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Don’t focus too much on real economic growth - IMF

Don’t focus too much on real economic growth - IMF
Written by Chiwoyu Sinyangwe
Thursday, March 26, 2009 6:14:57 PM

ZAMBIANS shouldn’t focus too much on the targeted real economic growth rate as economic output can continue to expand while national income declines, International Monetary Fund (IMF) resident representative for Zambia Birgir Arnason has observed.

And Arnason has observed that it is very difficult to determine if the recent recovery in copper prices will be sustained, stressing that the IMF projects that the future price of the red metal will not rise significantly until the international economy rebounds.

In an interview, Arnason said it was not enough to look only at the GDP growth rate in assessing the countryís economic performance, as it did not take into account price movements.

Arnason said it was also necessary to look at the development of national income which took into account price changes, including of copper, saying declines in copper prices could negate the increases in the volume of copper produced per annum.

Arnason, who also indicated that it was futile to debate the feasibility of achieving the government’s projected five per cent growth rate for this year, said the growth rate could be lower or even higher. He however said Zambia would this year be adversely affected by the decline in copper prices.

“We continue to base our projection on five per cent growth rate this year, but I think we recognize that there are risks on the downside,” Arnason said.

“The real issue is that Zambia has suffered a significant external shock through the large decline in copper prices. This in terms of trade shock has led to a decline in national income although the volume of output is still growing. I think that too much of a focus on the real GDP growth rate is somewhat misplaced. I don’t think that we should focus exclusively on the GDP (gross domestic product) growth number. If you look at what is happening in the Zambian economy, it is not that production is declining, production is in fact growing.”

Anarson also observed that the IMF supported the governmentís intention to increase infrastructure spending to support diversification while also maintaining macroeconomic stability.

He also said the targeted 10 per cent annual inflation rate for this year appeared to be attainable going by the slowdown for the months of January and February, adding that these indications “augur well for progress on lowering inflation rate in the country.”

And Arnason said it was unclear whether the current upturn in copper prices was sustainable in that it represented a fundamental realignment of demand and supply in the international market, as there had been so much production taken out in the last few months which could have led to supply constraints for copper.

Arnason also suggested that the possibility of speculative behavior in the market could be behind the recent increase in copper prices.

He however said IMF did not expect copper prices to rebound to the US$8,000 to US$9,000 per tonne bands in the foreseeable future.

“The view of analysts at the IMF is that commodity prices in general, and copper in particular, would not rise significantly until there are clear signs of recovery in the international economy,” said Arnason.

“Certainly US$4,000 dollar is a better price than US $3, 000. However, this is high enough for Luanshya to open again or to ensure Mufulira and Nkana continue operation is a question I cannot answer.”

Labels: BIRGIR ARNASON, ECONOMY, IMF

posted by MrK @ 6:14 PM