Zambia needs to prepare for potential global downturn, says Guloba

ZAMBIA needs to prepare adequately for a potential global downturn because the euro debt crisis will continue to create risks and vulnerabilities in future economic prospects, says a local World Bank official.

Making submissions to the parliamentary committee on estimates under the theme 'Impact of the Euro zone crisis on Zambian economy', World Bank Zambia economist Asumani Guloba said prospects were still good because the economy had weak direct links with the Euro zone countries.

"Zambia's direct trade with the Euro zone countries is small but the euro-crisis creates risks and vulnerabilities to future prospects such as a slowdown in global economy and decline in export demand," Guloba said.

"Other factors that might result from the Euro crisis is decline in copper prices, reduced output and income, slowdown in mining investment and worsening of external position. So going forward, Zambia needs to prepare for a potential global downturn because the global economy is in a delicate state."

He submitted that Zambia should maintain the prudent monetary and fiscal policies.

"There is need to prepare for the road ahead because aid is declining and international borrowing is subjected to market swings (risk aversion could grow) and there is need to maintain a flexible Kwacha exchange rate which enables the economy to adjust to external shocks," Guloba said.

"Also there is need to improve efficiency in the use of resources, improve the quality and efficiency of infrastructure investments in energy and transport sectors and roads' investment project processes need to be strengthened."

On the budgeting process in the country, Guloba said there should be a clear link between the policy framework and budget process.

"Ministries, Provinces and Spending Agencies (MPSA) budgets are now activity based and the budget cycle has been revised to begin at the start of the year but, in practice, reforms are not sufficiently linked and national development plans are not linked to the budget and there is insufficient analytical work to guide resource allocation and the medium-term focus of the budget remains weak," Guloba said.