The Global Financial Crisis and Developing countries: Case of Zambia The Global Financial Crisis Workshop ODI , London – UK 11 th February 2009 By Manenga Ndulo, Dale Mudenda, Lutangu Ingombe and Lilian Muchimba- University of Zambia
Outline � Introduction � Economic performance (2000 – 2008) � Transmission Mechanisms � Potential Impact � Potential Impact � Policy response
Introduction � Positive economic growth over 2000 – 2008 � Chance to reduce poverty � Global crisis threatens above scenario
Economic Performance Year 2000 2002 2004 2005 2006 2007 2008 GDP 3.5 3.3 5.4 5.2 6.2 5.4 5.8 Growth GDP 315 350 490 655 917 917 /capita (US$) (US$) Inflation 30 26.7 17.5 15.9 8.2 8.9 16.6 Fiscal Bal NA -4.1 -2.9 -0.9 4.3 -2.1 -2.7 (% GDP) DS/GDP 17.3 18.7 17 23.2 25.4 23.3 GDI/GDP 16 20.7 28.4 23.2 24.5 21.8 CA /GDP -15.3 -11.4 -9.1 1.1 -2.4 -9.1
Real GDP growth rate 7% 6% 5% 4% 4% 3% 2% 1% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Trend in Inflation rate Inflation rate, % 35 30 25 20 15 10 5 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Trends in savings and Investment 30% 25% 20% 15% 10% 5% 0% 2000 2004 2005 2006 2007 Savings Investment
Private Capital Flows 984 1000 900 800 #REF! #REF! 700 616 600 500 380 364 400 278 300 200 147 122 122.4 82 50.4 100 41.8 0 2000 2002 2004 2005 2006 2007
Remittances Inflows (US$M) 68.195 70 59.3 57.68 60 52.87 48.448 50 36.25 40 30 20 10 0 2003 2004 2005 2006 2007 2008 Inflows
Trade Indicators 5,000 4,591 4,500 4,448 4,000 3,891 3,500 3,000 2,500 2,208 2,000 1,825 1,500 1,065 1,000 965 884 754.70 746 500 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Merchandize exports Merchandize Imports
Trade Indicators Copper price (US$/Pound ) 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 Copper price (US$/Pound )
Terms of trade TOT Index (2000=100) 250 200 150 150 100 50 0 1997-2001 2002 2003 2004 2005 2006 2007 TOT Index (2000=100)
ODI Indicators ODA (US$ M) 1600 1400 1200 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 ODA (US$ M)
Impact � Slowed economic growth projected at 5% (2009) � Overall output � Employment loss: ( Out of 32, 611 workers in the mines) � Chambishi metals closed - 1, 111 – Workers � Chambishi metals closed - 1, 111 – Workers � Luanshya mine Ceased - 1, 716 worker � KCM - 800, Mopani - 577 workers � Bwana Mkubwa mine- 345 workers � Lumwana – Laying off workers � Milyanshi copper project – put on hold
Cont’d � 15% of mine workers already lost jobs � Exploration Projects affected- because these mainly depend on bank loans for financing � Contract labour to the mining industry - repair maintenance, mine development services � Reduced expatriate labour on mines � Reduced Foreign exchange – depreciation and instability � Reduced Foreign exchange – depreciation and instability of the exchange rate � Supporting industries e.g., electricity, transport, water etc. � Inflation � Stock market- index reduced by 29% in 2008 � Reduced government revenue -
Policy response 1. Prudent Fiscal policies 2. Economic diversification – emphasis on infrastructure development 3. Tight monetary policy – lower inflation 3. Tight monetary policy – lower inflation 4. Negotiation with mines –e-,g., suspension of windfall tax, 5. Strengthen social protection
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