Structural adjustment in Zambia: A general equilibrium analysis

Perpetua Katepa-Kalala, Purdue University

Abstract

A variety of stabilization and structural adjustment policies have been pursued in Zambia since the early eighties. Their intention was to promote domestic growth while at the same time restoring balance of payments equilibrium. Thus, policies were aimed at export promotion, primarily by subsidizing "tradables sectors," and at curbing government expenditures to reduce the budget deficit. This study looked specifically at seven policies in order to assess their impacts on production, consumption, exports, and investment in Zambia within a general equilibrium framework. A social accounting matrix for Zambia served as the basis on which a computable general equilibrium (CGE) model was constructed for Zambia. The CGE model was then used to simulate policy scenarios. The policy alternative which reduced the budget deficit the most was the reduction in the government's current expenditure. However, a reduction in current consumption also results in decline in social services. This adjustment cost is most likely to be borne by the poorest citizens whose options for alternative sourcing of social services are limited, especially those in the urban areas. A subsidy to the mining sector and devaluation both promote exports and improve the balance of payments. The cost of this adjustment is borne by the agricultural and social services sectors, which both contract, as well as an increase in the budget deficit, especially in the case of the mining subsidy. All policy options, with the exception of the increase in labor-use cost, increase capital rents. The two policies which result in the largest increase in the wage rate are the mining subsidy and devaluation. Overall, structural adjustment and stabilization policies are shown to be effective at reducing the budget deficit and restoring the balance of payments equilibrium. However, alternate policy scenarios are not necessarily in tandem, e.g., the mining subsidy policy, while improving the balance of payments clearly worsens the government budget deficit.

Degree

Ph.D.

Advisors

Paarlberg, Purdue University.

Subject Area

Agricultural economics

COinS