By Jeff Kapembwa
Lusaka - Zambia needs to diversify its economy away from traditional mining and harness its untapped natural resources to promote sustainable growth and fight poverty amid alarming debt distress levels, the World Bank has advised.
Zambia’s external debt hovered around US$10.3 billion as at June, representing 28 percent of China’s debt accrued in loans with interests. The increasing appetite to borrow and finance infrastructure projects have raised fears that the country might plunge into serious debt crisis for want of prudent use of resources.
The World Bank, in its report dubbed: “Zambia’s Wealth Beyond Mining; Leveraging Renewable Natural Capital” cites various shortcomings that have created headwinds for growth and may lessen the zeal to fight against poverty.
The lender argues that in the long term, Zambia’s growth strategy will depend on improved productivity and the sustainable management of the country’s natural capital. In 2014, natural capital represented 40% of Zambia’s total wealth, valued at $644 billion while renewable resources constituted 73% of this natural capital.
“Diversifying the Zambian economy beyond minerals will entail leveraging the country’s renewable natural resources to produce continuous benefits in the long term,” Ina Ruthenberg, the World Bank country manager for Zambia said.
Zambia has made progress by committing to better more strategic management of its renewable natural capital by joining the Wealth Accounting and Valuation of Ecosystem Services Global Partnership (WAVES) initiated in 2017.
The concept promotes sustainable development and ensuring natural resources are mainstreamed into development planning and national economic accounts. The WAVES initiative is cardinal if Zambia is to start identifying where diversification of the economy could come from and identifies the pathway for the country to diversify.
Ruthenberg recommends Zambia transforming its natural capital into other forms of assets, specifically human, physical and digital capital, and urban development. The government is also utilizing Natural Capital Accounting (NCA) to guide sustainable investments that preserve natural resources that the most vulnerable people depend on the most.
Africa chief economist at the bank, Albert Zuefack, warns Zambia against increasing its appetite for debt contraction. The heightened debt portfolio, largely driven by lack of fiscal discipline, has taken up fiscal created space for economic expansion.
“Zambia is at greater risk of failure to grow because its position has been heightened by public debt vulnerabilities, largely driven by fiscal loosening, shift in borrowing patterns, and a weaker external environment.
“The country’s prospects for a stronger recovery are repressed by various domestic policy challenges, This is besides Zambia having picked up last year but the current outlook has since subdued by exogenous and domestic policy challenges,” Zuefack noted.
Domestic policy uncertainties largely relate to government’s need to implement a large fiscal consolidation to reign in on the growing debt burden and create fiscal space for inclusive growth; and commitment to implementing reforms in the energy sector that would catalyse private sector activity across various sectors.
Risks to exogenous shocks relate to low copper prices, low rains and the spill-over effects of the cyclones that have affected Zambia’s neighbours, Malawi, Mozambique and Zimbabwe. It fears if no adjustments are done in expenditure patterns, Zambia’s growth prospects are gloomy.
“In the absence of policy adjustments, growth is projected to decline to 2.5% in 2019 from 3.7% in 2018, and to remain below 3% over the medium term. There is a need to begin to address the current economic situation with a huge sense of urgency,” the bank’s continental economist observed and cautioned.
“Fiscal consolidation must be done like yesterday and the country needs to focus more on sustainability and efficient investment.”
The lender projects Zambia’s recovery in 2019 and the medium-term being tepid, weighed down by exogenous risks and policy challenges, with important poverty and vulnerability implications, noted Samson Kwalingana, the bank’s country’s senior economist.
“Going forward, Zambia should consider front-loading fiscal consolidation, as that will be key to reversing course on the rising debt burden and freeing up resources to other important public spending, including on social protection.
“Enhancing debt management, budget controls, and improving the operational and financial viability of key state-owned enterprises (SOEs) like Zesco (power utility) could jumpstart Zambia’s growth rates to the levels envisioned under the Zambia Plus and Seventh National Development Plan,” he said.
The bank projects subdued economic growth for the Sub Saharan African region. Last year, saw the regional Gross Domestic Product slowing down to 2.3 percent from 2.7 a year earlier, spurred by sluggish growth in the region’s three largest economies, Angola, Nigeria and South Africa.
However, it envisages a jump-start in GDP with growth envisioned to rise to 2.8 percent this year and further to 3.3 percent in 2020 based on increased agricultural and mining production and diminished policy uncertainty in the affected three countries.