Syndicate content

Zambia can beat the economic slowdown by making every kwacha count

Gregory Smith's picture
This is a story of Zambia, a copper-dependent African economy that has been facing tough conditions for growth since mid-2015. Copper prices have fallen far from their peak in 2011 and as is typical at this point in the copper cycle, times are hard and Zambians have been feeling the pinch.  
 
Like people in many resource-rich countries, Zambians are facing higher costs of living (inflation has spiked and remained above 20%) and it’s become harder and more expensive to borrow. Added to these global headwinds have been domestic pressures, including a power crisis that has impacted all sectors of the economy, and a repeat fiscal deficit that have weighed on investor confidence. 
 
As the country gears up for elections on August 11, however, there has been good news.It was feared that a late start to the El Niño -influenced rainy season would dent the harvest, but the country received average rainfall in 2016 which gave a good crop. This prompted the Ministry of Agriculture to forecast a 10% increase on last year’s harvest. This increase will provide a welcome boost to Zambia’s growth and for food security in the region, as many other Southern African countries are facing shortage and need to import grain.
 
To analyze these economic trends further the World Bank recently launched its seventth economic brief, Beating the Slowdown: Making Every Kwacha Count. We highlight how the medium-term horizon for the economy looks brighter and growth of the economy is forecast to improve in 2017 (to 4.2%) and again in 2018 (to 5.0%).  The outlook for the Zambian economy is underpinned by an assumption that copper prices remain soft throughout 2016 and 2017. However, if global copper supply better matches demand and prices recover once again, improved growth could be achieved. 
 
The report states that uncertainty about whether persistent and growing fiscal deficits can be reined, needs to be met with clear and credible budget policies toward a more sustainable fiscal stance. Fiscal adjustment needs be accompanied by a shift in spending priorities that support both the efficiency of public expenditures and long-term, inclusive growth. Expenditures have increased considerably in recent years and by carrying out a review of public expenditure in key sectors, an improved allocation can be identified so that every Kwacha counts.
 
While in many areas this is difficult to achieve, there are obvious areas for attention, including the elimination of fuel subsidies that reduce pump prices, but put huge pressure on the government finances. Furthermore, if some of these savings are used to scale-up the government’s Social Cash Transfers system, then the shift back to faster growth is much more likely to be inclusive.
 

Add new comment