ZAMBIA

Key conditions andchallenges

Table 1

2023

Population, million

20.6GDP, current US$ billion

26.4

GDP per capita, current US$1283.5

International poverty rate ($2.15)

a64.3
a81.0

a93.2

Lower middle-income poverty rate ($3.65)
Upper middle-income poverty rate ($6.85)
Gini index

a51.5

School enrollment, primary (% gross)

b94.8

b61.2

Total GHG emissions (mtCO2e)93.5Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ Most recent value (2022), 2017 PPPs.
b/ Most recent WDI value (2021).

Despite a protracted debt restructuring
process and subdued copper production,
Zambia’s economy has been recovering
since the COVID-19 recession, primarily
driven by firmer services. In Q3:2023, real GDP grew by 5.0 percent year-to-dateand 5.1 percent y/y. In 2024, a severe
drought affecting agriculture, electricity,
and water supply will significantly dampen growth; however, an anticipated upturn in mining may offset some of theagricultural losses. Still, Zambia needs tofinalize debt treatments to strengthen theresponse to drought and other shocks.

Zambia is a country with vast natural resources seeking to exploit economic opportunities to improve livelihoods by reducing poverty and inequality, which are
high. The vast mineral resources (mainlycopper) have been exploited with little value addition and employment creation,
making growth and revenues volatile andcontributing little to inclusive growth. The
mainstay agriculture sector, which employs most of the workforce, remains undiversified and has low and declining productivity, exacerbating socio-economic development challenges. The 2023/24 rainyseason’s drought, worsened by climatechange, has led to massive crop failure anddamage, affecting food security and livelihoods of 6.6 million people in 84 out of
116 districts. The diminished water supply
constraininghydroelectricity
generation—the dominant power source—is expected to result in up to a 1000 megawatts
annual deficit, disrupting business, especially among most small and medium enterprises, as blackouts intensify.
Meanwhile, the current administration
continues to pursue bold fiscal and structural reforms to restore macroeconomicstability, reinvigorate growth, and increase
pro-poor spending since 2022. These reforms followed a decade of unbalanced
fiscal expansion and unsustainable debt
accumulation that worsened distortions
and growth potential. Despite challenging

domestic and external environments, they
have supported economic recovery fromthe multiple and compounding crises
which started in 20220. Still, maintaining
macroeconomic stability remains challenging due to uncertainty caused by protracted debt restructuring and declining mining performance over the past three years.
The recent contraction in the mining sectorstarting in 2021 has triggered a deterioration in the external sector balances andsoftened fiscal revenues, leading to large
currency depreciation, high inflation, anda sharp increase in the cost of living. With
the government’s capacity to finance development significantly constrained, completing debt treatment would give
breathing space for Zambia to restore
macroeconomic stability and debt sustainability and support the administration's ambitious reform program.

Recent developments
Real GDP grew by 5.0 percent year-to-dateand 5.1 percent y/y in Q3:2023, driven by
firmer services in transport, informationand communications, and hospitality. Copper production remained below potential,
declining by 8.0 percent (y/y) due to legacy
operational difficulties at Mopani Copper
mines and Konkola Copper Mine (KCM).
This negatively impacted exports, with export earnings declining amid heightened
uncertainty arising from protracted debt restructuring, severely weakening Zambia’s
external balances. The current accountslipped into deficit in 2023—the first time in

FIGURE 1 Zambia / Selected macroeconomic indicators

FIGURE 2 Zambia / Actual and projected poverty rates andreal GDP per capita

Percent
35

Poverty rate (%)

Exchange rate
30308400

90820080

800020707800

15607600

50740010407200

530

7000

20680010660025252015
10500Feb-20 Aug-20 Feb-21 Aug-21 Feb-22 Aug-22 Feb-23 Aug-23 Feb-24
6-8% target band
Food inflation
BOZ policy rate

Real GDP per capita (constant LCU)

100064002010

Headline inflation
Non-Food inflationexchange rate (zmw/$)

2012

2014

2016

2018

International poverty rate
Upper middle-income pov. rate

Source: World Bank estimates.

Source: World Bank. Notes: see Table 2.

