JP Morgan ‘positive-ish’ about Zambia’s Economy

JP Morgan is optimistic about Zambia’s economy as they predicted that the unexpected outcome of Zambia’s General elections should improve impact on Zambia’s medium term economic prospects. JP Morgan in September this year emphasized the need for President Hakainde Hichilema to address issues such as delivering a credible economic package. The financial services giant is looking forward to seeing an agreement for an IMF program materialize 1st quarter of 2022. They also expect the new government to re-establish the primacy of price stability and possibly introduce foreign exchange reforms that will bolster the external sector.

JP Morgan highlighted how they expect government to focus on reforming the tax regime relatively in the mining and electricity sector as well as increasing fiscal transparency especially around external debt and improving monetary and foreign exchange policy.

While they expect the government not to depart too much from the previous administrations Economic Recovery Program, stating that the Country’s economic recovery could be buoyed by increased mining activity, they expect new revenue and tax measures in the mining sector with a curb on excessive spending on the Farmer Input Support Program which accounted for 8% spending in 2020.

They forecast the fiscal debt to narrow down further to 6.9% of GDP in 2022. Despite Zambia requiring significant debt restructuring particularly in the face of elevated external debt, JP Morgan advise that a fully fledged IMF program would require large debt burden sharing across creditors and broad based macroeconomic reforms. They are positive that a ‘haircut’ of 20% could be enough to bring the net present value of debt towards a sustainable path within 6 years.

Noting that transparency will be key to advancing talks with IMF, JP Morgan highlighted that in order to establish credible monetary anchors, policy normalization is imminent as the IMF is likely to call for a tighter monetary policy to reign in inflation. They are positive that a combination of stronger Kwacha, favorable base effects and increased domestic food supply should lower inflation by 20.1% by the end of 2021 and 12.7% by the end of 2022.

The financial services firm further highlighted that upside risks to headline inflation remain going into 2022 such as a possible increase in energy prices once the IMF program kicks off. They expect gross foreign reserves to remain elevated at USD 2.8bn end of 2022 and USD 2.9bn at the moment.

JP Morgan are positive that the authorities would land a near USD 3bn (225% of quota) extended credit facility or extended fund facility (ECF/EFF) program with IMF after talks are concluded. With an expectation that the talks will finish sometime in 2022, anticipating a USD 700mn disbursement in 2022.

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