|Macroeconomics & Monetary Policy||
The overall goal of the Macroeconomics and Monetary Policy unit is to improve public policy for growth, equity and poverty reduction through macroeconomic policy analysis and research. It focuses on analysis of pertinent macroeconomic policy issues such as interest rates, inflation, and exchange rate movements; domestic and external public debt.
For the year 2017, the Unit envisages to carry out the following activities:
a) Establishing a Macroeconomic Performance Assessment Framework (MPAF)
The Ministry of Finance monitors the health of the macro-economy through a range of outputs under its Macroeconomic Framework. These outputs include Annual Economic Reports, economic forecasting reports (MTEF Growth Estimates), semi-annual reports (Mid-Year Economic Reviews), monthly reports (Monthly Economic Indicator (MEI) reports) and weekly reports (Weekly Review of Domestic and International Prices). They combine routine MOF data with data from BOZ, CSO and ZRA. The outputs are generally very informative and often shared in a timely fashion, particularly on online internet platforms.
However, the outputs of MOF have two key limitations. Firstly, they are more descriptive than analytical, and thus offer relatively less usefulness or policy insights to policy-making. Secondly, they are not readily accessible as simple, reader-friendly reports for easy use by non-economist policy-makers in the line ministries or for general readers in the public domain. In addition, possibly as a result of a paucity of information, some stakeholders in Zambia (some civil society organizations, the general public and some policy-makers) have sometimes expressed skepticism about the macroeconomic policy direction and planned reforms. For instance, some have questioned the reliability of both the forthcoming Economic Recovery Programme (Zambia Plus) and the IMF aid package it may entail.
ZIPAR therefore proposes to establish and operationalize a rigorous analytical Macroeconomic Performance Assessment Framework (MPAF), which will draw on routine management information systems to provide an independent, analytical perspective about the health of the Zambian macro-economy. It will use secondary data from MOF, BOZ, CSO and ZRA to evaluate the macroeconomic (fiscal, monetary and external sector) policy stance, on-going policy reforms, and performance outcomes (e.g., macroeconomic stability, growth, structural change, aggregate employment and so on) in order to determine Zambia’s status of economic health and its prospects for growth and development. This will be coupled with qualitative component that will involve quarterly key informant interviews (KIIs) with key stakeholders (high-level policy-makers, decision-makers, and civil society and CP observers), to qualify the quantitative analysis. Critical events monitoring and analysis will also be used as a qualitative tool to support the quantitative component.
This activity will be conducted jointly by the MMP and PF Units. The exercise will build on a rapid study on Zambia’s Return to an IMF-Supported Programme, which was initiated in late 2016. The MPAF will track and evaluate economic performance on a quarterly basis. In 2017, it is proposed that this should run from Q1-Q4: 2017, with the framework being designed and pilot tested in February and March 2017 (based on Q4:2016 data and previous). The quarterly reports will be as follows: Q1:2017 Report to be published in May 2017; Q2:2017 in August 2017; Q3:2017 in November. 2017 and Q4:2017 in February 2018. The following quarterly publications will be produced:
The publications will help to routinely inform the fiscal, monetary and planning authorities (MOF, BOZ and MNDP, respectively) as well as line ministry policy-makers and the general public about the influences of macroeconomic policies on economic outcomes and performance.
b) Study on Causes and Consequences of Wide Interest Rate Spreads in Zambia
Financial intermediation is vital for economic growth and development. Among other things, it allows lenders and borrowers to exchange funds, enabling economies to mobilize domestic savings and channel them towards productive investment areas for growth and development. An important indicator of the health of the financial intermediation process is the interest rate spread. Wide margin between the deposit and lending interest rates or so-called wide interest rate spreads are often indicative of banking sector inefficiency, austere and restrictive banking sector policy and regulation, or shallow overall financial market depth and development. Since 2012, Zambia has seen rising interest rate spreads. In 2015, the Bank of Zambia (BOZ) requested ZPAR to offer a second option on the causes and consequences of these rising spreads.
This study, therefore, seeks to achieve the following:
In order to understand the causes and consequences of widening interest rate spreads in Zambia, the study will apply a two-pronged methodology. On the one hand, we apply regression analysis, using a panel of secondary data and an auto-regressive distributive lag (ARDL) model to establish the main determinants of interest rate spreads. On the other hand, we undertake a mixed methods analysis of the consequences of interest rate spreads. This employs a descriptive statistical analysis of primary data from the mini-survey in urban Zambia (mainly Lusaka), where the bulk of retail financial intermediation services are located, augmented with a qualitative key informant interview (KII) analysis and desk-review events analysis. Thus, we examine, from various perspectives, the consequences of the wide interest rate margins for the retail banking public. The mini-survey assumes 2015/2016 as the reference period in order to avoid recall biases. The KII and events analysis will cover the reference period from 2004-2016, with a particular focus on February 2014 to June 2016.
The component on causes of wide interest rate spreads will be finalized by March 2017, based on data collection work that started in December 2016. The component on the consequences of interest rate spread will run from Q2-Q3: 2017, with the final report expected to be published and disseminated in September 2017. The data and information from this study will help the monetary authority (BOZ) to understand, based on ZIPAR’s second opinion, the causes and consequences of wide interest rate spreads and the key policy options at their disposal to address adverse causes and consequences.
c) Zambia Plus Economic Recovery and IMF Support
Following Zambia's macroeconomic instability and economic downturn over 2015/2016, issues surrounding the country’s likelihood to establish an Economic Recovery Programme (Zambia Plus) and possibly return to an IMF aid package have received considerable attention lately. Perhaps because Zambia experienced rather painful economic recovery processes in the past – notably during the World Bank/IMF Structural Adjustment Programmes (SAPs) of the 1980s and 1990s – some observers are skeptical about the forthcoming 'Zambia Plus' Economic Recovery Programme. The skepticism is even stronger when ideas of co-opting IMF support are put on the table. It is therefore critical for ZIPAR – as an impartial observer – to tell the stories about:
This skepticism is probably partially a result of a paucity of information about what an economic recovery programme typically entails and what a present-day IMF-supported aid package will really mean for Zambia.
ZIPAR will undertake a desk review of the past experiences of Zambia and a key comparator country (Ghana) with IMF-supported economic recovery programmes. It will also document the recent experiences of Ghana with the IMF. The purpose of the resulting outputs (a paper and some newspaper articles) will be to objectively and truthfully sensitize the Zambian public about what an IMF-supported recovery programme really entails in terms of fiscal space benefits and macroeconomic and micro-level socio-economic impacts. Such sensitization and awareness building will be critical for fostering national consensus and ownership, and for allaying public pressures on political structures when the pain of reforms and recovery sets in.
ZIPAR will produce two papers:
d) Ad Hoc Studies and Policy Works