Zambia Economic Brief, June 2015, Issue 5

After several years of strong economic
performance, Zambia now confronts several important
challenges that must be managed carefully to ensure
sustained and inclusive growth in the future. On the one
hand, the economy grew by an estimated 5.5–6.0 percent in
2014, somewhat above the average for African economies.
Monthly copper production increased by an average of 8
percent during the second half of 2014, reversing the sharp
slide in early 2014. Inflation fell to 7.2 percent in March
and April, helped both by falling world oil prices and by
the Bank of Zambia’s monetary tightening. In the first half
of 2015, the authorities adjusted several key economic
policies to respond to serious problems: revising rules on
VAT refunds in February, announcing a new mining fiscal
regime in April, and raising fuel prices in May so that the
government could recover import costs. On the other hand,
the kwacha has come under renewed pressure. It lost 17
percent of its value against the U.S. dollar from December
2014 through the end of March 2015. Since then it has
recovered somewhat, but foreign exchange markets remain
volatile. Interest rates have been rising since September
2014, due in part to increased government borrowing and in
part to steps taken by the Bank of Zambia to tighten credit.
Over the medium term, growth should hold steady in 2015 and
then accelerate to around 6–7 percent per year in 2016–2018.
Although inflation is expected to rise towards the end of
2015, it should resume falling in 2016. Low commodity
prices, a more stable exchange rate, and adequate local
harvests would help contain inflationary pressures and boost
real disposable incomes. The resulting pick-up in private
consumption, coupled with increasing copper exports, should
help strengthen growth prospects.