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Submitted by Chola on
Indeed the impact on Zambia is less severe than it has been for other countries such as those in the eastern bloc of Europe. While a significant depreciation of the local currency has occurred alongside the slump in copper prices, the substitution effects may be dominated by the income effect of the crisis. Meaning that there is likely to be a net decline in exports this year. Also, the depreciation is likely to prolong inflationary pressures because of the strong pass-through between the exchange rate and domestic prices. Of course, prolonged inflationary pressure is likely to translate into higher lending rate that may not only slow down output in the formal sector but may have a negative impact on long-term lending (Already, Zambia has a low M2/GDP ratio even by SSA standards). The labor force has recently seen significant decline in employment, particularly in the mining sector. It can generally be expected that the many firms that depending in the mining sector is facing cut backs as well. An important strategy in the intermediate term is to diversify the economy beyond mining.