According to Citi researchers, the initial commentary on the economic outlook for Zambia following HH’s victory has been generally positive. In particular, most analysts have highlighted the recent appreciation of the Kwacha on the back of strong portfolio inflows into the domestic debt market as an important factor in helping reduce inflation and as supportive of debt dynamics. Moreover, most expect that the new President will move quickly to conclude a deal with the IMF.
Citi researchers stated that, “While we do not agree with this narrative, we also think that it is important to put a little more flesh on the bones of the story. So in relation to our thinking about moving onto a new IMF programme, we would probably expect the start of serious programme discussions to commence at the IMF/World bank annual meetings in October, probably resulting in the start of a programme sometime before Easter next year. Moreover, part of our confidence in this timetable is that senior civil servants at both Ministry of Finance and Bank of Zambia (BoZ) have already been in discussion with the IMF about a potential new programme prior to the elections. So much of the background work has been thought about in some detail”.
In addition, they further state that it is clear to them that both Felix Mutati and Situmbeko Musokotwane have influence on HH’s economic policy formulation. Both are former finance Ministers with experience working with the IMF. Further they add that, there may be a change in leadership at the BoZ that would see one of the Deputy Governors taking over the helm of Central Bank, a move which most economists would argue is positive with respect to improving the economic management team and building relations with the IMF. The other point they highlighted is that, in some ways, moving onto an IMF programme and seeing an improvement in the short-term macroeconomic environment is arguably the easy task facing the new government. Not only would this support kwacha stability, but the other point they make is that significant spending on FISP in recent years, plus normal rains, also means that Zambia will have a record maize harvest this year. This combination should mean that inflation starts to tread down significantly into 2022. However, the Citi bank express their concerns, stating that there are two major issues which need to be resolved with the IMF.
The first, is around the medium-term fiscal outlook, while the second, crucially, is that the IMF and the new government need to produce a mutually acceptable Debt Sustainability Analysis (DSA).They explain that certainly a key goal of the IMF programme must be better fiscal planning anddiscipline given that the recent year’s budget speeches have been a poor indicator of the actualfiscal outcome. The causes of the larger fiscal deficits than planned have been varied, but broadly
speaking, rising capital spending has been an issue, especially when combined with erratic one-off additional spending – notably on the farmer input and support programme (FISP) in recent years as well as over-optimistic revenue forecast. There is also the important medium-term goal of reforming the electricity pricing regime.In essence, the medium-term battle for the new government will be to put in place a new regulatory regime for the mining sector which balances its many goals: the need to boost production, while raising tax and creating jobs.
According to Lusaka Times, Finance Minister Situmbeko Musokotwane has revealed that Zambia’s external public debt had grown uncontrollably over the past decade to almost $15 billion by June this year, including money owed by state companies.Dr. Musokotwane said that even without parastatal debt included, Zambia’s external debt in that month was estimated at $12.91 billion. “National debt has grown uncontrollably since 2012. Year in, year out, the borrowing was spiraling out of control,” he said. Dr. Musokotwane said Zambia aims to raise copper production to 3 million tons in the coming decade. LUSAKA, Sept 10 (Reuters) – Zambian president Hakainde Hichilema said on Friday, his new government would implement policies to reduce the fiscal deficit, restore economic growth and review mining policies. In his first address to a new session of parliament since his election in August, President Hichilema said officials would also review agricultural policies, revise electricity prices and reform state power firm, ZESCO.
Last month Africa’s second-biggest copper producer became the first country on the continent to default on its sovereign debt during the pandemic, after failing to keep up with payments on its nearly $13 billion of international debt. “Rebuilding our economy is top on our agenda. We will implement policies to address the fiscal deficit while ensuring that confidence is restored in the markets,” President Hichilema said. In a statement on the economic outlook of Zambia by the World Bank, after 15 years of significant socio-economic progress and achieving middle-income status in 2011, Zambia’s economic performance has stalled in recent years. Between 2000 and 2014, the annual real gross domestic product (GDP) growth rate averaged 6.8%. The gross domestic product (GDP) growth rate slowed to 3.1% per annum between 2015 and 2019, mainly attributed to falling copper prices and declines in agricultural output and hydro-electric power generation due to insufficient policy adjustment to these exogenous shocks.
The COVID-19 pandemic pushed into contraction an economy that was already weakened by recent persistent droughts, falling copper prices and unsustainable fiscal policies. Economic activity through Q3 of 2020 contracted by 1.7%, as declines in industry and services outweighed growth in agriculture. Mining and service suffered from lower global demand and social distancing measures earlier in the year, respectively. A gradual recovery is expected, with GDP growth projected at 1.8% in 2021, and will average 2.8% over 2021-2023. Higher copper prices, the commissioning of a new hydropower station, and a return to normal rainfall patterns are expected to support growth in agriculture and electricity production, key contributors to Zambia’s industry and service sectors. However timely achievement of macroeconomic stability will largely depend on progress on debt, restructuring, fiscal consolidation efforts and availability of the COVID-19 vaccines.