Zambia's economic growth will remain subdued over 2016 owing to pressure on net exports from still low copper revenues, a regional drought as well as a substantial power shortage. Real GDP growth of 3.4% this year will be underpinned by a modest increase in private consumption and fixed capital formation. In the medium term, Glencore's announcement to invest USD1.1bn into Zambia's mining sector will bode well for overall investment into the country.
The Zambian government will continue to boost social expenditure as President Lungu attempts to gain public favour in light of the August general elections. Fiscal revenues will increase gradually over the coming years, in line with the copper sector's slow recovery. Elevated public debt levels will keep investors cautious as concern over debt-servicing costs rise.
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.
Zambia's current account will remain under pressure over 2016 as stunted copper revenue growth weighs on exports, while strong import growth will stem from the effects of the regional drought.
The Bank of Zambia will continue its hawkish monetary policy approach over the remainder of 2016 owing to persistently high inflation levels. As a result, credit growth will remain subdued as consumers opt to save, negatively impacting private consumption levels.
The Zambian kwacha will depreciate in the coming months, as investor sentiment deteriorates and real interest rates dip into negative territory. In 2017 though, the unit will resume an appreciatory trajectory as stronger copper prices and production boost trade dynamics while investor-friendly policies toward the mining sector bolster foreign investment.
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|
|Nominal GDP, USDbn||25.8||16.2||16.8||19.6|
|Real GDP growth, % y-o-y||5.6||3.1||3.4||5.1|
|Consumer price inflation, % y-o-y, eop||7.9||21.1||17.0||11.0|
|Exchange rate ZMW/USD, eop||6.39||11.00||11.50||10.90|
|Budget balance, % of GDP||-6.4||-8.1||-7.8||-6.7|
|Current account balance, % of GDP||-1.5||-5.6||-8.3||-6.6|
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