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Zambia’s inflation to remain at 6 per cent for 2012 says IMF

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ZAMBIA’s inflation rate to remain close to its current level of around 6 percent in 2012, the International Monetary Fund (IMF) has predicted.

Gross Domestic Product (GDP) is projected to rise by 7.7 percent, reflecting strong growth in copper production and non-maize agriculture, and an expansionary fiscal policy.

Government in its 2012 budget targets a deficit of 4.1 percent of GDP and a significant increase in investment with more than half of the budget financing expected to come from a US$500 million sovereign bond issue. Net domestic financing is targeted to remain low at about 1 percent of GDP.

This is according to a statement released in Lusaka by the ministry of finance.

The IMF executive directors have hailed this strong economic performance in recent years which they have attributed to the country’s sound macroeconomic management.

Directors have also noted that while the outlook for the economy is favorable, it is subject to risks arising from volatility of copper prices and delays in implementing measures needed to meet the 2012 budget deficit target.

To safeguard macroeconomic stability and to make growth more inclusive, IMF stressed the need for continued commitment to strong policies and implementation of structural reforms.

The directors said fiscal policy should aim at prioritizing growth enhancing expenditures and mobilizing revenues to create the space needed to achieve the fiscal objectives. These measures, they said should help restore fiscal sustainability and correct market distortions that have created overdependence on maize production.

Directors noted that revenue enhancing measures, including strengthening tax administration and reducing subsidies and incentives will also be critical for achieving the fiscal targets.

In addition, the directors said the reinstatement of the automatic petroleum price adjustment mechanism and the implementation of the multiyear electricity tariff framework are needed to minimize fiscal risks associated with the current pricing below cost recovery.

Directors underscored that public financial management reforms are essential to improve budgetary planning and execution and prioritizing spending.

Directors endorsed the plans to further enhance the monetary policy framework in support of a low inflation objective.

They encouraged the authorities to remain vigilant to inflationary pressures and tighten policy if needed. Directors agreed that the introduction of the monetary policy rate, combined with use of a broad set of economic indicators to assess the monetary policy stance, should make monetary policy more flexible and forward looking and enhance liquidity management.

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