Country Report Zambia May 2011

Outlook for 2011-12: Policy trends

The policy agenda will be underpinned by the Sixth National Development Plan (SNDP; 2011-15), the medium-term expenditure framework (2011-13) and the extended credit facility with the IMF (2008-11). Despite the impending elections, a high degree of policy continuity is expected in 2011-12 as strong public pressure to promote job creation ensures that economic policies stay pragmatic. The government is therefore expected to stick to a market-orientated agenda and remain committed to macroeconomic stability. Infrastructure will improve as large investments are made in power supply and roads, increasingly through public-private partnerships, but constraints will persist. Fertiliser subsidies and price support for maize will continue to account for almost half of the agriculture budget. There are numerous flaws in the subsidy scheme-targeting is poor; a blanket support scheme for maize is inappropriate given that Zambia has three agro-ecological zones, each suited to different crops; the impact on productivity has been weak given the scheme's costs-but its political appeal will deter the government from making substantial changes. The generous fiscal incentives on investments of over US$500,000 in the so-called "priority sectors" are likely to be largely retained. This will boost investment in manufacturing, tourism and energy, but not enough to change the structure of the economy significantly. Despite strong public pressure, the mining tax regime is unlikely to be changed in 2011-12 following a recent agreement with mining firms. Skills development has been aptly identified as a priority under the SNDP. If tackled effectively, this could lower unemployment, which is officially estimated at 14%. Policy implementation has historically been weak, but there are grounds for cautious optimism, particularly as private investment in education is encouraged.

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