Stringent measures lead to improved growth

Aggressive efforts by Zambia to curb government overspending have begun to pay off and the country's finance ministry reports steady economic growth over the past year.

Deputy Finance Minister Felix Mutati told IRIN on Tuesday that much of the improvement - 5.1 percent economic growth in 2003 - was due to austerity measures agreed upon with the International Monetary Fund (IMF).

Zambia overshot its 2003 budget by Kwacha 610 billion (about US $130 million), as a result of which the IMF and other donors withheld US $175 million in funding.

"We are on track on all fronts, and if we keep up this performance we should be able to return to the IMF's PRGF (Poverty Reduction and Growth Facility) in June," said Mutati. The PRGF is the IMF's low-interest lending facility for low-income countries.

He explained that between January and March 2004 the country had met key targets under the IMF's Staff Monitored Programme (SMP).

In an effort to gain IMF approval for its participation in the PRGF and regain donor confidence, the government accepted an interim staff monitoring system. The programme, introduced in July 2003, allows the Fund to regularly measure and assesses economic performance.

"The recent IMF assessment [for the period January to March] showed that all the key quantitative targets under the SMP were met. We managed to spend under the 8.1 percent of GDP [Gross Domestic Product] on salaries suggested by the IMF. The government's domestic borrowing from the Central Bank and other banking institutions has also been curtailed, and we have spent discreetly on health and education," Mutati said.

Monthly disbursements to various programmes under the country's poverty reduction strategy had remained below 2 percent - a key IMF condition. Satisfactory performance under the extended SMP is essential before Zambia can obtain a new three-year arrangement under the PRGF.

However, the belt-tightening has not been without controversy. Last year the government was involved in a standoff with 120,000 civil servants who demanded the immediate payment of housing allowances.

The increase in copper prices and the country's recent boom in maize production have also given economic growth a much needed boost.

Said Mutati: "Last year copper fetched US $1,200 per mt but now we are seeing prices of up to $2,700 per mt. Along with copper, agriculture has been a major injection into the economy. Preliminary forecasts say that this year's maize harvest will surpass the 1.2 million mt achieved last year."

Zambia's re-entry into the IMF's PRGF is expected to improve confidence in the economy and attract international investment, according to Mutati.

"Our return to the IMF's programme is really about credibility. It will indicate to donors and investors that the country's economy is being managed properly, and this will lead to bilateral donors releasing funds which they had decided to withhold," he noted.