Zambia 7th Economic Brief Slide Pack 22 June 2016

7TH ZAMBIA ECONOMIC BRIEF

22 June 2016

Dr. Gregory Smith

Macroeconomics & Fiscal Management Global Practice

BEATING THE SLOWDOWN:

MAKING EVERY KWACHA COUNT

DATA & INFORMATION FLOWS ARE BETTER

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“The availability of data has improved in 2016”

HUGE BODY OF KNOWLEDGE

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TOUGH CONDITIONS FOR GROWTH

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“Provisional estimates for 2015 from government suggest growth of 3.2%, a slowdown from the average of 7.4% between 2004 and 2014.”

WHAT DRIVES AND WHAT SLOWS GROWTH?

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WHAT DRIVES GROWTH?

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“Services had provided a important boost to growth over the past decade but the sector’s expansion slowed in 2014 and 2015”

COPPER EXPORTS DOWN AS THE PRICES FALLS

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“Copper prices have been falling since a peak in 2011”

“Copper production rose slightly in 2015, but the value of their export in US$ fell 31% because of lower prices”

PUBLIC EXPENDITURE HAS EXPANDED

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“Over the past 5 years expenditure has gone up by 13.8% a year in real terms”

PRESSURE ON THE BALANCE OF PAYMENTS

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“Zambia relies on copper for 77% of its exports”

“Many Zambian goods require imported inputs”

KWACHA UNSETTLED

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“The Kwacha has depreciated 62% between January 2015 and end-May 2016:”

PRESSURE ON THE CURRENCY = INFLATION

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“Inflation has spiked and remained above 20% for 6 months”

FOOD PRICES HIT THE POOREST HARDEST

The CSO data April 2015 to April 2016:

•Roller mealie meal (+30%)

•Maize grain (+35%)

•Tomatoes (+114%)

•Onions (+38%)

•Dried beans (+30%)

•Sugar (+35%)

•Table salt (+37%)

•Hammer mill charges (+45%)

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ZAMBIA OUTLOOK

�2016 GDP growth close to 3.0%

�Improving in 2017 (4.2%) and again in 2018 (5.0%).

�Underpinned by five main assumptions:

i. Copper prices remain low

ii. Fiscal pressures eased

iii. Market confidence via an IMF program

iv. Power crisis improves

v. 2015-16 harvest is better.

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LIVING CONDITIONS SURVEY 2015

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IDEAS FOR BEATING THE SLOWDOWN

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FUEL SUBSIDIES �Since December 2014, four price adjustments but no changes since July 2015despite kwacha depreciation.

�Savings from fuel subsidies are estimated at around US$36 million per month.

�A review of the current price setting mechanism is also a priority, as are efforts to fix underlying problems associated with the supply of fuel.

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POWER SECTOR FINANCIAL SUSTAINABILITY

�Power crisis has impacted on all sectors of the economy.

�Savings of US 26 million per month could be realized if the power crisis could be resolved.

�Wider reforms and investment will ensure sustainable supply in future.

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“A clear power strategy is needed, on tariffs and far beyond”.

CASH TRANSFER PROGRAMME

�Scaling-up the government’s Social Cash Transfer programme would be a crucial complement to any subsidy removal.

� There remains a need to provide better support to the poorest households.

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“There remains a need to protect the poor during a transition”

PUBLIC EXPENDITURE REVIEW

�A full review of what is being spent in key sectors can help ensure that every kwacha is put to productive use.

�By comparing objectives and past spending patterns, the allocation of expenditure can be improved

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“Lessons to boost the efficiency of spending can be found.”

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