Zambia Announces Austerity Measures To Save USD 300 Million In 2016 And Reduce Fiscal Deficit

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Zambia’s President Edgar Lungu, has recently announced a program of austerity measures that is meant to save the state USD 300 million a year to mainly reduce the increasing fiscal deficit of last years.

The announcement comes after the International Monetary Fund (IMF) finished a ten-day visit to Zambia, which concluded that the country’s economy is under stress due lower copper prices and electricity shortages that are constraining output in the mining sector.

This is why the IMF engaged with the Zambian Government to closely work towards 2016 in the implementation of measures that will help to restore confidence in the country.

Among the most important ones, President Lungu announced a revision of subsidies to food and oil imports, a ban on unnecessary trips by government officials, a hold back on all planned new infrastructure and national airline projects, and a halt in all signed projects for infrastructure development.

Due to the current financial challenges that Zambia is facing, all ambitious infrastructure development projects have to be reviewed to ensure that will be sustainable over time, explained president Lungu.

With the announced program of austerity measures, the Zambian government aims at reducing the fiscal deficit to 5.0% in 2016 down from 6.9% expected at the end of 2015 according to the Wall Street Journal.

In addition, the program aims to support a reduction in the country’s inflation that almost doubled to 14.4% in October, 2015 against the value recorded in the prior month and a strengthening in the Zambian Kwacha (ZMW) that depreciated 83% between January and October, 2015 due to a 29% drop on copper prices to USD 201.10 per pound in the same period.

These facts together with domestic and external financing conditions and additional spending commitments needed to be covered with the issuance of further debt in foreign currency, brought the interest rates on Zambian Government debt to higher levels due to a hurt market confidence in the country.

Regarding government budget, the fiscal deficit increased from an average of 2.85% of Zambia’s GDP between 2009 and 2012 to 6.7% in 2013 and 5.5% in 2014.