You are here
Zambia Economic Outlook
Recent macroeconomic and financial developments
Real GDP recovered to 4.6% growth in 2021 and 3.0% in 2022 after contracting 2.8% in 2020. The recovery was driven mainly by wholesale and retail trade, agriculture, and mining and quarrying. Inflation dropped from 22.1% in 2021 to 10.1% in 2022, driven mainly by the reduced food price shocks. The policy rate was maintained at 9.0% in 2021 and 2022, owing to inflationary pressures, weaker medium-term growth prospects, and vulnerabilities and risks to the financial sector. The fiscal deficit was 8.1% of GDP in 2021 and 8.9% in 2022, down from 13.8% in 2020.
There was a trade surplus of 12.1% in 2021 on account of higher export volumes and prices and subdued imports of consumer goods. International reserves rose from 2.4 months of import cover in 2021 to 3.6 months in 2022 on account of the Extended Credit Facility and the Special Drawing Rights allocation from the International Monetary Fund. Zambia remains in high debt distress, with debt above 104% of GDP. The financial sector’s performance improved in 2021 and 2022, with the nonperforming loans ratio rising from 9.0% in 2021 to 6.1% in 2022 due to business recoveries. Credit to the private sector was 8.9% of GDP in 2021 and 9.2% in 2022. Slightly over 50% of the population lives below the national poverty line, and the poverty rate is higher in rural areas (77%) than in urban areas (23%).
Outlook and risks
GDP is projected to grow 4.0% in 2023 and 4.2% in 2024, underpinned by the continued recovery in mining, services, and manufacturing; higher global copper prices; and the market confidence associated with ongoing fiscal consolidation measures. A slight uptick in growth in real GDP per capita is projected, to 1.2% in 2023 and 1.4% in 2024. Inflation is projected to decline to 8.5% in 2023 and 7.1% in 2024, within the 6%–8% target range. Upside risks include higher fuel prices and electricity tariffs and fluctuation in global fertilizer prices. The fiscal deficit is projected to persist at 8.1% of GDP in 2023 and 7.3% in 2024, owing to increased social spending. Headwinds include perennial drought, fluctuating copper prices, and the impact of Russia’s invasion of Ukraine on fertilizer and fuel prices.
Climate change issues and policy options
Zambia’s overall need for climate finance is an estimated $50 billion through 2030, which is expected to be mobilized predominantly through new climate finance mechanisms such as the Global Climate Fund and other climate-related bilateral, multilateral, and domestic financing. This includes the private sector, which already provides climate finance through corporate social responsibility, in addition to investment with returns. A good example of private financing is the $53 million Green Outcomes Fund that was recently established by Zambia National Commercial Bank, Kukula Capital, and the World Wide Fund for Nature–Zambia. The Development Bank of Zambia also attained an accreditation by the Green Climate Fund to receive and submit proposals on behalf of developers of green projects. Carbon-market financing mechanisms remain underexploited but have great potential. Weather-indexed insurance instruments are already being used, as are infant-stage green bond initiatives. Zambia is endowed with many natural resources (land, water, forest, and wildlife). The mining sector accounts for 12% of GDP, and the forest sector accounts for 5%–7%. More than 300,000 people make their living directly or indirectly from fishing.
