Authorities in Zambia should urgently implement effective fiscal adjustment measures in order to put fiscal deficits, debt levels and debt service payments on a sustainable path, a local think-tank said on Monday.
“This is the only way to restore both domestic and international investor confidence. Government should engage in extensive consultations with technocrats, private sector player and international institutions in order to find remedial and long-term solutions to the current economic situation,” the Center for Trade Policy Dialogue, a trade policy and development think-tank said in a release.
It added that poverty levels are expected to escalate if fiscal corrective measures are not urgently implemented following revelations by the central bank last week that the country’s economic performance has continued to deteriorate on account of fiscal pressures limiting monetary policy interventions.
Last week, the central bank increased its benchmark interest rate by 50 basis points to 10.25 percent from 9.75 percent in a move aimed at controlling inflationary pressures.
In a statement, the bank’s monetary policy committee said it decided to raise the policy rate after indications show that inflation was projected to breach the upper bound of the 6-8 percent target range over the forecast horizon due to heightened upside risks.
The think-tank said the statement portrays a gloomy picture of the state of the economy, adding that an increase in inflation, coupled with exchange rate deprecation will further increase Zambia’s economic performance.
“During these hard economic times, citizens need to know that the prices of goods and services are likely to go up as inflation breach the 8 percent limit.”
“The only glimmer of hope is that the Bank of Zambia has proactively stepped up in confronting the economic challenges on the monetary side, this is commendable,” it added.
The think-tank commended the central bank for providing monetary policy oversight despite increase pressure from the fiscal side but warned the country has continued to register reduced investor confidence and negative market sentiments.