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Zambia cuts 2019 economic growth forecast after drought

Zambia has cut its 2019 economic growth forecast, President Edgar Lungu said on Friday, citing adverse weather conditions that have affected crop production and electricity generation at hydropower plants.

By Chris Mfula

LUSAKA, Sept 13 (Reuters) - Zambia has cut its 2019 economic growth forecast, President Edgar Lungu said on Friday, citing adverse weather conditions that have affected crop production and electricity generation at hydropower plants.

Zambia is also struggling with high debt levels and shrinking foreign currency reserves, and the International Monetary Fund (IMF) has said growth is likely to remain subdued over the medium term.

In his state of the nation address in parliament, Lungu said the Southern African nation's economic growth for the year has been cut to around 2% from an initial projection of 4%.

The IMF also sees growth of 2% for this year.

"It is being revised downwards to about 2% on account of adverse weather conditions which have affected the energy and agricultural sectors," Lungu said.

Zambia's economic growth is expected to rise to 3.2% next year as weather conditions improve, the central bank said in a statement.

Mining output in Africa's second-largest copper producer is also expected to improve as tax-related issues and other challenges in the mining sector are resolved, it said.

"For the 3.2% growth to be achieved, there is need to urgently implement fiscal adjustment measures and unlock liquidity to the productive sectors by clearing arrears owed to domestic suppliers of goods and services," the statement said.

Zambia has a power deficit of about 700 megawatts (MW) and is rationing supply due to reduced electricity generation after water levels in the nation's hydropower dams dropped due to drought.

Zambia's 2019 maize production is expected to fall 16% compared to last year to about 2 million tonnes , the country's Agriculture Minister Michael Katambo said in May.

Inflation is expected to average 9.2 percent in the second half of 2019 and monetary policy will focus on bringing inflation back to the target range of 6-8% in the medium-term, the central bank said.

AUSTERITY MEASURES

Lungu said Zambia would strive to dismantle domestic arrears and maintain debt within sustainable levels.

Zambia's external debt rose to $10.05 billion at the end of 2018, compared with $8.74 billion a year earlier, raising fears that the country is headed for a debt crisis.

Zambia has delayed the receipt of loans totalling $2.6 billion contracted last year in order to rein in its soaring debt.

The government has also said it would delay some projects and cancel others to cut down on expenditure and debt.

"The art of borrowing is the ability to pay back," Lungu said. "At the heart of our austerity measures, going forward, we will implement measures to manage the debt stock and curb any further accumulation."

In his address, Lungu also said that the government would go ahead with proposed constitutional amendments despite criticism from opposition parties and civil society organisation.

The government proposed constitutional changes in August, which include a proposal to remove lawmakers' right to approve new government loans and the ratification of international treaties - triggering an outcry from rights and opposition groups.

The government has said the changes are needed to get loans and treaties through when parliament is in recess. Opposition politicians have accused Lungu of trying to crack down on dissent - a charge dismissed by the government.

"Support the current process of constitutional amendments. We are back to refine it. If you don't want to refine it, we will refine it," Lungu told lawmakers.

Zambia's central bank has also opposed the proposal to remove lawmakers' oversight over acquiring more public debt.

(Editing by Catherine Evans, Olivia Kumwenda-Mtambo and Chizu Nomiyama)

((chris.mfula@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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