22 June 2016

Zambia Can Beat the Economic Slowdown By Making Every Kwacha Count

press release

Lusaka — Zambia is facing tough conditions for growth. Despite the current slowdown, investment in mineral and non-mineral sectors in the country remains attractive. This is according to the seventh World Bank Zambia Economic Brief titled: Beating the slowdown: Making every kwacha count, released today.

Zambia, like many other African countries, is facing external headwinds while domestic pressures have intensified. The external headwinds include slower regional and global growth and lower copper prices. Domestic pressures include a power crisis impacting on all sectors of the economy and repeat fiscal deficits that have made achieving macroeconomic stability harder. The report observes that GDP growth is forecast to remain close to 3.0 percent in 2016, assuming new power generation capacity comes on line and a better harvest is achieved.

The report states that making every kwacha count should include the removal of fuel subsidies and moves to improve the financial sustainability of the power sector. According to Country Manager for Zambia, Ina-Marlene Ruthenberg, "international experience demonstrates that such measures are best complemented by scaling-up cash transfer programs, both in terms of the amount household's receive and the number of vulnerable households benefiting to protect the vulnerable during any transition."

The medium-term horizon for the economy looks brighter and growth of the economy is forecast to improve in 2017 (to 4.2 percent) and again in 2018 (to 5.0 percent). 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 return to faster growth requires that uncertainty about whether persistent and growing fiscal deficits can be reined in is met with clear and credible budget policies toward a more sustainable fiscal stance.

"The changes in the global conditions for growth require that countries in the region ensure any under-utilized resources are re-allocated to where they can have greater impact," said Gregory Smith, Senior Economist. "There is a need to carefully look at the efficiency and effectiveness of public expenditure, and ensure that every kwacha counts," he added.

The report observes that commodity price shock highlights the need for Zambia to reduce its dependence on copper. The Seventh National Development Plan provides a good opportunity to set this agenda and set a path to clear impediments to private sector activity and improving the business environment.

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