| Recent macroeconomic and financial developments |
| Real GDP has grown steadily, from 5.2% in 2022 to 5.8% in 2023, driven by wholesale and retail trade, agriculture, and mining and quarrying on the supply side and by household and corporate consumption on the demand side. Inflationary pressures persist, with inflation at 11.0% at the end of 2022 and 10.9% at the end of 2023, driven mainly by food, transport costs, and the nominal exchange rate. The monetary policy rate has targeted curbing inflationary pressures, with upward revisions from 9.5% in September 2022 to 11.0% in November 2023. |
| The fiscal deficit improved marginally, from 8.2% of GDP in 2022 to 6.6% in 2023, owing to higher mining sector revenue collections. The current account went from a surplus of 3.8% of GDP in 2022, on higher export volumes and prices and subdued imports of consumer goods, to a deficit of 1.1% in 2023. International reserves declined from 4.4 months of import cover at the end of 2022 to 3.4 months in November 2023, on account of the use of the Extended Credit Facility and Special Drawing Rights from the International Monetary Fund. Improved financial sector performance in 2023 was due to increased economic activity. The ratio of nonperforming loans to gross loans improved from 6.1% in 2022 to 5.1% in 2023. The primary capital adequacy ratio was strong, at 23% at the end of October 2023 and 22.7% at the end of December 2022, owing to increased retained earnings. |
| About 60% of the population lives below the national poverty line, a slight improvement from 58% in 2015. Poverty levels are much higher in rural areas (78.8%) than urban areas (31.9%). Unemployment remains high, at 13%, especially among youth (24.7%). |
| Outlook and risks |
| The economy is projected to grow at 4.5% in 2024 and 2025, as the mining, services, and manufacturing sectors continue to recover, and global copper prices rebound. Inflation is expected to decelerate from 9.3% in 2024 to 7.0% in 2025, driven by falling food and fuel prices. Fiscal deficits are projected to narrow to 5.2% of GDP in 2024 and 3.4% in 2025 in response to ongoing fiscal reforms. The current account balance is expected to improve from a deficit of 1.1% in 2023 to surpluses of 3.3% in 2004 and 8.4% in 2025 as copper output rises. Downside risks to the growth outlook include continuing drought, fluctuating copper prices, slippages in reform program execution, and the inflationary impacts of Russia’s invasion of Ukraine on fertilizer and fuel prices. The government is expected to continue tightening monetary policy to curb inflation, maintaining a flexible exchange rate to reduce volatility, and shoring up foreign reserves through higher export earnings, the addition of locally mined gold bullion to foreign reserves, and the promotion of stable foreign investment flows. |
| Reform of the global financial architecture |
| Zambia needs to accelerate its structural transformation and diversification. Copper contributed disproportionately to GDP in 2022 (12.9%) and to export revenues (70%). The service sector contributed about 57% of GDP, while industry contributed 33.8%, with manufacturing contributing just 8.1%. Construction, utilities, and industrial activities accounted for about 10.9% of GDP. Agriculture’s contribution to GDP shrank from 9.3% in 2012 to 3.3% in 2022, even though the sector employs 24% of the labor force (58.5% men and 41.5% women). Productivity is low, as evidenced by widening productivity gaps between sectors. Structural transformation will require $3.5 billion in annual financing, along with improvements in institutional quality and sustained policy reforms. |
| Zambia’s debt restructuring negotiations under the G20 Common Framework have taken considerably longer than the speedy process initially envisioned when the Common Framework was initiated. When Zambia was categorized as being in debt distress in 2017, multilateral development banks stopped providing non-concessional financing. The major credit rating agencies may have escalated the debt crisis by overestimating sovereign risks. Thus, Zambia’s experience with debt restructuring underscores the urgent need for reforms and transformation of the global financial architecture. |
| For the full document click the link below:
Republic of Zambia: Economic Outlook & GDP |