MPO1Apr 24

2020

2022

2024

2026

Lower middle-income pov. rate
Real GDP pc

four years. The exchange rate depreciatedby 41.8 percent against the US$ in 2023, savefor short-lived appreciations in March andJune around the news of expected breakthroughs in debt restructuring.
The sustained exchange rate depreciation
and a food price shock (due to a grain
deficit in the region) placed pressure on
domestic prices. Both food and non-foodinflation picked up, leading to a broadbased increase in headline inflation from9.9 percent (y/y) in December 2022 to 13.5
percent in February 2024, against the 6–8
percent target range. Bank of Zambia(BoZ) raised the policy rate by 200 basis
points (cumulatively) in 2023, with half of
the increase in November amid intensifying inflationary pressures and currency
depreciation. On February 14, 2024, theBoZ hiked the policy rate by an additional
150 basis points to 12.5 percent. It also
raised the statutory reserve ratio from 9.0
percent in January 2023 to 26.0 in February
2024 to moderate FX demand and auctioned more than US$50 million in the interbank market, triggering a temporary exchange rate appreciation of 13.8 percent.
The government continued the fiscal consolidation launched in 2022, achieving a primary fiscal surplus estimated at 0.2 percent of
GDP in 2023, despite underperforming

revenues due to mining contraction. Higher non-tax revenues, better collection
from non-mining, and higher grants
from the development partners boosted
overall revenue.

Outlook
A severe drought in the current rainyseason and cholera epidemic (with 20,577
cases and 699 deaths by end-February),
which delayed the opening of schools,
will significantly dampen growth to 2.7
percent in 2024. The government declared the drought a national disasteron February 29, 2024, and called for an
emergency response. Although crop failure estimates are still preliminary, theysuggest more than half of the plantedarea is damaged, directly affecting private consumption. Despite the rationingof electricity to cushion real sector activity, especially in the mines and criticallife support services, the power deficit
is slowing down aggregate industry andservices production. However, the mining sector is expected to recover in 2024
and stimulate growth in industry, exports, and services activities that support

TABLE 2 Zambia / Macro poverty outlook indicators

mining. This anticipated production improvement stems from a less wet rainyseason for open pit mining and the resolution of legacy operation challenges
leading to the potential realization ofsignificant pledged foreign direct investment (FDI). Still, tight monetary policy
and elevated net domestic financing to
the government will likely constrain
credit availability to the private sector
due to higher borrowing costs.
There is substantial uncertainty surrounding the forecast. Firmer-than-expected copper prices would boost external sector performance and potentially reverse currencydepreciation. Finalizing a debt restructuring deal would boost portfolio flows. Still,downside risks are considerable. Copper
revenues may undershoot because of lower ore grades, delayed investments in thesector, and weakening copper prices. The
effects of climate change pose a risk interms of food security and hydropower
generation. There could be additional inflationary pressures from exchange ratepass-through effects and climate-induced
events such as food shortages. Subdued
global growth due to the contraction ofChina’s economy, the primary market for
Zambia’s copper exports, could dampen
growth at home.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market prices
Private consumption
Government consumption
Gross fixed capital investment
Exports, goods and services
Imports, goods and services

2021
6.2
8.0
5.6
4.7
4.6
2.5

2022
5.2
6.0
2.8
5.0
5.0
4.0

2023e
4.0
4.6
9.1
6.0
2.2
4.5

2024f
2.7
0.512.3
6.0
2.6
3.5

2025f
6.1
6.7
8.0
7.0
3.5
4.0

2026f
5.9
5.7
9.5
6.6
4.0
4.0

Real GDP growth, at constant factor prices
Agriculture
Industry
Services

6.4
6.9
7.1
6.0

5.5
-11.0
-2.2
12.1

3.9
10.0
-1.7
6.1

2.7
-20.0
1.8
5.7

6.1
2.0
3.8
7.4

5.9
2.0
5.0
6.6

Inflation (consumer price index)

22.1

11.1

11.0

14.3

10.1

7.0

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

9.7
3.7

3.7
1.5

-0.41.5

0.2
3.0

0.4
3.8

0.6
3.4

Revenues (% of GDP)
Primary balance (% of GDP)

22.4
-2.0

20.4
-1.5

21.1
0.6

21.6
0.2

20.6
1.6

20.9
0.8

..
..
..

64.3
81.0
93.2

64.0
80.8
93.1

64.0
80.8
93.1

63.2
80.2
92.8

62.4
79.6
92.5

0.5
9.9

0.8
10.3

1.2
11.0

1.4
11.9

1.4
12.9

1.4
13.9

a,b

International poverty rate ($2.15 in 2017 PPP)a,b
Lower middle-income poverty rate ($3.65 in 2017 PPP)a,b
Upper middle-income poverty rate ($6.85 in 2017 PPP)
GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Calculations based on 2022-LCMS-VIII. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026.
b/ Projection using neutral distribution (2022) with pass-through = 0.7 (Low (0.7)) based on GDP per capita in constant LCU.

MPO2Apr 24