The reduced earnings for the mining sector may translate into lower investments and production. Further, some mining companies, which were carrying out exploration works, have suspended these activities. Ultimately, all this lead to job losses in the country’s extractive industry, leading to lower income tax revenue. In addition, the downturn will reduce Government’s capacity to develop the much needed infrastructure as it may have to scaledown its capital expenditure in line with lower realized revenue. Loss of employment In the real sector of the economy, the impact of the crisis has been reflected in the scaling down of production or the closing down of some mining operations due to low copper prices. This has had the inevitable consequence of loss of jobs. However, following the reopening of some mines, the situation has slightly improved. External position The declining earnings from copper exports adversely affected Zambia’s balance of payments position. For instance, during the fourth quarter of 2008, the overall balance of payments deficit widened to US $ million from US $ million recorded the previous quarter. Merchandise export earnings declined to US $ million from US $ million realised in the third quarter of 2008 following a sharp reduction in metal export earnings. Metal export earnings declined by 23.1% to US $ million in the fourth quarter of 2008 from US $ million the previous quarter. Metal export earnings at US $ million in the first quarter of 2009 were 49.8% lower than the US $ million recorded in the similar period last year.

While there is a general consensus that fiscal consolidation and structural adjustment are necessary to regain competitiveness and sustainable growth in the future, in the immediate term it will involve costs to the economy. As the experience in previous crises has shown, including during the Asian Financial Crisis, there are threshold levels that when breached the economy will be pushed into an even deeper recession. This will in turn increase the cost of the resolution of the crisis and result in an even more prolonged period of weakness. The concern is also the potential huge financial and social costs. The Asian experience during the financial crisis in the late 1990s has also shown that the potential for effective results is enhanced when the policy package is comprehensive. BIS central bankers’ speeches  1  Financial restructuring and repair, fiscal consolidation and structural adjustments have their best chance to yield results in an environment in which there is some economic growth. Piecemeal policy measures that primarily focus on addressing the immediate problems will be inadequate and will not be able to garner sufficient growth momentum and thus sustain confidence. The financial restructuring and repair, the fiscal consolidation and structural adjustment urgently needs to be complemented with wide-ranging pro-growth policies. Another challenge confronting the world economy lies in the manner in which policy coordination may be improved, both within and across borders, to maximise the impact of policy measures while minimising the unintended spillovers on other parts of the economy or financial system and across borders.