The Zambian economy has continued to grapple with both domestic and international economic challenges including sluggish growth, fiscal deficits, and unsustainable debt position that have elevated the risks to the Southern nation’s growth prospects. This article analyses the presentation by the MoFNP on Zambia’s macroeconomic performance while offering additional insights on the various macroeconomic indicators.

The major headwinds to Zambian’s economic growth highlighted include droughts, geopolitical tensions, volatility in the foreign exchange market and lower copper prices. According to the communique, Zambia’s real GDP growth for 2023 was forecasted to be 4.0 percent,1.2 percent lower than growth in 2022. The decline is due to lacklustre performance in the mining and Agri sectors as mining production in Zambia’s major mines remain suboptimal. As shown in Figure 1 below, the Zambian economy rebounded in 2021, crossing the 5-year GDP growth rate moving average. Growth is expected to marginally rise to 4.4 percent in 2024 and 5.5 percent in 2025 stemming from positive cues in both secondary and tertiary industries.

Benchmarked by targets, the fiscal performance of the Zambian government was favourable in 2023 as expenditures and revenues receipts were respectively below and above targets. Specifically, revenue and grants amounted to K122.1 billion in 2023, 7.7 percent above the targeted K113.3 billion while expenditure in the same year was K159.9 billion, below the targeted K167.3 billion. 

The 2023 fiscal deficit is estimated to be 5.8 percent of GDP compared to the target of 7.7 percent. The MoFNP project that fiscal deficit will ebb to 4.8 percent, 2.8 percent, and 2.2 percent in 2024, 2025 and 2026 respectively. Further, the deficits are expected to be sustained throughout the forecasted horizon to 2025 as shown below.

In as much as the Financial Insight analyst commends this exceptional fiscal performance achieved largely via fiscal consolidation, expansion of the economy’s production possibilities through value addition of resources and expansion of industries in the mining, manufacturing, agriculture, service, tourism industries remain key to enhancing sustained future growth, leading to fiscal surpluses and debt reduction.

Inflation – the silent thief of purchasing power, eased to 10.1 percent in 2023 from 11.1 percent in 2022. In sync with the Zambia’s Central Bank projections, the MoFNP expects inflation to ebb from 11.4 percent to 9.6 percent in 2024 and Q12025 respectively. It should, however, be pointed out that in seven years of the previous twelve years of operating under the inflation targeting monetary framework introduced in 2012, the annual inflation rate has been above the BoZ’s target range of 6 – 8 percent.

As shown in Figure 3 below, the Financial Insight analyst believes the last decade central bank’s performance has shifted inflation expectations of most rational economic players to a new elevated level estimated by the 12-year inflation rate average. This shift is a potential impediment to the swift attainment of the BoZ’s inflation target of 6 – 8 percent. The 2022 – 2023 farming session drought and continued geopolitical tensions are major upside risks to inflation.

As the debt restructuring process persist via the G20 common framework on the request of the Zambian government in 2021 the quantum of Zambia’s external debt stock stood at US$14.57 billion as at close of 2023, 4.4 percent firmer from US$ 13.96 billion at close of 2022. Due to a setback on a Eurobond holders deal arising from comparability metrics concerns, the restructuring process has lagged and discussions are still ongoing. The nation’s Long-Term Foreign Currency Issuer Default Rating status has significantly reduced credit lines of Zambia on both the international and domestic credit markets. Similarly, domestic debt increased between close of 2022 and 2023 from K210.0 billion to K232.6 billion arising from fiscal support and debt refinancing effort.

In 2022 and 2023, the Zambian Kwacha closed at K18.07 per US$ and K25.71 per US$ having depreciated by 8 percent and 43 percent against the US$ respectively. The depreciation was largely attributed to reduced mining production and easing copper prices on the London Metal Exchange. 

Data Source: Bank of Zambia  

Additionally, copper earnings decreased from US$ 8.1 billion at close on 2022 to US$ 6.1 billion for the year ending 2023 while average prices also declined from circa US$ 8,800 per tonne to US$ 8,500 per tonne. Copper exports accounts for over 60 percent of Zambia’s total export earnings and remains a significant risk to Zambia’s exchange rate stability. 

Diversification of the economy, and ultimately exports, remains an ideal fix to exchange rate instability. Diversification of exports will act as a hedge against price and production risks associated with copper. Additionally, this would offset the effects of imported inflation, a consequence of the Kwachadepreciation. The government remains key to unlocking diversification benefits by addressing various points of economic rigidity, which, in turn, will encourage domestic and foreign investment into myriad sectors of the economy.