Zambia is facing a number of macro-economic challenges but has set itself on a path back to economic stability and growth.
The depreciation of the kwacha which triggered inflationary pressures, sluggish credit growth, decreased agriculture output arising from the poor rainfall and debt servicing burdens negatively affected the overall performance of the economy.
On the global front, mounting geopolitical tensions between the US and China and the rise in oil prices have also contributed to Zambia’s economic slowdown.
It is for these reasons that the 2019 National Budget theme, dubbed “Delivering Fiscal Consolidation for Sustainable and Inclusive Growth” was clearly aimed at stimulating Zambia’s declining economic performance through domestic resources mobilization.
2019 Economic Performance
Initially projected at around 4 percent, economic growth in 2019 slowed down to around 2 percent, compared with 3.7 percent growth in 2018.
In his maiden budget speech, Minister of Finance Dr Bwalya Ng’andu highlighted that although revenues and grants exceeded targets by 9.1 percent in the period from January 2019 to August 2019, expenditure exceeded targets by 3.4 percent.
Dr Ng’andu noted that this was mainly due to depreciation of the kwacha and under-subscription of government securities resulting in increased debt service costs which left an overall budget deficit of 6.5 percent of GDP on a cash basis.
According to the Bank of Zambia, inflation remained broadly in line with the 6 to 8 percent target range in the earlier part of 2019. In the second quarter, inflationary pressures built up, resulting in inflation breaching the upper bound of the target range in May 2019 at 8.1 percent. By the end of August 2019, inflation rose further to 9.3 percent. This was largely on account of higher food prices and the pass-through effects from the depreciation of the kwacha against the US dollar.
To counter inflationary pressures, the Bank of Zambia adjusted the policy rate upwards to 10.25 percent in May 2019 from 9.75 percent in December 2018.
Growth has further been adversely affected as commodity prices had generally been lower over the first eight months of 2019 due to a fall in global demand. Copper prices averaged US$ 6,091 per metric tonne compared to US$ 6,723 per metric tonne over the corresponding period in 2018. Over the same period, crude oil prices averaged US$ 63 per barrel compared to US$71 per barrel.
In addition, tight liquidity conditions mainly attributed to external debt servicing and as reflected in the accumulation of domestic arrears, have contributed to slower economic growth.
Notwithstanding the general slowdown in the economy, the service sector has however performed favorably, especially the wholesale and retail trade, information and communication technology and financial services.
Non-traditional export earnings increased by 17.2 percent to US$ 1.1 billion from US$ 911 million over the first half of 2018. This outturn was attributed to higher exports of gemstones, cement, lime, sulphuric acid, and sugar.
But in terms of debt position, the external debt stock as at end of June 2019 increased to US$10.23 billion from US$ 10.05 billion at the close of 2018. This was mainly on account of disbursements on existing loans. The rate of debt accumulation at 1.9 percent was lower than the 7.6 percent recorded in the corresponding period in 2018.
2020 Economic Outlook
The 2020 national budget, under the theme ‘Focusing national priorities towards stimulating the domestic economy’ is clearly aimed at dealing with the economic challenges the country is currently facing.
In a bid to achieve more with less, the tight fiscal space for 2020 requires refocusing resources on priority areas of economic diversification and job creation.
“We are confident that economic diversification and job creation can be attained with continued public and private investments in the agriculture, tourism, mining, energy and manufacturing sectors,” Dr. Ng’andu stated during his 2020 budget presentation.
Policy Monitoring and Research Centre Executive Director Bernadette Deka Zulu shared recently in response to the 2020 national budget reveal: “With relation to agriculture, we call for scaling up of the Farmer Input Support Program with more priority being given to the E-voucher as opposed to Direct Input Supply (DIS) so as to promote agriculture diversification.”
With decreased electricity output over the years, which has negatively affected the economy, the government has plans in place to upgrade its power plants and increase output. Power projects such as Bangweulu and Ngonye Solar Power plants generating a combined total of 90 megawatts have been completed and are operational. Further, the construction of the 750 megawatts Kafue Gorge Lower Hydropower Station Project and upgrading of Lusiwasi Upper Hydropower Station to 15 megawatts are expected to be completed in 2020. The upgrading of Chishimba Falls Power Station from 6 megawatts to 15 megawatts will commence in 2020. In addition, the developer of the 2,400 megawatts Batoka Hydropower Plant between Zambia and Zimbabwe has been identified.
It’s also encouraging to note that under the National Industrial Policy, the government aims to promote export-oriented industrialization as progress is being recorded in the export of products such as cement, honey, and detergents. In line with the National Local Content Strategy, these products are being manufactured from local raw materials.
Economic priorities for 2020 include creating a foundation for improved economic management, sustainable power generation and safeguarding people’s welfare through consistent public investments in education, health, and agriculture. These all fall in line with the country’s aspirations outlined in the Seventh National Development Plan (7NDP).
