21.1 percent in December 2015 and re- ZAMBIA mained above 20 percent in February 2016. Recent developments Inflation will remain elevated until pass- through from the depreciation unwinds in On the back of higher copper production, the second half of the year. foreign direct investment in manufactur- Fiscal expansion since 2012 has helped to Table 1 2015 ing and the mining sectors, government boost GDP, but it has exhausted fiscal Population, million 16.2 infrastructure spending, and stronger space, and reining in deficits is now vitally GDP, c urrent US$ billion 21.1 private sector investment in construction important for macro-fiscal stability. Gov- GDP per c apita, c urrent US$ 1300 and services, Zambia grew at an average ernment spending advanced by an aver- Poverty rate ($1.9/day 2011PPP terms) a 64.4 annual rate of 7 percent between 2010 and age 12.3 percent in real terms since 2012, a 78.9 2014. But as copper prices plummeted in and the fiscal deficit reached 8.0 percent of Poverty rate ($3.1/day 2011PPP terms) 2015 the Zambian economy has come GDP in 2015, up from 6.1 percent in 2014. Gini Coeffic ient a 55.6 under strain. The 2016 budget plans a consolidation but b Sc hool enrollment, primary (% gross) 113.6 External headwinds have intensified, in- one based on higher revenues to meet still b Life Expec tanc y at birth, years 57.0 cluding slower regional and global -higher expenditures. Sources: World Bank WDI and M acro Poverty Outlook. growth and a sharp decline in the price of Given slower growth, surging external Notes: copper. While many commodity -driven debt service costs (following deprecia- (a) M ost recent value (2010) (b) M ost recent WDI value (2013) economies face this threat, it has been tion), August-11 election spending pres- more severe for Zambia as copper ac- sures, and a need for emergency power counts for 75 percent of exports. Domestic imports, the 2016 budget appears opti- pressures have also risen. Zambia faces a mistic. While the deficit can be reduced in power crisis, repeated fiscal deficits have 2016, it is unlikely that the government The economy has come under strain as reduced confidence in the economy, low meets its target of 3.6 percent of GDP. external headwinds and domestic pres- and poorly-timed rains have dented agri- Large Eurobond issuances in 2012, 2014 cultural incomes of population in poverty, and 2015 have been used to finance the sures have intensified. GDP growth and the mining sector has faced job losses. deficits, almost doubling the size of exter- slowed to 3.6 percent in 2015 from 4.9 The country’s currency, the kwacha, lost 41 nal debt relative to GDP from 13.5 percent percent in 2014. External headwinds in- percent of its value against the dollar dur- in 2012 to 38.7 percent in 2015. Total pub- clude slower regional and global growth ing 2015, making conditions yet more ad- lic sector debt breached 52 percent of and the strengthening of the U.S. dollar verse. The strength of the dollar globally GDP in 2015. was a factor, but the kwacha’s decline was Copper prices declined by almost a third against the kwacha. Domestic pressures much greater than other currencies in the from their peak in February 2011 to include a power crisis impacting on all region. Since November 2015 exchange US$4,595 per metric ton by February 2016 sectors of the economy, repeat fiscal defi- rate stability has been achieved through (LME), and are expected to remain soft cits that have weighed on investor confi- central bank intervention and changes to over the medium-term as global supply inter-bank trading rules. Following the currently exceeds demand. Accordingly dence, and low and poorly-timed rains loose fiscal position and depreciation of the current account registered a deficit of that have reduced agricultural incomes of the kwacha, inflation picked-up from 7.3 3.4 percent of GDP in 2015 after a surplus the poorest households. percent in August 2015 (year-on-year) to of 2.1 percent in 2014. FIGURE 1 Zambia / Fiscal trends FIGURE 2 Zambia / Actual and estimated poverty rates (%) and GDP per capita (PPP) Percent of GDP Poverty Rate (%) GDP per capita (USD PPP) 30% 90 4,000 25% 80 3,500 70 3,000 20% 60 15% 2,500 50 10% 2,000 40 5% 1,500 30 0% 20 1,000 -5% 10 500 -10% 0 0 2013 2014 2015f 2016f 2017f 2004 2006 2008 2010 2012 2014 2016 2018 Government Revenues Government Expenditure Fiscal Balance $1.9/day PPP $3.1/day PPP GDP per capita PPP Sources: Government of Zambia, WDI and World Bank forecasts. Sources: World Bank (see notes to table 2). MPO 286 Apr 16 Poverty in Zambia remains stubbornly agricultural incomes. Given the challenges fiscal deficit. Finally, the possibility