrowing amidst a boom in commodity prices. But finance and national planning minister Ng’andu Magande has assured that the government will not increase its current external debt but judiciously use resources gained from high copper prices to develop key infrastructure. Presenting an updated forecast of the World Economic Outlook 2008, IMF economic counsellor and director of research, Simon Johnson urged Zambia and other developing countries to exercise caution in terms of the country’s fiscal positions in order to avoid being vulnerable.

Johnson said developing countries should keep in mind that while some commodity prices may remain high, it would be a mistake to rely on that in terms of the country’s fiscal position.

“We have emphasised, and we made this point in our Spring World Economic Outlook, that if the global economy starts to turn down as we expect, then at some point commodity prices would also come down,” Johnson said.

“It's hard to call at this moment, but we do urge caution in terms of countries' fiscal positions, for example, and the extent of their external borrowing, that they should keep in mind that while some commodity prices may remain high and some of them could even go higher, it would be a mistake to bet on that in terms of the fiscal position of a country. So you don't want make yourself vulnerable.”

Johnson however said the IMF thinks most African countries have remarkably managed the commodity boom.

“We think they've learned a lot of lessons from previous experiences. And, broadly speaking, they're doing a good job. But we are urging them to be careful, of course, about spending what may turn out to be a temporary windfall,” said Johnson.

But Magande said the government had no intentions of increasing external debt, assuring that the country would use finances gained from the new tax regime to develop key infrastructure.

“Government is already not borrowing and we are trying to use money we are getting from the boom in copper prices for infrastructure development such as roads, rail, energy and telecommunication.

We recently gave money to Zesco Limited for their rehabilitation programme so that we can resolve the current power shortages,” Magande said. “We have already made our position known as the government that we will not borrow and we stand by that. We appreciate what the report is saying and for acknowledging that most developing countries have managed the commodity boom properly.”

But Jesuit Centre for Theological Reflection (JCTR) coordinator for Debt, Aid and Trade Muyatwa Sitali said the government should live up to its assurance that it will not contract any debt this year.

“It is impressive for the minister (Magande) to mention that the government will not contract any external debt considering that we don’t yet have a legal framework that makes sure we borrow with parliamentary oversight and in a transparent manner,” Sitali said.

“This is the reason why as JCTR, we have been insisting on having a legal framework which would keep the government away from contracting unsustainable debt. We find it difficult to understand what could explain the time taken by the government to put in place the legal framework. We prepared a proposed Debt Management Bill which we submitted to the Ministry of Finance and National Planning but we haven’t been informed of what step government will take.”

Sitali also said advising Zambia to borrow for investments in the energy sector would take the country back to unsustainable debts in the absence of a legal framework on debt contraction.

“There have been policy advices that say Zambia should borrow for the enhancement of the energy sector but this is coming when we don’t have a legal framework on debt contraction,” said Sitali.

And IMF’s World Economic Outlook (WEO) 2008 states that rising energy and commodity prices have boosted inflationary pressure as well as growth slowdown, particularly in developing and emerging economies.

“In advanced economies, inflation pressures are likely to be countered by slowing demand and, with commodity prices projected to stabilise, the expected increase in inflation for 2008 is forecast to be reversed in 2009,” the IMF stated. “In emerging and developing countries, inflationary pressures are mounting faster, fueled by soaring commodity prices, above-trend growth, and accommodative macroeconomic policies.

Hence, inflation forecasts for these economies have been raised by more than 1.5 percentage points in both 2008 and 2009, to 9.1 per cent and 7.4 per cent, respectively, and the moderation in inflation in 2009 will depend on more assertive tightening of monetary conditions.”

Zambia’s inflation rose to 12.1 percentage points last month largely on account of rising costs of basic needs.

The Central Statistics Office (CSO) said of the total 12.1 per cent, food products accounted for 7.5 percentage points while non-food items in the consumer price index (CPI) accounted for a total of 4.6 percentage points.

Labels: GOVERNANCE, IMF, JCTR, MAGANDE, MUYATWA SITALI

posted by MrK @ 5:49 AM