Zambia Institute for Policy Analysis and Research


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Zambia’s 2023 Macroeconomic Performance

By Dr.Herrick Mpuku and Ignatius Masilokwa

4th January 2024

The year 2023 has been a bleak year for the country, with stunning reversals in economic performance as reflected in the inflation, GDP growth and the exchange rate. While wider global economic issues have played a big part in this, certain internal considerations are pertinent in explaining this development. How government responds to these crises, and its commitment to articulating a forward-looking, clear-sighted and coherent and consistent policy regime will be relevant in reshaping the economic fortunes of this countr.

GDP Performance

Zambia’s real GDP performance has remained steady, growing at 6.2% and 5.2% in 2021 and 2022, respectively. Despite the earlier downward revision to the 2023 growth rate to 2.7% from the initial 4.2% growth projection, current statistics point to a more optimistic growth trajectory, with growth averaging 5% in the first three quarters of 2023. Key sectors generating growth for 2023 include Information and communication, Education and Financial and insurance activities, away from the traditional priority sectors (Mining, Agriculture and Manufacturing). Generally, the earlier downward revision to Zambia’s growth was attributed to reduced copper production in the first half of 2023 and the sustained fall in the global commodity price of copper. Specifically, the suppressed growth can be attributed to operational challenges and the low ore grade in mining, low productivity in agriculture and limited investments in manufacturing. In terms of prospects for 2024, the 4.8% GDP growth target highlighted in the 2024 National Budget, albeit moderate, signals an optimistic economic outlook for Zambia in 2024.

Mining Sector Challenges and Prospects

The performance of the mining sector is crucial to the overall economic performance of the economy, especially in terms of foreign exchange earnings and gross domestic output. Regrettably, this sector has been beset by low productivity, unstable prices as well as legal and administrative paralysis. Thankfully, the negotiations with stakeholders appear to have made headway. The final resolution of these issues will help revamp production and sales of minerals, and stimulate social and economic recovery in the mining regions of the country.

Exchange rate performance

The Zambian Kwacha has in the recent times come under immense pressure, depreciating by 35% between January and December 2023 from trading at K18.0 per US$ as at end-December 2022 to K25 per US$ as at December 2023. The depreciation of the Kwacha was mostly driven by reduced supply of foreign exchange owing to reduced mining output amidst excess demand of foreign exchange for the purchase of critical imports, among other factors. Zambia’s Balance of Payments Current Account has continued to shrink from a surplus of US$ 936 million in December 2021 to a deficit (negative) of US$ 77 million in December 2022, before declining further to a deficit (negative) US$ 198 million by June 2023. Clearly, the depreciation of the Kwacha against the US Dollar has been moving in tandem with a decline in the countries current account balance. To stabilise the currency, key risks persist, these include the tightening in the global financial conditions, slump in copper prices and production, continued rise in crude oil prices, and the anticipated importation of inputs to feed into the production processes for various sectors of the economy. Inflation rate and Money Supply Theoretically, Inflation occurs if the money supply grows faster than the economic output under otherwise normal economic circumstances. However, inflation can also be affected by factors beyond the money supply. Following a sustained reduction in inflation from the highs of above 23.5% in 2021 to as low as 9.4% in January 2023, inflation edged upwards to 13.1% as of December 2023. This rise in inflation was largely driven constrained supply amidst elevated demand for maize grain and meat products as well as the pass-through effects of the Kwacha depreciation against the US Dollar. The money supply (Broad Money or M3) continued to expand in 2023, growing at about 24% in 2023, increasing by about K31.6 billion between September 2022 and September 2023. During the course of the year, inflationary pressures persisted despite the aggressive contractionary monetary stance adopted by the Bank of Zambia (BoZ). This brought into question the adequacy of monetary policy tools alone to address the inflation challenges in Zambia.

Moreover, the large informal sector operating outside the formal banking system, further compounded the efficacy of the monetary policy operations. The large informal financial sector, so to speak, weakened the efficacy of monetary policy in achieving the espoused macroeconomic objectives. Lending Rates and the Purchasing Managers Index (PMI) The cost of borrowing remained high in the first half of 2023 with lending rates averaging 25%. The persistent rise in interest rates has partly been attributed to the continued borrowing by Government from the domestic market. The effect of Government participation in the market has been the crowding out of private investors, among others. However, and more optimistically, the 2024 National Budget mentions some measures aimed at reducing the cost of borrowing and increasing liquidity in different sectors of the economy. Progressively, the Government is reducing the size of the fiscal deficit, subsequently reducing its borrowing needs, and ultimately freeing up resources for the private sector to borrow. The Stanbic Bank Zambia PMI has recently emerged as a key consideration for gauging private sector activity in the economy. A reading above 50 indicates an overall increase in that variable, below 50 an overall decrease. The PMI edged down to 50.1 in November 2023 from 50.6 in October, after recording 48 and 49 in August and September respectively. Generally, in the last few months, business activity saw a moderate performance, as currency weakness and money shortages impacted customer demand. Moreover, firms reduced their purchasing activity, and stocks of purchases dropped. On prices, input cost inflation accelerated, driven by a surge in purchase prices stemming from a further depreciation of the kwacha against the US dollar.

External Financing

It is evident that the huge unsustainable debt accumulated over a period of time has precipitated a serious economic and social crisis. Thus, the resolution of this debt problem, and the amelioration of its effects has been the focus of the country’s economic policy. The engagement with the multilateral and bilateral financial institutions have borne fruit with agreement being reached with the International Monetary Fund (IMF) on the Extended Credit Facility and a debt restructuring process with the Official Creditors. While agreement with the private creditors remains in abeyance, these agreements do signal positive steps in government policy and an improvement in the relationship with the international financial community. This bodes well for the improved inflows of capital into economy and improving of the investment profile of the country. The government will be minded to continue the economic reform programme and the pursuit of prudent macroeconomic policies. It is only under these circumstances that we can expect to see positive change in the economy.

Looming risks

The key risks to the growth outlook include tighter global financial conditions, anticipated increases in energy and food prices, mainly induced by the Russia-Ukraine conflict, and lingering adverse effects of climate change. Specifically, weakening growth in advanced economies and China is expected to pose headwinds for external demand, particularly among exporters of industrial commodities like Zambia. Constrained access to external financing, tight fiscal space, and high borrowing costs are expected to markedly limit many governments’ ability to spur faster growth. The protracted process in finalizing the Zambia’s debt restructuring processes with various creditors is another critical factor of note. With the Bilateral Official Creditors rejecting the terms of the Bondholders negotiations, uncertainty has been reignited again putting further pressure on the Kwacha and further delaying the country’s economic reforms.

Conclusion and 2024 Economic Outlook

While the Government has remained committed to prudent macroeconomic policies and engagements with the international financial community in 2023, adverse movements in the external and internal environment have brought about a reversal in the earlier gains. Inflation has risen above the 10% mark, while the exchange has plummeted to a low of ZMW25 per dollar. Economic growth which was predicted at 4.2% was revised downwards to 2.7%. While economic challenges from both external and internal headwinds, the commitment to fiscal consolidation and monetary restraint, as well as stimulating sectoral policies may attenuate the impact of the adverse developments. In the process of movement from the less-than satisfactory performance in the 2023, we expect that the resilience of the economy will be borne out with moderate economic performance in macroeconomic indicators. Government must focus on selected economic indicators to be the centre-piece of an unequivocal policy stance. The country is not out of the woods yet, and more persistence and consistency in policy will be necessary to sustain the reform programme.



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