The Zambian Economy in Perspective: The Impact of the IMF Policies

Transcription

1 The Zambian Economy in Perspective: The Impact of the IMF Policies Presentation By: Dr. Mark J. Ellyne, IMF Resident Representative at the Copperbelt University, Kitwe, October 25, 2002

2 Purpose of the IMF Promotes international monetary cooperation. Facilitates the expansion and balanced growth of international trade. Promotes exchange stability. Assists in the establishment of a multilateral system of payments. Lender for balance of payments problems. Provides technical assistance. 2

3 Where does the IMF get its Money? Each member government has a quota subscription. Quotas currently total more than US$260 billion. Each member s quota determines its voting rights. Zambia s quota = US$ 0.46 billion. 3

4 To Whom is the IMF Accountable Shareholders = 183 countries Country Representatives = Minister of Finance and Governor of the Central Bank 24 Executive Directors represent all shareholders 4

5 What is the IMF Doing about Poverty An estimated 1.2 billion people live on less than US$1 a day. The IMF is working to reduce poverty by providing low-interest loans and debt relief to the world s poorest countries, linked to the adoption of policies that promote lasting poverty reduction. Money provided through Poverty Reduction and Growth Facility and HIPC 5

6 Why has per person real income in Zambia fallen by over 45% since independence? Per Capita Real GDP Amount in 1994 Constant US $ Period 6

7 The continued fall in the price of copper after 1975 eroded national income. Purchasing Power of 1 Pound of Copper Year 7 US cents per pound

8 As national income declined between 1975 and 1987, the government dramatically increased foreign borrowing to cover the lost income. Total External Debt 8,000 7,000 6,000 US $ million 5,000 4,000 3,000 2,000 1, Period 8

9 As foreign borrowing failed, the government began creating more domestic money to cover declining national income, but this increased prices and inflation. Inflation Period 9

10 Rising Kwacha prices relative to US prices simply reduced the value of the Kwacha Movement of Kwacha Prices vs US Dollar Prices and the K/$ Exchange Rate Zambia CPI/USA CPI Kwacha/US$ 500 Kwacha/US$ Zambia CPI/USA CPI period - 10

11 Adjustment versus Borrowing Temporary income decline Borrow to maintain standard of living Permanent income decline Make adjustments to reduce standard of living Temporary income Increase Save for rainy day. Permanent income increase Adjust to higher standard of living. 11

12 The Economic Strategy in Zambia Stabilization (stop the inflation-depreciation spiral) through: Fiscal deficit reduction Monetary stringency 12

13 The Economic Strategy in Zambia Improving the supply response by: Removing price controls Privatization of inefficient public enterprises Exchange rate liberalization 13

14 The Economic Strategy in Zambia Correct structural problems by: Getting the right structure for the government budget Public expenditure management Trade liberalization Good governance 14

15 The Economic Strategy in Zambia Filling the financing gap from: Donor aid Debt Relief and HIPC 15

16 GRZ 2002 Economic Strategy Bring down interest rates Reduce inflation Reduce government borrowing Reduce reserve requirements at BOZ Improve agriculture and food security Move toward HIPC completion point Increase social sector expenditure Keep KCM operating Assist productive sectors with tax policy 16

17 OTHER INITIATIVES FOR 2002 Public expenditure management Consolidation of GRZ accounts Monitoring of arrears A/G produces accts. on time Continue IFMIS development Improve banking sector Sell majority controlling interest in Zanaco Improve bank supervision Complete oil sector liberalization Enhance agricultural productivity 17

18 The Heavily Indebted Poor Countries (HIPC) Initiative End-2001: 24 HIPCs qualified for US$ 36 billion in debt relief. Provides IMF and World Bank debt relief for the first time. Debt reduction directed to support social sector policies that alleviate poverty. Debt reduction without the right policies, may not bring poverty reduction. 18

19 Zambia and the HIPC Initiative Zambia reached the decision point in December 2000, based on a nominal debt stock of $6,459 million at end-1999 with a NPV of $3,999 million To achieve target of 150% of exports, additional debt reduction of 62.5% was needed Zambia will receive a total debt service relief from all its creditors worth more than US$ 3.8 billion (equivalent to US$ 2.5 billion in NPV terms) Amount of debt reduction granted also depends on level of exports 19

20 Zambia s HIPC Triggers Macroeconomic and structural reforms Continue to meet targets under the IMF and WB lending programs Implementation of Integrated Financial Management Information System (IFMIS) on a pilot basis Implementation of Medium Term Economic Framework Concessioning of ZESCO Offer to sell majority controlling interest in ZNCB 20

21 Zambia s HIPC Triggers Poverty reduction Adopt PRSP, and 1-year implementation Progress in education sector Increase budget share from 18.5% to 20.5% Raise teacher compensation above poverty line in rural areas Increase student retention in outer provinces 21

22 Zambia s HIPC Triggers Progress in combating HIV/AIDS Create National AIDS Council Implement HIV/AIDS education program in ministries Progress in health sector Action plan for malaria prevention Transparent mechanism for drug procurement Timely release of complete, detailed health data Release at least 80% of budget to district Health Management Boards 22

23 The IMF Vision Promote sustained non-inflationary economic growth. Be the center for maintaining the stability of the international financial system. Advise members on macroeconomic and financial policies to safeguard the global public good. Be a forum of international economic and monetary cooperation. 23