Lungu Cuts Spending on Zambian Roads as Low Copper Prices Weighby
Economic growth slows to lowest since 1998 as kwacha tumbles
Falling copper revenue, mine closures hobble state finances
Zambian President Edgar Lungu unveiled a raft of spending cuts ranging from reduced fuel subsidies to delayed road building as an economic crisis in the southern African nation intensifies.
The government will have spent $300 million on subsidizing fuel for consumers by the end of the year, which is “clearly not sustainable,” Lungu, 59, told reporters Thursday in Lusaka, the capital. A further $40 million will have been paid to import power and ease a severe shortage between September and the end of the year, underscoring the need for the energy regulator to increase prices, he said.
Lungu ordered officials not to start any new road projects, to defer construction contracts where possible and to focus instead on completing those already under way. He’s also delaying the establishment of a national airline, which was set to take place next year.
Plunging copper prices and a severe power shortage are straining Zambia’s economy, which will grow by the slowest pace since 1998, according to the World Bank. A ballooning budget deficit is also contributing to the crunch, the International Monetary Fund said last week. Zambia has been compelled to cut spending as revenues shrink and costs escalate due to a more than 40 percent depreciation in its currency this year, Lungu said.
“In taking these measures, I note that it will not be easy for many of our citizens,” Lungu said. “However, these are necessary actions required to bring us back to a path of economic stability,” he said on the lawns of State House.
Zambia has spent billions of dollars developing roads since Michael Sata’s Patriotic Front won power in 2011, consuming more than 10 percent of the budgets for 2015 and 2016. Lungu took office in January after Sata died three months earlier.
The government expects the budget deficit to swell to 6.9 percent of GDP this year from a targeted 4.6 percent, while Barclays forecasts it will reach 8.4 percent. The 2016 target is 3.8 percent. Inflation accelerated to 19.5 percent in November, the highest level in more than a decade, the Central Statistical Office said earlier Thursday.
The kwacha advanced 6.2 percent against the dollar, its biggest gain in two months, to 10.8761 by 5:22 p.m. in Lusaka. The currency is the world’s worst performer this year after Mozambique’s new metical.