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Beating the slowdown in Zambia: reducing fiscal vulnerabilities for economic recovery (Inglês)

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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    Beating the slowdown in Zambia: reducing fiscal vulnerabilities for economic recovery

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    exchange rate;Exchange Rates;public expenditure need;fiscal deficit;copper price;foreign exchange;monetary policy;inflation;Bank of Zambia;Cost of Doing Business;average for sub-saharan africa;Eurobond;current account balance;exchange rate depreciation;Mining;power shortage;economic recovery;private sector credit;farm input;external borrowing;international debt market;foreign exchange risk;balance of payment;exchange rate pressures;power production capacity;price for fuel;foreign exchange market;debt level;market confidence;domestic revenue;domestic security;Public Spending;fiscal policy;Fiscal policies;exchange rate volatility;cost of subsidy;cost of service;risk of debt;level of private;government fiscal policy;government budget deficit;exchange rate shock;cost of fuel;loose fiscal policy;higher government spending;per capita basis;decline in agriculture;market exchange rate;emerging market investment;increase in prices;food price inflation;foreign exchange trading;cost of import;cost of electricity;burden price;debt service costs;direct government subsidies;higher fuel price;Private Sector Growth;private sector productivity;investment in electricity;source of electricity;revenue administration reform;value added tax;private sector lending;gdp growth rate;current account deficit;domestic financial market;amount of fund;global economic growth;government wage bill;consumer price inflation;rate of depreciation;debt management strategy;foreign exchange transaction;commercial bank lending;exchange rate increase;foreign direct investment;global economic recovery;real economic growth;case for subsidy;domestic food prices;consumer price index;public pension system;debt repayment obligation;impact on price;payment of fee;domestic currency terms;improved debt sustainability;domestic debt rose;domestic commercial bank;exchange rate pass;small scale maize;removal of subsidy;interest cost;domestic liquidity;power crisis;Fuel Subsidies;credit growth;fiscal restraint;domestic price;fiscal position;fiscal pressure;economic shock;Agriculture Subsidies;debt relief;public subsidy;commodity price;Agricultural Subsidies;real gdp;poor household;economic diversification;investor confidence;coupon rate;fiscal discipline;fiscal rule;annual tax;sovereign debt;disposable income;generation capacity;copper mining;Macroeconomic Stability;copper production;domestic currencies;inflation average;liquidity condition;investor perception;reserve position;crowding out;fiscal vulnerability;investment spending;average rainfall;mining royalty;donor grant;fiscal balance;lending rate;agriculture sector;expenditure increase;real growth;foreign currency;agricultural output;government purchase;external financing;



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