Home » Zambia’s Economic Woes: How to Balance Debt, Growth and Inflation

Zambia’s Economic Woes: How to Balance Debt, Growth and Inflation

A budget plan to balance debt, growth and inflation

by Motoni Olodun
Copper tax dive, debt deal delay pose

Zambia, Africa’s second-largest copper producer, faces a daunting economic challenge: reducing its massive debt burden while stimulating growth and curbing inflation. The country’s new finance minister, Situmbeko Musokotwane, will present his budget plan on Friday, hoping to reassure investors and the public that Zambia is recovering.

Zambia defaulted on its external debt last year, becoming the first African country to do so since the onset of the pandemic. The country owes about $12 billion to various creditors, including China, the International Monetary Fund (IMF) and bondholders. Zambia has been struggling to reach a debt restructuring deal with its official creditors, co-led by China and France, which is a precondition for receiving an IMF bailout package of about $1.3 billion.

The nation’s currency, the Kwacha, has shown a significant sensitivity to the progress of the debt-restructuring process. Since June 22, when an in-principle agreement with the country’s bilateral lenders was announced, the Kwacha has depreciated by 16%. This is the steepest decline among all African currencies during this period.

Zambia’s economic outlook remains uncertain, but there are signs of hope. In the first half of the year, taxes from mining companies saw a significant drop of 64% compared to the previous year. The royalty from Zambia’s minerals also decreased by 40% during the same period. The output for 2023 is expected to reach a 14-year low. 

Zambia’s economic woes are also linked to its dependence on copper, which accounts for about 70% of its export earnings. The global demand and price of copper have been volatile due to the pandemic and trade tensions. Due to power shortages, infrastructure bottlenecks, and regulatory uncertainties, Zambia’s copper production has declined.

To address these challenges, Musokotwane must strike a delicate balance between fiscal consolidation and growth stimulation. He must find ways to increase revenue, cut expenditures, and improve public financial management. He will also have to boost investment in agriculture, tourism, and manufacturing sectors, which can create jobs and diversify the economy.

Musokotwane has expressed optimism that Zambia can overcome its difficulties with the support of its partners and the implementation of sound policies. He has also pledged to restore fiscal discipline and transparency, which were eroded under the previous administration of Edgar Lungu. He said he will work closely with the IMF and other creditors to finalize the debt restructuring deal as soon as possible.

Zambia’s new president, Hakainde Hichilema, who won a landslide victory in August 2021, has also vowed to revive the economy and restore confidence. He has appointed a team of technocrats and professionals to key positions in his cabinet and government. He has also promised to tackle corruption, promote good governance, and uphold human rights.

Zambia has the potential to become a prosperous and stable nation if it can overcome its current challenges and seize its opportunities. The budget presentation on Friday will be a critical test for Musokotwane and his team as they seek to chart a new course for Zambia’s economic recovery.

Source: Bloomberg

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