ZAMBIA can only insulate itself from external shocks by diversifying the economy, which is mainly driven by copper exports, Minister of Finance Alexander Chikwanda has said.
Mr Chikwanda also said there is need to prudently manage the country’s fiscal position to mitigate deficits, which impact negatively on the economy.
Mr Chikwanda said the country’s over-dependence on copper exports has resulted in Zambia being hit by the dwindling growth in the Chinese economy, which is the main consumer of copper.
“Zambia needs to learn a lesson from excessive dependence on exporting few commodities. The country should insulate itself from external shocks,” Mr Chikwanda said.
The minister said this in Lusaka yesterday at the just-ended Zambia Finance and Investment Conference organised by the Ministry of Finance and euromoney conferences.
He said while the situation in China has affected many countries globally, commodity countries such as Zambia and Brazil have been the most hit hence the need to diversify the economy.
Mr Chikwanda also said the fall in commodity prices on the international market has affected the country’s balance of payment and subsequently resulted in the fall in foreign exchange reserves.
He said the reduction of reserves has made it difficult for the central bank to cushion the falling currency, which has breached the K9 mark.
“The country’s reserves are not something to write home about as they are reducing, hovering around two and half months of the import cover. This is why we see that the capacity of the central bank to intervene is becoming difficult because the reserves position leaves much to be desired,” he said.
Meanwhile, Mr Chikwanda said prudent intervention in the market will be required in addressing the falling reserves and exchange rate.
“Government intends to do a fiscal consolidation because unless we develop a culture of fiscal responsibility, the country’s goals of attaining prosperity will be undermined. It is Government’s duty to ensure that we develop a habit of ‘cutting our suits’ according to the available cloth. We have to be in a position to ensure that we do not escalate the budget deficit,” he said.