THE International Monetary Fund (IMF) has said Zambia's projected reduction of 0.4 in the 2014 Budget deficit will go a long way in restoring confidence in the foreign exchange market.
Meanwhile, it has expressed happiness at the continued growth of the economy.
The IMF said the reduced Budget deficit would also help in removing fiscal funding pressures and allow for a normalisation of monetary policy and reduction in interest rates.
Government has projected a reduction of 0.4 per cent in the 2014 Budget deficit to 6.2 from 6.6 per cent following the rebasing of the economy which saw it grow to about 25 per cent larger than earlier estimated.
Following the rebasing of the economy, the Budget deficit for 2014 now stands at 5.2 of the gross domestic product (GDP) or 6.2 if not rebased.
IMF mission team leader Byung Jang said the fund was happy with the strong determination by Government to ensure that the fiscal deficit did not go beyond the budgeted 5.2 per cent of the rebased GDP and reduced to 3 per cent of the GDP over the medium term.
Mr Jang said during a joint Press briefing with Government held at the Ministry of Finance yesterday that spending overrun in some areas would require compensation adjustment to meet the Budget deficit target and available financing.
"Moreover, a solution to the impasse regarding VAT refunds for exports is urgently needed," Mr Jang said.
He said maintaining strong growth in the period ahead would require forceful measures to address the emerging vulnerability.
He was happy that the Bank of Zambia (BoZ) had already substantially tightened monetary policy in response to exchange rate developments and to address rising inflation by raising its policy rate and reserve requirement for banks.
The IMF team had been in the country from May 26 to June 6, 2014, to review economic development and discuss macro-economic framework with Government.
The mission was happy that the economy had continued to grow and remained strong at 6.5 per cent.
"However, the recent steep depreciation of the Kwacha is raising inflationary pressure and expansionary fiscal policy has created a large budgetary imbalance," Mr Jiang said.
Secretary to the Treasury Fredson Yamba said during the same briefing that the reduction in the Budget deficit reflected the deliberate measures taken by Government to bring down the deficit in line with the stated target of three per cent of the GDP in the medium term.
He said the measures taken include re-alignment of expenses to priority areas, removal of subsidies on maize and fuel, limiting the operations of institutions such as the Food Reserve Agency (FRA) to their core mandate.
Others include the stabilisation of the wage bill and enhancing corporate governance of state-owned enterprises.
"The measures are not one off but will continue over the medium to long term, leading to fiscal consolidation and fiscal prudence," Mr Yamba said.
He was optimistic that Government would maintain the single digit inflation target by the end of the year, especially with the new crop which comes on the market from July.
Mr Yamba said Government was concerned with the reduction of the copper prices which he attributed to among others the reduction of the copper prices on the international market and speculation by market players.
He was happy that the BoZ had taken measures to address these issues by limiting liquidity in the market and encouraging big market players to conduct their business in the more responsible manner.