The World Bank has revised Zambia’s real GDP growth projection for 2018 downwards to 3.3 per cent, down from 4.3 per cent, triggered by dampened agricultural activity, among other factors.
And World Bank country manager Dr Ina-Marlene Ruthenberg says the country’s lending rates remain too high for the private sector to borrow credit and create enough jobs in the economy.
According to the Bank’s latest Economic Brief released in Lusaka, Thursday, Zambia’s real GDP growth projection for present year has been revised downwards to 3.3 per cent, down from 4.3 per cent, triggered by dampened agricultural activity, among others.
Data from the Brief shows that the agricultural sector, among other key sectors of the economy, will face severe headwinds this year, and as a result, will negatively impact on growth recorded this year.
“Key sectors of the economy face headwinds. Agricultural output has contracted in 2018 due to poorly distributed rains and an El Niño is forecast for the 2018-19 season. Copper prices have fallen by 20 per cent from their four-year highs that were reached in June, 2018, due to weaker demand from China, and could fall further as global supply increases,” the World Bank states.
“Reflecting on these developments, and that the 2017 revised growth is now lower than the initial estimate, we have revised Zambia’s real GDP growth projection for 2018 to 3.3 per cent, down from 4.3 per cent in the previous issue of this Economic Brief.”
The Bank, however, added that growth is expected to improve slightly next year to 3.6 per cent, and again in 2020 to 3.8 per cent, assuming a recovery in agriculture, and that an orderly fiscal consolidation and reforms to strengthen the financial and operational sustainability of Zesco Limited will be implemented, among others.
Further, Zambia’s multi-year fiscal expansion, financed by expensive borrowing, has increased debt towards an unsustainable levels, according to the World Bank.
The Bank also warns that the country’s debt burden will worsen if the Zambian government continues with its expansionary fiscal policy on infrastructure projects.
“If the trend in foreign financed projects continues as in H1 2018, the debt burden would worsen further. Evidence from the Eurozone debt crisis and the pre-debt relief period in Zambia shows that an increased debt burden undermines macroeconomic stability and the provision of social services by: (i) increasing debt service costs; (ii) reducing foreign reserves; (iii) increasing the cost of new financing for the government and private sector, and thus growth and employment, and (iv) increasing the cost of restructuring the existing debt,” the Brief narrates.
“Failure to address the debt situation urgently would risk a spiral of debts, where new borrowing would be channelled towards paying back pre-existing debt, and not towards financing development and wealth creation.”
And Dr Ruthenberg said lending rates in Zambia remain too high for the private sector to borrow credit and create enough jobs in the economy.
“A very important aspect is, Zambia needs to create jobs; a lot of young people – you can see them everywhere! And the fiscal-debt situation impacts interest rates, and they are very high! Too high for the private sector to borrow and invest for job creation,” Dr Ruthenberg said in an analysis of the Brief during the launch at Intercontinental Hotel.
She also explained that Zambia’s economic growth rates are too sluggish to create jobs and reduce poverty.
“On the broader macro-economic front, Zambia’s economy is still expected to grow in 2018, but frankly, the growth numbers are not exciting. Zambia needs to grow about seven per cent a year to reduce poverty. And at present, we are hovering around about half of that, so that’s not where we really want to be. And we all know that, most of the challenges are related to fiscal and debt situation; it impacts so many things, and above all, it impacts also job creation,” she told stakeholders.
Meanwhile, World Bank economist Dr Zivanemoyo Chinzara, who was one of the authors of the Brief, explained that Zambia was not in a debt crisis yet, despite being at high risk of debt distress.
“If you are in high risk of debt distress, it doesn’t mean you are in debt distress; it doesn’t mean you are in a debt crisis. It means you need to take action because if you don’t take actions, the consequences can be dire. And the consequences can include: macroeconomic instability; they can include: more spending going towards debt service, but less going to other sectors of the economy,” Dr Chinzara said.
He, however, urged the Zambian government to disclose the country’s full indebtedness and improve debt reporting by producing regular reports to quell speculation on the country’s true debt stock.
“We have heard debate about debt. So, improving debt reporting is very key because rumours may have an impact on the costs at which you borrow. We have seen some articles appearing in newspapers, but there has also been some confusion in some of these articles. Loans are not equal debt,” said Dr Chinzara.
“This is why it is very important for the government to be releasing the information more regularly. Because if you don’t release the numbers, this is partly what’s been happening; there are many people with an interest in debt information; we have investors, analysts…they need this information for making informed decisions. But we also have citizens who have the constitutional right to information. We may also have mis-informers; if they don’t get the information, then they exploit that lack of information to misinform.”
The World Bank’s latest Zambia Economic Brief is the 11th instalment in a series of publications, produced twice a year, that focuses on macroeconomic developments locally, as well as regionally and beyond.
The 11th Brief was dubbed: “Agro-led Structural Transformation.”