Beating the Slowdown in Zambia : Reducing Fiscal Vulnerabilities for Economic Recovery
Policy makers in commodity-exporting countries have faced increasing challenges in the past two years, in the face of reduced demand from China and uncertain economic recovery in developed economies. Zambia is no exception. Falling copper prices an...
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/09/26827932/beating-slowdown-zambia-reducing-fiscal-vulnerabilities-economic-recovery http://hdl.handle.net/10986/25270 |
| Summary: | Policy makers in commodity-exporting
countries have faced increasing challenges in the past two
years, in the face of reduced demand from China and
uncertain economic recovery in developed economies. Zambia
is no exception. Falling copper prices and a power crisis
have contributed to an economic slowdown. The effects of the
slowdown could arguably have been counteracted in a
sustainable manner by utilizing fiscal buffers, but this
option was not available, as Zambia did not make savings or
provide for stabilization measures when the economy was
prospering. Furthermore, options to access external
financing are limited, as Zambia’s debt levels have soared
in recent years following repeat non-concessional borrowing,
making it more difficult and expensive to borrow from
international debt markets. This policy note examines
Zambia’s fiscal vulnerabilities and the costs associated
with its expansionary, subsidy-oriented fiscal policy. It
then sets out the benefits of coordinating fiscal policy
with monetary policy in a way that is mutually reinforcing
and beneficial to private sector investment, instead of
having the two pull in opposite directions, as is currently
the case. Finally, it makes recommendations to help shift
the fiscal position to a more sustainable path and in turn
improve market confidence and the prospects for sustainable
economic recovery. |
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