revenues. Revenues dropped below tar- ZAMBIA geted levels by 7.6 percent, while govern- Recent developments ment spending was 17.4 percent above target, with the public sector wage bill Zambia experienced subdued economic utilizing 47.7 percent of 2016 resources activity in 2015 and 2016, with real GDP and interest payments 18.9 percent. The Table 1 2016 growth easing to 2.9 percent in 2015 and fiscal deficit reached 6.5 percent of GDP Population, million 16.7 3.3 percent in 2016. During the first three (cash basis) while the stock of public ex- GDP, c urrent US$ billion 19.7 quarters of 2016, the economy continued penditure arrears increased to an estimat- GDP per c apita, c urrent US$ 1181 to face tough global and domestic condi- ed $1.4 billion from $827 million in 2015. Poverty rate ($1.9/day 2011PPP terms) a 57.5 tions for growth, including slower global The arrears and tight liquidity contribut- Poverty rate ($3.1/day 2011PPP terms) a 73.2 and regional growth, lower copper prices, ed to increased non -performing loans a power outages and high cost of credit reaching 9.7 percent of bank portfolios at Gini Coeffic ient 57.1 b resulting from tight monetary policy. the end of 2016, up from 7.3 percent in Sc hool enrollment, primary (% gross) 103.7 Improved economic performance in 2016 2015. Large and repeat fiscal deficits have b Life Expec tanc y at birth, years 59.2 was grounded in a better harvest, reduced been financed via foreign -currency de- Source:World Bank WDI and M acro Poverty Outlook power outages and increasing signs of nominated commercial debt in recent Notes: macroeconomic stability. Despite slower years, and the total stock of public debt (a) M ost recent value (2015) (b) M ost recent WDI value (2014) expansion in the construction sector due reached 51.1 percent of GDP in 2016, up to low public investment, growth of the from 33.2 percent in 2014, elevating the industrial sector has remained robust on risk of debt distress. the back of increased copper production Both exports and imports fell in 2016 from new mining projects. In contrast, relative to 2015, but imports fell by a GDP growth improved to 3.3 percent in service sector growth decelerated by al- larger magnitude, serving to narrow the most a quarter to 1.8 percent in 2016, fol- trade and current account deficits in 2016 from 2.9 percent in 2015, but re- lowing slower expansion of wholesale and 2016. Inflows of foreign currency re- mained below the rate achieved between retail trade, and financial services. mained subdued until the last quarter of 2004 and 2014 (average 7.4 percent). In The local currency, the Kwacha, has re- 2016, putting pressure on international 2016, economic activity was constrained mained stable since mid -2016, and ap- reserves that fell to 2.7 months of import preciated slightly in the first quarter of cover in December 2016 from 3.3 months by slower regional and global growth, 2017. After reaching a peak of 22.9 per- the year earlier. lower copper prices, power outages, and cent in February 2016, annual inflation With population growth near 3 percent, tight monetary policy that constrained declined to reach single digits in Novem- per capita incomes grew only modestly in access to credit. Growth is projected to ber 2016, and 6.8 percent in February 2016, moderating progress in reducing improve slightly in 2017 (4.1 percent) 2017. Lower inflation allowed an easing poverty. The 2015 Living Conditions of monetary policy in November 2016 Monitoring Survey (LCMS) suggests that and over the medium term. Economic and and February 2017. 54.4 percent of the population lives below fiscal reforms remain key for a shift to Fiscal pressures remained the major chal- the government’s national poverty line. sustained and more inclusive growth. lenge in 2016 as government could not Poverty is higher in rural areas (76.6 per- control expenditure following reduced cent) than in urban areas (23.4 percent). FIGURE 1 Zambia / Sector growth rates (2014-2017) FIGURE 2 Zambia / Fiscal trends (2014-2019) Percent Percent of GDP 8 30 25 4 20 15 10 0 5 0 -4 -5 -10 -8 2014 2015 2016e 2017f 2018f 2019f 2014 2015 2016e 2017f Government revenues Government expenditure Agriculture Industry Services Fiscal deficit (cash basis) Sources: Central Statistics Office, Zambia and World Bank forecasts. Sources: Ministry of Finance, Zambia and World Bank forecasts. MPO 1 Apr 17 Inequality is high in Zambia, with a Gini in 2016 to 56.9 percent in 2017. However, The Economic Recovery Plan, launched in