In October 1991 Zambia moved to amultiparty democratic system. In the following years, thegovernment implemented a number of policy and structuralreforms, liberalizing exchange and interest rates,simplifying the tariff structure, and removing quantitativerestrictions on trade, privatizing most state-ownedenterprises, and substantially withdrawing from theagriculture sector. Despite these reforms, economic growthhas remained lackluster, and poverty and social conditionshave worsened. There are however, hopeful signs thatincreased growth and poverty reduction are within reach inZambia. The country's economy has long been tied to thecopper industry, whose purchasing power has been in declinefor decades. But declining copper prices were not the onlyreasons Zambia's economic performance declined between1991 and 2002. Excluding the one-time disruption in realsector activity in 1994-95, real GDP grew at an averageannual rate of 3 percent during 1991-2002. The report arguesthat estimates puts its annual long-term growth potential atabout 5 percent, implying per capita income growth of2.5-3.0 percent a year, and, the reason why its potential isnot being achieved, lies in several key problems, namelymacroeconomic mismanagement, lack of ownership of reform andpoor policy implementation, a weak investment climate, lackof good governance, and, the HIV/AIDS pandemic. And furtherasserts that central to the lack of macroeconomic stability- in particular to the high inflation and real interest rate- is the lack of fiscal control and commitment to fiscaldiscipline. Zambia's large external and rising domesticdebt, combined with budgetary dependence on externalfinancing, has constrained the government's ability toexert monetary control to achieve macroeconomic stability.The financial sector must become more efficient and capableof supporting private investment and growth. Keyinstitutional and policy issues for immediate attention arecreating a mechanism to resolve the debt of failed banks andstate-owned non-bank financial institutions; upgrading thehuman and technological resources of financial systemregulators and supervisors; improving access to financialservices, in particular rural financial services; and,investing in financial system infrastructure to improvemarket data, and accounting and auditing standards. Thereport expands on the country's opportunities in themining sector, particularly copper, but also on its richreserves of gemstone minerals, as an opportunity for exportdiversification; in the manufacturing sector, specificallytextiles, garments, and processed foods; and, in tourism development.
PDF
download
878987797
028-85220240
