Economy improving but still fragile

Zambia's economy continued to improve despite difficulties in the mining sector and the impact of a severe drought on agricultural output, said a recent assessment by the International Monetary Fund (IMF). The Fund noted that growth had averaged about four percent per annum since 2000, after more than two decades of economic decline, and inflation had sharply reduced. The progress was attributed to the easing of drought conditions and a large increase in copper prices. However, the IMF underscored that Zambia's economy remained "fragile" and growth was "below potential". "Against this background ... the determined implementation of prudent macroeconomic policies and structural reforms will be needed over the medium term to boost economic growth, reduce poverty, and achieve the Millennium Development Goals," the Fund cautioned. Zambia was suspended from World Bank and IMF programmes after overshooting its 2003 budget by Kwacha 610 billion (about US $130 million). Since then the IMF has closely monitored the country's economic performance to ensure adherence to fiscal discipline measures agreed with the Fund. After a series of belt-tightening measures, the IMF last month approved a new three-year lending arrangement totalling $320.41 million, under the Poverty Reduction and Growth Facility (PRGF). In its assessment the IMF encouraged the authorities to take steps to diversify the sources of economic growth and exports, with particular emphasis on agricultural development. The Fund urged the authorities to accelerate efforts to meet the Highly Indebted Poor Countries (HIPC) Completion Point, as this was essential for debt sustainability and poverty reduction. After achieving satisfactory performance for six months under the PRGF, Zambia is expected to qualify to the HIPC initiative completion point, which would result in a US $3.8 billion debt write-off. One of the concerns highlighted was that although Zambia had implemented significant reforms, the impact of these on poverty reduction had been limited. Technical assistance to Zambia also seemed to have had limited impact.