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Zambia: Selected issues

International Monetary Fund (IMF)

January 2008

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Contents

  1. Creating Fiscal Space to Implement the Fifth National Development Plan
    1. Defining Fiscal Space
    2. Recent Developments and Outlook for Fiscal Space
    3. Channels for Creating Fiscal Space
    4. Conclusion

  2. Monetary Policy And Inflation.
    1. Introduction
    2. Inflation Developments
    3. Inflation Model
    4. Model Estimation
    5. Concluding Remarks

  3. Progress and Challenges of Financial Sector Reform in Zambia
    1. Introduction
    2. Recent Developments in the Financial System
    3. Development Challenges and the Government’s Reform Strategy
    4. Conclusion

  4. Zambia: Assessing Reserve Adequacy
    1. Introduction
    2. Reserve Adequacy Measures for Zambia
    3. Assessing the Optimal Reserve Level for Zambia
    4. Conclusions

  5. Electric Power in Zambia—Potential Obstacle to Growth
    1. Introduction
    2. The Looming Power Shortage
    3. Zambia’s Electricity Sector
    4. ZESCO
    5. A Plan for Moving Forward
    6. Conclusion

Creating fiscal space to implement the fifth national development plan1
  1. If the government is to implement its development strategy, more fiscal space is needed. The Fifth National Development Plan (FNDP)—Zambia’s PRSP—sets out a policy framework for boosting growth and enhancing employment and income opportunities for the poor. The five-year plan (2006–10) has a strategic focus on investments in infrastructure and human resources, and provides detailed expenditure plans in these areas. However, the estimated financial requirements exceed projected resources by about 1.4 percent of GDP a year through 2010. This paper assesses how fiscal space can be created to fully implement the FNDP.


  2. Full implementation of FNDP projects will not by itself ensure rapid progress toward the Millennium Development Goals (MDGs). The cost of meeting the MDGs is uncertain, in part because the relationship between government spending and outcomes is not clear.2 Some studies indicate that spending on education and health has a positive and significant impact on growth but stress that other policy interventions are also important, such as improving governance and containing inflation.3 Capacity to efficiently implement a larger number of projects also needs to be evaluated. Finally, the development of a vibrant private sector is critical, which requires a better business environment.


  3. In this paper, Section A defines fiscal space and outlines channels through which it can be created. Section B briefly summarizes recent developments and the broad outlook for fiscal space. Section C then discusses each channel and assesses which are the most feasible for Zambia at the moment. Section D presents the conclusions.

Footnotes:
  1. Prepared by Brenton Goldsworthy.
  2. Mphuka (2005) estimates that to reach the MDGs both the government and cooperating partners would need to double their financing to this area between 2006 and 2015.
  3. See, for example, Baldacci, Clements, Gupta and Cui (2004).




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