Zambia’s 2022 economic outlook
From rebound to recovery

Around the world, households and firms have gradually adapted to life with coronavirus. Although the pandemic is not over, economies have become more resilient.

According to analysts, the global economy is projected to rebound to over 4 percent in 2022 against a contraction of about 4.3 percent in 2020. The optimistic growth projection is mainly based on the gradual easing of restrictive measures put in place to tackle COVID-19.This is expected to boost consumer and business confidence and contribute to the recovery of global supply chains with a positive impact on demand, trade, consumption, investment and financial conditions.

The economic recovery is envisaged to be uneven and likely to differ across countries contingent on the extent of economic damage, effectiveness of policy support and severity of health shocks.

From now onwards, the war cry will be economic growth, economic growth and economic growth.

Dr Situmbeko Musokotwane, Minister of Finance

In the first quarter of 2021, the Bank of Zambia signalled its intention to progressively tighten its monetary policy stance in order to bring escalating inflation back to the 6 to 8 percent target range and anchor inflation expectations over the medium-term. However, implementation of complementary and strong fiscal policy adjustment, whose key parameters are clearly outlined in the country’s Economic Recovery Programme, remains critical to restoring macroeconomic stability.

According to the Zambia Statistics Agency (ZamStats), the annual inflation rate slowed to an eight month low in September 2021 declining by 2.3 percent from 24.4 percent recorded in August 2021 to 22.1 percent.

ZamStats Interim Statistician General Mulenga Musepa attributed the decrease in the annual rate of inflation to price movements in both food and non-food items. This means that on average, prices of goods and services increased by 22.1 percent between September 2020 and September 2021.

Since inflationary pressures decelerated in September, food price growth slowed down from an all-time high in view of the improved supply of food, particularly maize and wheat, following a good crop harvest as well as the significant improvement in copper prices are supportive of the foreign exchange market and in turn lower inflation going forward.

Meanwhile, in the money market, the kwacha is trading around K17.9 per dollar (at time of writing) from a peak of nearly K23 recorded early this year which largely reflects changes in the actual supply of foreign exchange and expectations of further improvements in supply associated with the International Monetary Fund (IMF) Special Drawing Rights (SDR) allocation, improved prospects of a formal Extended Credit Facility (ECF) program as well as buoyant copper prices.

The Bank of Zambia seeks to alleviate pressure on the Monetary Policy Rate currently at 8.5 percent in a bid to tighten fiscal policy, allowing room to bolster the country’s economic recovery.

Having come under immense pressure in 2020 due to the weakening macroeconomic environment, which was significantly exacerbated by the COVID 19 pandemic, economic experts have anticipated that Zambia’s inflation stability is likely,  following the new government’s positive talks with its creditors.

The United Party for National Development (UPND) led by Hakainde Hichilema emerged victorious in Zambia’s August 2021 general election. Voters across the country were jubilant and entrepreneurs in particular are now pinning their hopes on Hichilema’s promises to revive the economy. With high inflation, rising national debt and high unemployment, among other factors, Zambians are hopeful that a new regime will restore macroeconomic stability. Previously, the copper rich country has been spending at least 30 percent of tax revenues on interest payments to deal with a not-fully-disclosed debt, officially placed at US$12 billion.

“We will pay special attention to lowering the fiscal deficit, reducing public debt and restoring social and market confidence,” affirmed Hichilema in his inaugural speech.

For this reason, Finance and National Planning Minister Situmbeko Musokotwane reiterated that the government’s overriding economic policy objective for 2022 and the medium term, will be to transform the economy, expand it and create employment opportunities.

“We must simultaneously deal with the problem of the excessive national debt without which it will be impossible to normalise the economy, let alone to bring about fundamental economic transformation for job and wealth creation,” Dr Musokotwane noted in an address to Parliament.

With a volatile inflation rate, Dr Musokotwane stressed that lending rates at banks also increased to an average of 25.6 percent in August 2021 on account of elevated levels of borrowing by the government.

Arising from existing vulnerabilities in the financial sector and fragile economic growth recorded in the previous administration, the new regime’s quest to implement fiscal adjustment measures in line with the Economic Recovery Programme and the understandings reached in discussions with the IMF remain critical.

“We have an opportunity of a lifetime to transform the economy into one that grows strongly every year. From now onwards, the war cry will be economic growth, economic growth and economic growth. Everything we plan and talk about will be about strong expansion in production,” Dr Musokotwane said.