of a high, especially in rural areas where three facing Zambia, GDP is expected to ease bad harvest could serve to increase food out of every four people had income be- to 3.4 percent gains in 2016 before re- prices and reduce rural and agricultural low the national poverty line in 2010. bounding to 4.2 percent in 2017 and to incomes, with the impact falling on the Such situation is likely to continue this 5.0 percent by 2018, assuming copper poorest households. year linked to the failure - and late onset prices stabilize and domestic pressures of 2015 rains, which will reduce agricul- ease. Growth is expected to provide only tural incomes in 2016 and cause some households to fall into poverty. On the modest reductions in poverty incidence. Per capita GDP growth of 0.5 percent in Risks and challenges other hand, the benefits of growth have the current year should bring the pro- accrued mainly to urban areas where portion of households living under Lower copper prices, power outages and many of the gainful economic activities in $1.90/day to 61.2 percent in 2016 from fiscal imbalances present the major chal- the country take place, such as in the 61.3 percent in 2015. lenges over the medium term. Large fis- highly urbanized Copperbelt and Lusaka Tough action is required in 2016 to curb cal deficits will remain costly to finance, regions. But recent adverse developments runaway expenditures, with inflation sending adverse signals to investors that in the country, such as power shortages above 20 percent and growing twin defi- reduce confidence in the kwacha. Bring- (and effects on SMEs in industry and ser- cits. The outlook is also subject to down- ing spending on subsidies and govern- vices) and depreciation may impact ad- side risks, both domestic and external. ment salaries under control is an urgent versely on urban centers. Zambia also has Externally, a further slowing in China’s priority. Reforming farm subsidies is one of the most unequal distributions of economy could weigh on demand for important for both poverty reduction and income in Sub-Saharan Africa, with a Gini Zambia’s exports by further reducing fiscal consolidation. And improving the coefficient of 55.6. copper prices. The main domestic risks economic benefits from Zambia’s mineral are threefold. First that the power crisis wealth in an environment of depressed will worsen--this could occur via delays world prices is a further challenge. In- Outlook in new generation coming online or through a further reduction of capacity come inequality poses a major impedi- ment for poverty reduction in Zambia as at the main hydropower plants. Second, it erodes possible gains associated with The outlook for growth in 2016 has been a falloff in confidence in the economy, income or economic growth, reflecting revised lower, following announcements leading to additional weakening of the inequalities in the access to assets, ser- of expected mine closures, severity of the currency and increased inflation. This vices and opportunities across the popu- power crisis and the rapid depreciation of might result from absence of measures lation which could compromise the pro- the kwacha. The failure and late onset of to curtail runaway spending or other spects of future generations. the 2015 rains are also likely to pressure failures to make a substantial cut in the TABLE 2 Zambia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2013 2014 2015 e 2016 f 2017 f 2018 f Real GDP growth, at constant market prices 6.7 4.9 3.6 3.4 4.2 5.0 Private Consumption 0.8 1.6 2.7 3.2 3.8 4.2 Government Consumption 25.2 13.4 21.3 6.5 -7.2 7.3 Gross Fixed Capital Investment 14.1 -1.5 11.3 -6.8 5.8 4.6 Exports, Goods and Services 12.6 -1.9 -9.0 5.6 8.0 14.4 Imports, Goods and Services 13.3 -3.1 9.2 2.8 6.7 5.6 Real GDP growth, at constant factor prices 6.7 4.9 3.6 3.4 4.2 5.0 Agriculture -7.4 8.0 -8.6 -2.6 6.5 4.8 Industry 7.6 4.8 4.2 3.8 5.1 5.2 Services 8.9 4.5 5.3 4.0 3.3 4.9 Inflation (Consumer Price Index) 7.0 7.8 10.1 22.5 9.9 7.7 Current Account Balance (% of GDP) -0.6 2.1 -3.4 -3.9 -2.6 -0.4 Fiscal Balance (% of GDP) -6.5 -6.1 -8.0 -7.0 -5.9 -3.7 Debt (% of GDP) 28.6 35.4 52.9 55.4 58.6 59.2 Primary Balance (% of GDP) -4.9 -3.8 -5.4 -2.5 -1.2 1.4 Poverty rate ($1.9/day PPP terms) a,b,c 61.7 61.3 61.3 61.2 60.6 60.0 Poverty rate ($3.1/day PPP terms) a,b,c 77.3 77.0 77.0 76.9 76.6 76.2 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: f = fo recast. (a) Calculatio ns based o n 201 0-LCM S-VI. (b) P ro jectio n using neutral distributio n (2010) with pass-thro ugh = 0.7 based o n GDP per capita co nstant P P P . (c) P ro jectio ns are fro m 2013 to 201 8. MPO 287 Apr 16