Zambia Economic Outlook 2023-2024: GDP to Soar by 4.2% and Inflation to Fall

AfDB Zambia GDP Outlook 2023-2024

The African Development Bank (AfDB) recently presented the 2023 edition of its flagship African Economic Outlook report.

The report shows that Africa has remained broadly resilient despite experiencing significant shocks, particularly from the Covid-19 pandemic, climate change, and the Russian invasion of Ukraine.

From an economic growth of 3.8% in 2022, the continent is set to climb to 4.1% in 2023 and 2024, exceeding the global average by 2.9% and the European average by 1.1%.

Economic Growth in South Africa

The AfDB also released its Southern Africa Economic Outlook 2023, which indicated that in 2022, the Southern Africa region’s GDP growth barely reached 2.7%, a level much lower than the world’s (3.4%) and Africa’s (3.8%) averages.

This is largely a reflection of sluggish performance in South Africa where civil unrest, natural disasters—such as unprecedented floods and droughts, locust infestations, renewed anti-immigrant protests, and cost-of-living crisis in the run-up to the 2024 national election—compound the electricity crisis to hamper economic growth.

Further slowdown of growth in the region is expected in 2023 (1.6%), followed by a slight improvement (2.7%) in 2024.

Top performers over 2023-2024 will be Mozambique, Madagascar, Mauritius, Eswatini and Zambia.

In Zambia, an improved macroeconomic environment coupled with a strengthened mining policy and improved electricity supply will be the primary drivers of real GDP growth.

Recent Macroeconomic and Financial Developments in Zambia

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 non-performing loans ratio falling 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%).

Economic Outlook and Risks for Zambia

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.

However, headwinds include perennial drought, fluctuating copper prices, and the impact of Russia’s invasion of Ukraine on fertilizer and fuel prices.

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