Zambia’s steady economic performance
By Nawa Mutumweno – It is lucidly clear that global growth in 2012 was uneven and weak, engendered by the turbulence in the Eurozone, lethargic growth in the United States, and a slowdown in the major emerging markets such as China, India and Brazil.
This sluggish growth in the world economy depressed prices for copper, Zambia’s major export, while oil and food prices were generally higher.
‘’Growth in sub-Saharan Africa has been relatively favourable, partly due to increased trade and investment flows between Africa and key emerging economies and the relative insulation of the region from external financial shocks,’’ Finance minister Alexander Chikwanda said in his Overview of the Global and Domestic Economy analysis in this year’s National Budget presentation to the National Assembly on October 12, 2012.
Despite unfavourable global economic conditions, the domestic economy was resilient last year with Gross Domestic Product (GDP) growth estimated at just over 7 percent.
In the nine months up to September, overall budget performance was satisfactory with domestic revenues and direct budget support being 5.5 percent above target. Total domestically financed expenditure was 6 percent lower than programmed, due to low absorption capacity, mainly in the road sector. The overall deficit was projected not to exceed the target 4.3 percent of GDP set for 2012.
Monetary policy implementation was generally appropriate. As at September, 2012 inflation was 6.6 percent while money supply growth was 6.3 percent, both of which were in line with the end year targets. Interest rates, however, remained high despite the Bank of Zambia lowering very significantly the statutory and core liquid asset ratios, and introducing the Policy Rate. These high interest rates continue to impose unsalutary effects on the economy.
‘’In 2012, Government made it mandatory, through a Statutory Instrument, for all domestic transactions to be effected in Kwacha, Zambia’s legal tender. I am glad to report that there has been widespread acceptance of this measure which has contributed to the stability of the Kwacha,’’ the minister added.
Another important policy decision in 2012 was the rebasing of the Kwacha. The rebased currency which became legal tender on January 1, 2013, will simplify financial transactions. This came into effect after the presentation of the Re-domination of Currency Bill. Stakeholders have adequately embraced the transition to use the rebased currency.
The overall condition and performance of the financial sector was satisfactory during the year under review. There was an improvement in the banking sector’s aggregate capital adequacy and earnings performance, whilst asset quality and liquidity conditions remained stable. Non-bank financial institutions (NBFIs) also continued to be stable and registered growth.
Zambia was expected to record a merchandise trade surplus of $960 million in 2012. Overall export earnings were projected to rise marginally due to significantly higher non-traditional export earnings, more than compensating for lower copper volumes and prices.
Non-traditional exports (NTEs) were projected to rise by over 50 percent to $2.5 billion in 2012 from $1.6 billion in 2011, with higher exports of maize, electricity, cotton, fresh flowers, burley tobacco and gemstones contributing to this upsurge.
Gross international reserves rose to $2.6 billion as at end-September 2012 from $2.3 billion at end-December 2011, representing 3.5 months of import cover.
Zambia successfully issued an inaugural 10 year bond of $750 million at the most favourable price ever secured in sub-Saharan Africa for a first issue. This reflects the high confidence the international investor community has for Zambia as a safe and preferred place to invest.
‘’The bond order book climaxed at $11.9 billion and only prudence and capacity considerations determined the $750 million cap,’’ Mr. Chikwanda elaborated.
External debt stock, as at end September 2012, including the proceeds from the bond, stood at $2.47 billion from $1.56 billion in 2011. The stock of domestic debt, including domestic arrears, increased by 8 percent to K13.7 trillion as at end-August 2012 from K12.7 trillion at end-August 2011.
It is encouraging to note that both the external and domestic debt stocks remain within sustainable levels, a satisfactory economic configuration! Zambia’s economic revival, kick-started in 1991, is soaring to higher heights ‘’like the noble eagle in its flight’’ on its flag.
