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7TH ZAMBIA ECONOMIC BRIEF
22 June 2016
Dr. Gregory Smith
Macroeconomics & Fiscal Management Global Practice
BEATING THE SLOWDOWN:
MAKING EVERY KWACHA COUNT
TOUGH CONDITIONS FOR GROWTH
WBG ZAMBIA 4
“Provisional estimates for 2015 from government suggest growth of 3.2%, a slowdown from the average of 7.4% between 2004 and 2014.”
WHAT DRIVES GROWTH?
WBG ZAMBIA 6
“Services had provided a important boost to growth over the past decade but the sector’s expansion slowed in 2014 and 2015”
COPPER EXPORTS DOWN AS THE PRICES FALLS
WBG ZAMBIA 7
“Copper prices have been falling since a peak in 2011”
“Copper production rose slightly in 2015, but the value of their export in US$ fell 31% because of lower prices”
PUBLIC EXPENDITURE HAS EXPANDED
WBG ZAMBIA 8
“Over the past 5 years expenditure has gone up by 13.8% a year in real terms”
PRESSURE ON THE BALANCE OF PAYMENTS
WBG ZAMBIA 9
“Zambia relies on copper for 77% of its exports”
“Many Zambian goods require imported inputs”
KWACHA UNSETTLED
WBG ZAMBIA 10
“The Kwacha has depreciated 62% between January 2015 and end-May 2016:”
PRESSURE ON THE CURRENCY = INFLATION
WBG ZAMBIA 11
“Inflation has spiked and remained above 20% for 6 months”
FOOD PRICES HIT THE POOREST HARDEST
The CSO data April 2015 to April 2016:
•Roller mealie meal (+30%)
•Maize grain (+35%)
•Tomatoes (+114%)
•Onions (+38%)
•Dried beans (+30%)
•Sugar (+35%)
•Table salt (+37%)
•Hammer mill charges (+45%)
WBG ZAMBIA 12
ZAMBIA OUTLOOK
�2016 GDP growth close to 3.0%
�Improving in 2017 (4.2%) and again in 2018 (5.0%).
�Underpinned by five main assumptions:
i. Copper prices remain low
ii. Fiscal pressures eased
iii. Market confidence via an IMF program
iv. Power crisis improves
v. 2015-16 harvest is better.
WBG ZAMBIA 13
FUEL SUBSIDIES �Since December 2014, four price adjustments but no changes since July 2015despite kwacha depreciation.
�Savings from fuel subsidies are estimated at around US$36 million per month.
�A review of the current price setting mechanism is also a priority, as are efforts to fix underlying problems associated with the supply of fuel.
WBG ZAMBIA 16
POWER SECTOR FINANCIAL SUSTAINABILITY
�Power crisis has impacted on all sectors of the economy.
�Savings of US 26 million per month could be realized if the power crisis could be resolved.
�Wider reforms and investment will ensure sustainable supply in future.
WBG ZAMBIA 17
“A clear power strategy is needed, on tariffs and far beyond”.
CASH TRANSFER PROGRAMME
�Scaling-up the government’s Social Cash Transfer programme would be a crucial complement to any subsidy removal.
� There remains a need to provide better support to the poorest households.
WBG ZAMBIA 18
“There remains a need to protect the poor during a transition”
PUBLIC EXPENDITURE REVIEW
�A full review of what is being spent in key sectors can help ensure that every kwacha is put to productive use.
�By comparing objectives and past spending patterns, the allocation of expenditure can be improved
WBG ZAMBIA 19
“Lessons to boost the efficiency of spending can be found.”