coefficient of 0.56 in 2015. at existing population growth rates, the the final quarter of 2016, offers a solid actual number of poor people is expected framework to meet the set of potential to increase from 9.5 million in 2016 to 9.8 challenges. However, positive sentiments Outlook million in 2017. Less tight monetary policy in 2017 need to be backed by bold reforms. The government eliminated the fuel subsidy in should help improve conditions for October 2016, but as of March 2017, pro- Growth is projected to improve in 2017 growth of the financial and private sec- gress with other structural reforms re- and over the medium term, as domestic tors. Fiscal consolidation is likely to mains limited. constraints have been easing gradually. weigh on growth in 2017 and 2018, but is Among key economic reforms: improved Rainfall has been higher in the last two deemed essential to allow for less restric- debt management, adopting a strategy seasons since the major El Nino hit (2014- tive monetary policy and restraining the for clearing public expenditure arrears, 15). Accordingly crop projections point to accumulation of debt. improving mechanisms for the collection improved growth of the agricultural sec- of revenues, and building systems to tor in 2017. The better rains have also led ensure that public investment plans are to faster replenishment of hydroelectric reservoirs in 2017 that will reduce the fre- Risks and challenges much better targeted and executed. To expedite economic expansion, greater quency and severity of power outages efficiency is needed from State Owned (Zambia is 95 percent dependent on hy- The outlook is subject to both upside and Enterprises, especially in the electricity droelectricity). downside risks. The downside includes sector where the supply deficit is a huge New mining projects are expected to im- the possibility that the recent copper drag on growth. prove copper production further in 2017. price increase is reversed (global copper There also remains a need to ensure that Copper prices have increased since the supply appears fairly well matched with growth is more inclusive. Economically final quarter of 2016, but price momentum expected demand), slow progress with depressed rural areas need to be linked to may moderate as global supply increases fiscal consolidation and structural re- the most dynamic sectors of the economy. to match demand. Growth projections forms, and the possibility that investor Coverage of programs targeted to help the assume a modest increase in copper prices sentiment will fade if the government poor and vulnerable remains small rela- and production in 2017 relative to 2016. reverses its decision to engage with the tive to the need, as well as compared to Per capita GDP growth is projected at 1 IMF on a program. On the upside, the regional and international standards. percent in 2017 up from 0.2 percent in copper price might continue to rally, and 2016. This is expected to reduce modestly expedited progress with economic re- the proportion of people living under the forms could provide a further boost to $1.90/day poverty line from 57.3 percent investor confidence. TABLE 2 Zambia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2014 2015 2016 e 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 4.7 2.9 3.3 4.1 4.5 4.7 Private Consumption 5.2 4.9 1.9 4.6 4.8 5.0 Government Consumption 3.1 -3.4 0.3 0.4 -1.0 -0.2 Gross Fixed Capital Investment -7.1 7.6 2.5 2.5 4.9 4.6 Exports, Goods and Services -5.4 -11.0 -8.4 5.6 5.9 6.1 Imports, Goods and Services -6.5 -7.0 -10.9 3.9 5.1 5.0 Real GDP growth, at constant factor prices 4.7 2.9 3.3 4.1 4.5 4.7 Agriculture 1.1 -7.7 3.3 3.5 3.8 3.7 Industry 3.9 6.8 6.1 5.8 5.7 5.5 Services 5.6 2.4 1.8 3.2 3.8 4.4 Inflation (Consumer Price Index) 7.7 8.3 18.2 7.9 7.8 7.6 Current Account Balance (% of GDP) 2.1 -3.4 -3.2 -2.7 -2.2 -1.5 Fiscal Balance (% of GDP) -5.5 -9.4 -6.5 -6.7 -5.8 -4.8 Debt (% of GDP) 33.2 54.5 51.1 54.4 58.6 60.2 Primary Balance (% of GDP) -3.3 -6.8 -2.8 -3.6 -2.6 -1.3 Poverty rate ($1.9/day PPP terms) a,b,c .. 57.5 57.3 56.9 56.2 55.8 Poverty rate ($3.1/day PPP terms) a,b,c .. 73.2 73.2 72.8 72.4 71.9 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice. No tes: e = estimate, f = fo recast. (a) Calculatio ns based o n 201 5-LCM S. (b) P ro jectio n using neutral distributio n (201 5) with pass-thro ugh = 0.87 based o n GDP per capita in co nstant LCU. (c) A ctual data: 201 5. No wcast: 201 6 - 201 6. Fo recast are fro m 2017 to 2019 MPO 2 Apr 17