Context. The Zambian economy has performed well in recent years, with strong
growth and modest inflation, and has high growth potential. The government has
resolved to step up development by scaling up investment in infrastructure. However,
this year has seen a significant loosening of fiscal policy, leading to a large fiscal deficit.
Outlook and risks. Assuming front-loaded fiscal adjustment toward a sustainable
deficit, growth is projected to remain strong at 78 percent and inflation to decline
gradually to 5 percent over the medium term. Key risks to the outlook are the
uncertainties about fiscal policy and the broader business environment, and a possible
slowdown in emerging markets and its impact on copper prices.
Fiscal stance. The current fiscal stance is unsustainable. To improve Zambia's fiscal
position, fundamental reforms are required to contain the wage bill and recurrent
expenditures, boost domestic revenue, and create fiscal space for infrastructure
investment. Staff recommended reducing deficits to 5 percent of GDP in 2014 and
gradually to 3 percent over the medium term, and bringing down net domestic
financing to 1½-2 percent of GDP to avoid crowding out the private sector.
Public financial management (PFM). To support fiscal consolidation, PFM reform
needs to be stepped up. Investment planning and implementation also need to be
strengthened to support planned scaling up of capital expenditures, and debt
management strengthened in light of the increasing reliance on non-concessional
Monetary policy. Given the low level of international reserves, the Bank of Zambia
(BOZ) should allow more exchange rate flexibility and continue to build up reserves in
line with their medium-term target. BOZ also needs to continue to tighten monetary
policy to contain inflation.
Competitiveness. Over the last decade, Zambia's competitiveness has been boosted
by strengthened macroeconomic fundamentals and a favorable business environment.
However, a series of recent regulations have raised questions about the policy
direction, and high minimum wages could hamper the country's competitiveness, job
creation, and economic diversification.
International Monetary Fund; January 2014
- ISBN: 9781484340936
- Read online, or download in secure PDF or secure EPUB format
- Title: Zambia: 2013 Article IV Consultation
Series: IMF Staff Country Reports
- Author: International Monetary Fund. African Dept.
Imprint: INTERNATIONAL MONETARY FUND