Real GDP growth in Zambia will remain subdued in 2016 at 3.4% due to a struggling copper industry and persistent power shortages. Private consumption will be restrained by higher interest rates and food costs stemming from a weak currency.
Fiscal consolidation efforts by the Zambian government will help to minimally narrow the budget deficit for 2016 to 7.1% of GDP. The government has also revised the mining tax regime to better accommodate the falling copper prices, although another revision leading to inconsistent policies will weigh on investor sentiment.
Various macroeconomic and domestic challenges will make it easier for opposition leader, Hakainde Hichilema to secure a win in the next presidential elections, taking place in August 2016. Incumbent President Edgar Lungu continues to focus on social spending in light of the upcoming elections, although we believe it will not be enough to secure public favour.
Dwindling copper revenues will continue to weigh on Zambia's current account deficit, while the capital and financial account will see a surplus as a result. The weak currency will challenge net export value, making imports more costly and overvaluing exports. The government and central bank will try to boost investor sentiment in order to increase FDI inflows and support the growing twin deficits.
The Zambian kwacha will continue its trend of depreciation in 2016 on the basis of a weak outlook for the country's copper industry. The lack of a stronger reserve arsenal means the central bank will have little in the way of ammunition to halt an expected 21.4% fall in the currency's value by year-end 2016 .
A sharper than expected Chinese slowdown keeps the copper price in decline, leading to further currency weakness and job losses as more mining companies close operations in the challenging operating environment.
Government expenditure maintains a focus on unproductive areas of the economy, such as public sector wages, while capital spending remains well below the amount necessary to improve the country's underdeveloped energy and infrastructure sectors.
|e/f=BMI estimate/forecast. Source: National Sources|
|Real GDP growth, % y-o-y||5.6||3.1||3.4||5.1|
|Nominal GDP, USDbn||25.7||16.2||13.8||14.2|
|Consumer price inflation, % y-o-y, eop||7.8||20.0||17.0||14.0|
|Exchange rate ZMW/USD, eop||6.39||11.00||14.00||15.00|
|Budget balance, % of GDP||-6.4||-7.3||-7.1||-6.3|
|Current account balance, % of GDP||-1.5||-5.3||-6.0||-4.9|
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