By Kabanda Chulu
Fri 31 Jan. 2014, 14:00 CAT
THE GOVERNMENT says higher economic growth is meaningless unless there is continued investment in infrastructure, health and education to result in job creation.
And the government has projected agriculture, mining, manufacturing, tourism, energy and construction to be major drivers of GDP growth and job creation over the medium to long term.
According to a fact sheet on developments in the economy released yesterday by Ministry of Finance public relations officer Chileshe Kandeta, economic growth was positive in 2013.
"But higher growth and greater job creation will require continued investment in economic infrastructure as well as health and education. Zambia needs to achieve higher levels of economic growth to make meaningful headway in creating decent jobs and reducing poverty and inequality," it stated. "Government remains committed to maintaining macroeconomic stability characterised by low inflation, stable exchange rate, rising international reserves and expansion in access to credit particularly for Small Medium Enterprises."
It stated that the government was targeting real economic growth of between seven per cent and eight per cent over the medium term (2014 - 2016).
"Budget deficits are expected to be consolidated towards a lower figure of three per cent of GDP in the medium term. Revenues are projected to rise to 23 per cent of GDP by 2016. Inflation is targeted to decline to no more than five per cent by 2016," it stated. "External debt will remain sustainable and well below the threshold of 40 per cent of GDP and there is need to improve access to financial services as well as achieving better health and education outcomes which is critical in making meaningful progress in reduction of poverty and inequality."
In 2013, real GDP was K125.9 billion compared to K106 billion in 2012. GDP growth in 2013 was 6.5 per cent, with average real growth over the past three years (2011-2013) of 6.9 per cent.
"Key contributors to real GDP growth in 2013 were transport, storage and communications (27.1per cent); construction (24 per cent); community, social and personal services (17.4 per cent); financial institutions and insurance (13.7 per cent); manufacturing (8.2 per cent) and mining (5 per cent)," it stated. "Investment in the economy (Gross Fixed Capital Formation) is currently estimated at 29.7 per cent of GDP in 2013, with average investment over the past three years (2011 - 2013) of 27.1 per cent."
On fiscal policy and the budget, it stated that the expansionary fiscal budget was largely aimed at infrastructure development necessary to sustain high levels of economic growth over the medium term.
"Higher deficit in 2013 reflected structural reforms related to management of strategic reserves (FRA), oil procurement (fuel subsidies), and reform of the public service (wage award)," it stated.
"Preliminary data indicates that in 2013 the budget deficit was approximately 6.7 per cent of GDP, compared to the target of 4.3 per cent of GDP. However, this was significantly below the figure of 8.6 per cent of GDP which was initially forecast by the IMF. Government is committed to reducing fiscal deficit to no more than three per cent of GDP over the medium term. This should be possible as Zambia achieves higher growth and greater tax revenues from the mining and other sectors sector as production increases."
On debt policy, it stated that the government was mindful of the need to maintain debt sustainability to safeguard macroeconomic stability.
"Total debt as a percentage of GDP stood at 28 per cent in 2013. External debt stood at US$ 3.1 billion 2013 or 13.7 per cent of GDP, whilst domestic debt stood at K17.6 billion or 14 per cent of GDP," it stated. "External and domestic debt levels remain below their international thresholds of 40 per cent and 25 per cent respectively. Debt service (principal and interest payments) stood at K11 billion or 1.2 per cent of GDP (and approximately six per cent of domestic revenue) in 2013."
It stated that monetary policy remains committed to delivering low inflation and a strong financial sector that continues to expand access to finance, particularly to SMEs.
"Increasing attention is also being paid to improving consumer protection and strengthening corporate governance standards. Inflation remains in single digits at seven per cent in 2013, and the goal is to reduce this to no more than five per cent by end of 2016," it stated.
"Average lending rates have stabilized around 16 per cent and private sector credit grew by 16.2 per cent on an annual basis (as at November 2013)."
It stated that current account and trade balance remain positive with strong Foreign Direct Investment flows.
"But declines in trade balance in recent past reflect the need to promote greater Non-Traditional Exports by diversifying the export base. Agriculture, energy and manufacturing sectors are going to be important sources of diversification over the medium to long term," it stated.
"The nominal exchange rate (kwacha versus the US dollar) remains market determined and depreciated by an annual average rate of 4.2 per cent in 2013 but government is committed to maintaining a flexible and open exchange rate regime with stronger monitoring of external flows so that we can better manage the economy and respond to any global financial shocks."