Zambia’s central bank held the benchmark lending rate at 11.5% on Wednesday as Governor Denny Kalyalya expressed concern about slow economic growth and a hefty fiscal deficit.
He said Africa’s no. 2 copper producer was expected to see GDP expansion of 3% in 2020 and 3.7% in 2021. Zambia’s economic activity has been hampered by widespread power shortages and growing public debt, stoking fears of a fiscal crisis.
Power shortages were caused by drought-hit hydroelectric generation, prompting the government to focus on developing alternative renewable energy sources to plug the gap and increase borrowing to help maintain current infrastructure.
Zambia’s finance minister said last week external debt had increased to $11.2 billion from $10.23 billion at the end of June 2019. The nation also has a high fiscal deficit equal to 8.2% of gross domestic product in 2019.
Kalyalya expressed concern about slow progress on austerity measures aimed at bringing down the deficit, which have included capping public sector wages and suspending some build projects.
“The out-turn largely reflects higher-than-programmed spending on capital projects… as well as external debt service payments,” he told a news conference.
“Our call is for effective and sustained implementation of fiscal adjustment measures,” he added.
Zambia’s debt and fiscal deficit were unsustainable at current levels and there was need to take quick action towards sustainability, Kalyalya said.
“It’s not the expectation that tomorrow or this year we will get to debt sustainability. The point is that we must work out a path that will deliver sustainability,” Kalyalya said.
In 2018, the International Monetary Fund dismissed Zambia’s borrowing plans, saying they risked making it harder for the country to sustain its debt load.