Commentary, 7th – 14th August, 09

There is significant relief for the Zambian economy as it looks likely the economy is on the mend following the global economic crisis that affected the country’s copper mining industry. It is anticipated copper production will grow by 10 percent following the re-opening of the Baluba mine before end of the year as well as the Mulyashi mine in 2010. This comes against the backdrop of the sharp recovery in copper prices as they hit USD6000/mt .

This price is what the mining companies have been projecting in order to break even. There is further information that financial flows into the country will increase towards the end of the year as the country can still have access to USD160m remaining from the IMF.

These developments are likely to impact on the value of the Kwacha as it is projected to appreciate to around K4, 300/ US by the end of the year. The seeming recovery in the US is already having a positive impact on the stock market as most stocks have recovered by over 30 percent in the past few weeks. It is anticipated Zain, Copperbelt Energy Corporation and Zanaco will lead the recovery path.

The Government should, however, exercise caution on this optimism given that we have registered a 25 percent deficit in government revenues in the half year. This will have an impact on government expenditure. The likelihood of a supplementary expenditure to support this deficit may trigger high interest rates and pose a threat to the single digit projection on inflation.

In order to inspire confidence in the private sector, it is also advisable the government can exercise its option to draw an additional USD575m from its allocation of the new Special Drawing Rights that will be created in a few weeks. This will further stabilize the economy in the short to medium term.