By JUDITH NAMUTOWE –
AN ECONOMIST has urged the Zambian Government to continue making strides in reducing the current fiscal deficit.
ABSA chief economist Jeff Gable said the persistent twin deficit arising from the current account and fiscal deficit if left unchecked may lead to severe depreciation of the local currency.
Mr Gable said that there was need for Government to put in place measures aimed at narrowing the gap between the two.
He was speaking on the sidelines of the a discussion forum organised by Barclays Zambia a subsidiary ABSA Group last Wednesday night in Lusaka.
“It is frustrating when currencies obtain 20 and 25 per cent and in that case you have to put your own house in order by reducing on twin deficits.
“Large current account deficit often has a consequence on trade and drain whatever effects you have naturally lead to weaker currencies,” Mr Gabble said.
Mr Gable said fiscal consolidation was critical to having a stable macroeconomic environment.
He explained that currencies were flexible sometimes but in a frustrating way because countries keep doing the exact same things when developing countries decide on something different, but that sometimes currencies were flexible for a good reason.
Mr Gable also noted that copper prices had fallen by more than 140 per cent and in that environment, the exchange rate had to take that pain.
“Imagine the challenging environment we would have been in if the prices of what we sold to the world did not change.
Some of that currency weakness needs to be seen as a benefit rather than a negative,” he said.
Mr Gable added that keeping money very tight also tended to slow down the outflows.
He said that one of the things that tend to stop the local currency from sliding further downwards is the Eurobond proceeds that provide more resources for the country making it less vulnerable.
Mr Gable said investment flows have been strong in mining despite the copper price falling.