Tourism Apart from mining and related companies that are affected by the effects of the global recession, tourism has also been negatively impacted. The number of foreign tourists is anticipated to decline owing to financial problems and credit crunch their countries of origin are facing. Availability of credit Perhaps the most challenging effect of the global financial crisis, especially for developing countries like Zambia, is its impact on private sector investment. Between 2006 and 2008 credit to the private sector grew strongly (at an average of 45.6% per annum), largely driven by the expansion of consumer credit and the strong growth in the domestic economy. An immediate consequence of the financial and economic crisis has been a curtailment of credit lines and a slow-down in FDI flows. In 2009, domestic credit is expected to slow down as financial institutions adopt more conservative lending practices and tighten their lending standards. In addition, the deterioration in corporate and household balance sheets is now being translated into higher non-performing loans (NPLs) as a percentage of total assets in the banking sector (from 6% in mid-2008 to 10% in May, 2009 – an increase of 67%.). The deterioration in NPLs is now across all the past due loan categories. BIS Review 86/2009  3  Policy response In responding to the crisis, the Government is taking steps to maintain macroeconomic stability and continue encouraging investments that will lead to diversification of the economy and safeguard vital social services.

Further, the Government is actively engaging new investors to take over the running of the closed mining operations as well as negotiating with the owners of the bigger mines on modalities of continuing with operations at the mines to forestall further job losses. The 2009 Budget has prioritised infrastructure development with the view to opening investment opportunities for diversification, particularly in agriculture, tourism, and manufacturing sectors. Some specific measures include the following: Agricultural sector: Increased allocation of funds to the sector for livestock development and creation of at least one disease-free livestock zone, Farm Block infrastructural development and irrigation projects. Further, the value added tax on selected agricultural equipment and spares, has been zero rated as incentive to increase agricultural production and productivity. Tourism sector: In order to diversify the economy and attain broad based economic growth, Government has increased the allocation to the sector to improve access to the Northern Tourism Circuit (infrastructural development in Mbala and Kasaba Bay). Further, Government will embark on the development of a new world class tourism area in Livingstone, and step-up the development of road infrastructure in key national parks namely, Luangwa and Kafue. Manufacturing: In order to expand the manufacturing base, Government is promoting the establishment of Multi-Facility Economic Zones (MFEZ) on the Copperbelt (Chambishi), and Lusaka (Lusaka south and east) provinces by providing for fiscal incentives and quality infrastructure development in the budget. The construction of the Chambishi MFEZ has already commenced.