Economic Report 2000
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Republic of Zambia ECONOMIC REPORT 2000 Ministry of Finance and Economic Development Box 50062 Lusaka January 2001 Price K30,000 Table of Contents Chapter Topic Page 1 DEVELOPMENTS IN THE GLOBAL ECONOMY DEVELOPMENTS IN THE DOMESTIC ECONOMY Public Finance Monetary, banking and non-banking financial sector developments Consumer Price Developments Capital market developments Population, Labour and Employment Developments External Sector Developments External Aid External Debt and Debt Management Progress Towards Accessing the enhanced HIPC Initiative 2 SECTORAL PERFORMANCE Agriculture, forestry and fisheries sector Mining and Quarrying Sector Manufacturing sector Transport, Storage and Communications Energy and Water Developments Construction and Building Tourism Environment and Natural Resource Conservation Private Sector development Education Science, Technology and Vocational Training Health Community, Social and Personal Services Gender and Development Sport, Youth and Child Development1 3 PROSPECTS FOR 2001 Pa ge 2 Economic Report --- 2000 FOREWORD I am pleased to present the annual Economic Report for the year 2000. This report evaluates the performance of the economy during the year 2000. On 27 th January 2000, the Minister of Finance and Economic Development, Honourable Dr. Katele Kalumba, M.P., presented the 2000 National Budget to Parliament. The Budget highlighted the objectives and programmes of the Government for the year under review. Although the country experienced macroeconomic instability in the year 2000, it showed resilience by registering a positive growth rate of 3.5 percent compared to 2.0 percent in 1999. Positive developments in manufacturing, real estate and transport and communication sectors contributed to the growth. The growth was, however, against the backdrop of rising inflation and rapid depreciation of the Kwacha. Furthermore, higher growth in the economy was inhibited by developments in the external sector. The prices of crude oil on the world market increased significantly in 2000 thereby worsening Zambia’s terms of trade and widening the current account deficit. Similarly, the earnings from non-traditional exports were below expectation. This was mainly attributed to low prices on the international market and domestic supply constraints of some of our major agricultural export commodities such as cotton, sugar and tobacco. On the other hand, metal prices on the international market increased in 2000, driven mainly by strong demand in Asia and North America. In addition, the country achieved important milestones during the year under review. These were the successful privatisation of the major assets of the Zambia Consolidated Copper Mines (ZCCM), the successful hosting of the 12 th Consultative Group meeting for Zambia in Lusaka in July and the accession to the Enhanced HIPC Initiative in December 2000. Zambia’s accession to the Enhanced HIPC Initiative is expected to release considerable amounts of resources to be channelled towards economic growth and poverty reduction including programmes to fight the HIV/AIDS pandemic. I, therefore, would like to extend my sincere thanks and gratitude to our co-operating partners and the people of Zambia for the support rendered to the Government of the Republic of Zambia during the year under review. Finally, I also wish to extend my special thanks to the staff in the Ministry of Finance and Economic Development and line ministries who worked diligently in steering the country’s economic and social programmes in 2000. J M Mtonga SECRETARY TO THE TREASURY MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT Pa ge 3 Economic Report --- 2000 CHAPTER 1 DEVELOPMENTS IN THE GLOBAL ECONOMY 1.1 Overview 1. The global economy continued to expand during the year 2000. Global Gross Domestic Product (GDP) increased from 3.4 percent in 1999 to 4.7 percent in the review period. This continued expansion in the world economy was led by the unrelenting growth in the United States of America (USA) economy; the robust upswing in Europe; the consolidation of the recovery in Asia; and a rebound from last year’s slowdowns in emerging markets in Latin America and the Middle East. Economic activity in Africa continued to be buoyant with economic consolidation and integration underpinning the economic landscape. Economic gains in Russia were responsible for the positive outturn in the transition economies during the year under review. 