Harare – Following Mr Hakainde Hichilema’s August 12 election victory, economists and investors expect the new UPND administration to engender political stability as Zambia moves towards economic recovery.
Moreover, global recovery and rising copper prices are tipped to spur Zambia’s recovery. Zambia is projected to exit recession this year and experience growth in 2022-25 as international demand for copper is expected to remain high.
In a second quarter (Q2) update, researchers at Focus Economics consultancy say, “Zambia’s economic activity in Q2 was likely supported by upbeat prices for copper — the lion’s share of the country’s exports — with merchandise exports expanding at a solid rate, albeit partly flattered by a favourable base effect.
“Meanwhile, in politics, opposition leader Hakainde Hichilema of the United Party for National Development who won the 12th of August general elections announced his intention to reach a bailout agreement with the IMF — the first step towards restructuring around US$12 billion in debt with creditors. This, coupled with the surprise outcome of the vote, pushed the kwacha and Eurobonds to an over five-year and a 17-month high, respectively.
“Moreover, the IMF’s general SDR allocation became available on 23 August, boosting Zambia’s foreign reserves.”
The African Development Bank has projected the Zambian economy to grow by one percent in 2021 and two percent in 2022, underpinned by recovery in mining, tourism, and manufacturing.
“The recovery in international demand and copper prices are positive developments, while a reduction in COVID–19 cases will boost activity both in manufacturing and tourism,” the banks says.
However, the economy faces substantial risks, particularly from subsequent waves of the COVID-19 pandemic.
In the banking sector, the ratio of non-performing loans is expected to increase and contribute to a drying up of bank liquidity, dampening private sector activity. Against this backdrop, poverty is expected to increase due to significant job losses in the service sector (on average, 30.6 percent), manufacturing (39 percent), personal services (39 percent), and tourism (70 percent).
Zambia’s stock of public debt increased to an unsustainable 104 percent of GDP on September 30, 2020 and is expected to rise slightly in 2021 before decreasing in the medium term because of improved coordination between fiscal and monetary policy, as espoused in the Economic Recovery Programme.
The AfDB says Zambia should “stop accumulating new external debt, increase domestic revenues, curb runaway public spending, and create a stronger institutional public financial management framework. To avoid a severe liquidity crunch, the government has initiated a creditor engagement strategy aimed at securing immediate debt service relief with its external creditors”.
On good governance, economist Mr Tatenda Nyachega says “poor governance breeds corruption, raises information cost for investors and encourages rent-seeking activities. Poor governance also has an adverse effect on the morale of the citizens of a country”.
Mr Nyachega also says, “Poor governance may discourage investment by creating barriers to market entry and increasing operating costs. In this regard we expect good governance to be the anchor or Zambia’s economic recovery path.”