Zambia: State Targets 7 Percent Year-End Inflation

Source from:  The Times of Zambia (Ndola) 28 January 2008 01/29/2008

THE Government has targeted a year-end inflation of not more than seven per cent, as it aims to consolidate measures that have seen urban poverty drop from 53 per cent to 34 per cent while trying to arrest rural poverty that has increased from 78 per cent to 80 per cent. Finance and National Planning Minister, Ng'andu Magande said that the Government's macroeconomic objectives for 2008 would also include targeting to achieve a real Gross Domestic Product (GDP) of at least seven per cent. Mr Magande said the rationale for targeting higher growth emanated from the experiences of the past few years when consistent positive growth of GDP had resulted in reduction of overall poverty from 68 per cent in 2004 to 64 per cent in 2006. "The dramatic reduction in urban poverty has been experienced during the period that economic growth rate was above five per cent." In his 2008 Budget address to the National Assembly in Lusaka yesterday, whose theme is 'Unlocking Resources for Economic Empowerment and Wealth Creation', Mr Magande said the Government would limit domestic borrowing to 1.2 per cent of the GDP during the year. Other macroeconomic objectives for the current year would be to maintain the coverage of gross international reserves at not less than 3.6 months import cover. "Attaining the growth objective in 2008 demands that the private sector must play a stronger role in economic development. It is also imperative that Zambians, through the Citizens Economic Empowerment programme, participated fully in the various economic activities," he said. Meanwhile, Mr Magande said preliminary estimates indicated that the macroeconomic outturn was satisfactory. Outlining the performance of the domestic economy in 2007, he said the growth in real GDP continued to be positive at a preliminary estimate of around 6.2 per cent, which was lower than the target of seven per cent. He explained that the growth recorded last year was mainly on account of the lower-than-projected growth in the primary and secondary sectors of the economy. "Despite the adverse external shocks associated with high international oil prices, an end-of-the-year single digit inflation rate was achieved for the second year running. As at end-December 2007, annual inflation was 8.9 per cent, which was consistent with the revised target of nine per cent but was above the 8.2 per cent achieved in December 2006," he said. WITH regard to the fiscal outturn, a strong revenue performance and the slow utilisation of resources by the Government institutions explained the lower domestic borrowing. Preliminary estimates indicated that in 2007, domestic borrowing amounted to K437 billion or 0.95 per cent of GDP against the target of 1.2 per cent. On the performance of the 2007 Budget, Mr Magande said the overall Budget outturn in 2007 was strong despite challenges in the execution of capital projects. He explained that preliminary figures indicated that total resources mobilised, including borrowing to cover the Budget deficit, amounted to K10,720.1 billion. Of this amount, revenues and grants accounted for K10,176.1 billion while K544.0 billion or 1.2 per cent of GDP was borrowed. The minister said that total expenditure releases at K10,720.1 billion accounted for 89.7 per cent of the Budget. An amount of K8,794.1 billion or 81 per cent of the total expenditure releases were directed towards current expenditure while K1,926.0 billion or 19 per cent was absorbed by capital expenditures. The domestic revenue collections at K8, 522.1 billion were above target by K405.0 billion or 5 per cent. "Due to the slow absorption by the ministries, provinces and other spending agencies, the 2007 Budget allocations could not be disbursed in full," he said. This was, in part, a reflection of capacity constraints within spending agencies and contractors in the private sector, delayed procurement and structural factors associated with the Budget cycle, Mr Magande said. On capital market developments, the Lusaka Stock Exchange (LuSE) continued to record impressive gains in 2007. Market capitalisation in Kwacha terms rose by 31.6 per cent to K17,206.1 billion whilst in US dollar terms it rose by 41.2 per cent to US$4.5 billion. Meanwhile, preliminary data show that the agriculture sector grew by 2.8 per cent in 2007 compared to a growth of 3.0 per cent in 2006. The slower growth in the sector was due to poor prices for crops such as cotton and tobacco. On mining and quarrying, the sector registered positive growth in 2007, albeit at a slower rate. Preliminary figures show that copper production increased by 1.5 per cent to 523,435 metric tonnes from 515,618 metric tonnes in 2006. However, cobalt production declined by nine per cent to 4,229 metric tonnes in 2007 from 4,648 metric tonnes in 2006. Preliminary data also indicate that the construction sector continued to register positive growth of 13.3 per cent in 2007, slightly lower than the 14.4 per cent recorded in 2006. The favourable performance in the sector continued to be driven by construction of residential housing, investments in the mines, road construction and other civil works, reflecting strong economic growth and rising incomes. On manufacturing, the sector recorded a positive growth of 3.4 per cent which was broad-based with increased value-addition in most of the sub-sectors. However, the growth in the sector was lower than the 5.7 per cent recorded in 2006 mainly on account of the negative growth in the textiles and leather sub-sectors. On tourism, Mr Magande said the number of tourists coming into the country was estimated to have increased by 6.4 per cent to 805,059 in 2007. "This resulted in an increase in room and bed occupancy, number of beds and employment levels. In turn, the sector's earnings increased to an estimated $188 million from $177 million in 2006," he said. Mr Magande also said the energy sector faced a number of challenges related to the supply of electricity and petroleum products in the face of increased demand. He said electricity generation increased marginally to 9.7 million megawatt hours from 9.6 million megawatt hours in 2006. "This was due to the power rehabilitation works being undertaken by Zesco. In the petroleum sub-sector, supply was generally reliable despite the shutdown of Indeni Oil Refinery for rehabilitation works. "The move by the Government to allow oil marketing companies to import finished petroleum products eased disruptions in supply," he said. Enditem