2. The expansion in the global economy was accompanied by an increase in the volume of trade, which grew by 10 percent in 2000 compared to 5.1 percent in 1999. World commodity prices also recovered during the year under review. Crude oil spot prices per barrel increased by an average of 47.5 percent in 2000 compared to an average increase of 37.5 percent during 1999. Non-fuel prices also recovered with an average increase of 3.2 percent in 2000 compared to a decline of 7.1 percent in 1999. 1.2 Performance of the Global Economy 1.2.1 Global Output and Policies 3. The world economy continued to register solid gains in global output in 2000. Growth was estimated at 4.7 percent in 2000 compared to the 3.4 percent in 1999. Output in the advanced economies increased by 4.2 percent in 2000 compared to 3.2 percent in 1999. Developing countries’ output also grew from 3.8 percent in 1999 to 5.6 percent in 2000. Countries in transition, on the strength of the Russian economic rebound, grew from 2.4 percent in 1999 to 4.9 percent in 2000. The continued growth in North America, especially the United States, and the consolidation of the recovery in Asia accounted for much of the expansion in world output in 2000. Other regions such as Europe and the Middle East shared a stake in the robust global output during 2000 (see Table 1.1). 4. Further, the rebound in the world economy owed much to the consistent application of growth-oriented policies worldwide. The strong expansion in the USA is phenomenal among the advanced industrial countries. This strength was largely due to the exceptionally buoyant growth in private domestic consumer demand, which was bolstered by subdued inflation that allowed the Federal Reserve to maintain an accommodating monetary policy stance. The strong pulse of the U.S.A economy supported global activity. Among the countries hit by the financial crisis in 1997-98, determined adjustment efforts pursued by policymakers contributed to an early exit from the Pa ge 4 Economic Report --- 2000 recessionary trap to restore macroeconomic stability. Prudent economic management in other developing countries further prevented the spread in the global crisis. Table 1.1: Global Macroeconomic Indicators 1 1998 1999 2000 2 Sourc World Output 2.6 3.4 4.7 e: IMF World Advanced economies 2.4 3.2 4.2 Econo Major industrial countries 2.5 2.9 3.9 mic United States 4.4 4.2 5.2 Outloo k, Japan (2.5) 0.2 1.4 Septe Germany 2.1 1.6 2.9 mber France 3.2 2.9 3.5 2000 Italy 1.5 1.4 3.1 1 Annua United Kingdom 2.6 2.1 3.1 l Canada 3.3 4.5 4.7 percen Other advanced economies 2.0 4.7 5.1 t chang Memorandum e unless Industrial countries 2.7 3.0 3.9 otherw Euro area 2.7 2.4 3.5 ise Newly industria lized Asia economies (2.3) 7.8 7.9 noted 2 Projec World trade volume (goods and services) 4.3 5.1 10.0 tions Imports 3 Advanced economies 5.7 7.6 10.3 Simple averag Developing countries 0.3 - 10.0 e of Countries in transition 2.5 (2.9) 12.4 spot Exports prices Advanced economies 3.9 4.8 9.9 of U.K. Brent, Developing countries 3.7 3.5 8.8 Dubai, Countries in transition 6.5 5.0 10.1 and West Commodity prices Texas Oil 3 Interm ediate In SDRs (31.2) 36.5 52.0 crude In U.S. dollars (32.1) 37.5 47.5 oil. Non -fuel (average based on world commodity trade weights) The averag In SDRs (13.5) (7.8) 6.4 e price In U.S. dollars (14.7) (7.1) 3.2 of oil in U.S Consumer prices dollars Advanced economies 1.5 1.4 2.3 a barrel Developing countries 10.1 6.6 6.2 was Countries in transition 21.8 43.8 18.3 $17.98 Six -month London interbank offered rate (LIBOR, percent) in 1999; On U .S. dollar deposits 5.6 5.5 6.8 the On Japanese yen deposits 0.7 0.2 0.3 assum On euro deposits 3.7 3.0 4.6 ed price was $26.53 in 2000 5. The economic expansion in Europe was aided by the resurgence in export growth mostly on account of strengthening global recovery and a highly competitive currency. High consumer and Pa ge 5 Economic Report --- 2000 business confidence, boosted in part by a fall in unemployment and rising stock and property prices, sustained the recovery during 2000. Price pressures were also muted as a result of some slack still remaining in labour and product markets. 6. The Asian recovery from the 1997-98 crisis continued to strengthen. The rapid recovery of Asia was fuelled by continuing monetary and fiscal stimulus firmed up by external demand especially for consumer and industrial electronics. The increased demand for information technology goods propelled much of the growth in the region. The rapid return of confidence and recovery of activity in Asia demonstrated the efficiency of the stabilisation strategies that have been pursued since the crisis years. Additionally, the faster than expected growth in the volume and value of exports recorded in 2000 was in part supported by devaluations and export market growth largely on the strength of the U.S.A.