The land-locked nation has a plan to boost growth and confidence in its commodity-dependent economy to counter the knock it took in 2016
After a year of worrying economic decline, the Zambian government hopes to kick-start 2017 with a recovery plan to stabilise its fragile economy.
Its K64.5bn (US$6.43bn) budget for 2017 spells out what is being called "Zambia Plus" — a plan to restore economic stability and "ensure sustained and inclusive growth".
In 2016 the country was hit hard by weak commodity prices — particularly of copper, Zambia’s biggest export — as well as electricity shortages, high inflation and government’s failure to fully finance its spending commitments.
As a result, Zambia’s debt soared. External debt is now valued at $6.7bn, or 35% of GDP, while domestic debt in the form of government securities was worth 12% of GDP by September.
Finance minister Felix Mutati says: "We are walking a tightrope. We therefore have the responsibility to ensure debt sustainability. We must not burden the next generation."
Years of fuel and electricity subsidies have also put pressure on the country’s fiscus. Insufficient investment in electricity generation capacity — which has led to power outages lasting more than 12 hours a day in some parts of the country — has compounded this.
By September, electricity generation had declined by 19.9% to 1,329.2MW compared with the 1,658.6MW produced a year earlier. Zambia has 2,000MW of installed hydro-electric capacity but inefficiency and low water levels at some major plants, such as the Kariba Dam, have worsened power shortages.
In the crucial mining sector, which accounts for more than 70% of the country’s export earnings, copper production went up by 8.2% to 575,780t in the first nine months of 2016. But total export earnings fell in the same period to $3.2bn from $4bn.
Inflation rose to 23.4% in September before declining to 8.8% in November.
"Zambia Plus" is designed to reduce some of that volatility. The economic recovery programme has been built on five pillars, which government argues will stabilise the economy.
First, the plan aims to better direct local funding by refocusing public spending on core infrastructure.
Second, it plans to scale up government’s social protection programmes.
Third, Zambia plans to introduce cost-reflective electricity tariffs by the end of the year, which it hopes will attract private-sector investment. Poorer households will be assigned a cheaper tariff.
Mines minister Christopher Yaluma says discussions to implement higher tariffs for all bulk consumers have already commenced. Mines consume 55% of Zambia’s total electricity production.
Fourth, the recovery plan aims to improve fiscal governance by raising levels of accountability and transparency in the allocation and use of public finances. It hopes to minimise unplanned expenditure and address unpaid accounts.
Fifth, the Zambian government has assigned greater value to raising confidence for sustained private-sector investment. In 2015 and 2016 investors were sharply critical of changes to the tax regime — which led to a reversal some months later.
Ultimately, the plan is intended to boost growth. In 2016 Zambia’s economy grew by 3% against a target of 5%. "Zambia Plus" is expected to increase growth to 3.4%, end the year with inflation of no more than 9% and support the creation of at least 100,000 jobs in 2017.
Meanwhile, after speculation about a loan with onerous conditions from the International Monetary Fund (IMF), Zambia’s government insists its recovery programme is homegrown. However, it will still seek IMF support.
Mutati says discussions with the fund will only be conducted in the first quarter of 2017 "to augment our homegrown programme". He says "there are no conditions or financing arrangements that have been agreed upon".
The plan will rely on fiscal prudence, something that government says it is committed to.
"The message is simple," says Mutati. "We cannot spend what we do not have. We cannot borrow beyond our ability to repay."