In this opinion piece, I point out the global growth projections made by the International Monetary Fund (IMF), and lay bare the assumptions which underpin them. I then delve into a conversation around what these growth projections mean for Zambia, arguing that should the world economy recover as the projections suggest, swift and aggressive action is required by the Zambian Government, to seize the global economic turnaround as an opportunity to reinvigorate the Zambian economy which has been hard hit by the coronavirus pandemic.
The International Monetary Fund (IMF) released an update in January 2021 of the World Economic Outlook which projects a global growth of 5.5.% in 2021 following a shrinkage of 3.5% in 2020. The latest update adds 0.3% to the projection numbers released in October 2020, demonstrating the rapidity of change as efforts to fight the coronavirus pandemic take a positive turn, despite renewed waves and new variants of the coronavirus. Two key points underpin the latest projections: positive news on the vaccines front and aggressive policy responses by some large economies. An opportunity thus exists for countries to bolster their growth prospects, though this will depend upon their specific domestic policy responses and the degree to which the authorities reinforce the pillars of the economies.
Indeed, the IMF cautions that the intensity of the recovery will not be uniform across the world, it will depend upon a range of structural and economic factors. Specifically, access to medical interventions, exposure to cross-country spill-overs and effectiveness of policy support will largely frame the extent to which countries across the world rejuvenate their economies. For Sub-Saharan Africa as a whole, for example, growth projections are lower, at 3.2% for 2021 and rising to 3.9% in 2022, though for Low-income Developing Countries, growth is expected to rapidly rebound, exceeding 5% both in 2021 and 2022.
The announcement by the IMF comes only a few weeks after the President of the Republic of Zambia, His Excellency Dr. Edgar Chagwa Lungu, launched the Economic Recovery Programme (2020 – 2023), ERP, under the theme: Restoring Growth and Safeguarding Livelihoods through Macroeconomic Stability, Economic Diversification and Debt Sustainability. Thus, the optimistic global growth estimate by the IMF is welcome news at a time the Zambian government commits “to ensuring the economy is back onto a path that will lead to improving the livelihood” of Zambians. Moreover, the ERP is also considered by the Zambian authorities as a tool to engage the international development community, which includes the IMF, international bondholders and other creditors as well as cooperating partners more broadly.
Envisaging a “real GDP growth rate above 3 percent by 2023,” the Economic Recovery Programme is not specific, and thus makes it difficult to fully appreciate the extent of growth realistically aspired. Nevertheless, crucial for the Zambian economy is the diversification agenda set out in the ERP, though emphasis must be firmly placed on employment-maximising economic initiatives as key drivers of growth. Diversification via industrial and agricultural intensification is recognised by the ERP due to the linkage-maximising potential.
Meanwhile, the Zambia Statistics Agency in its January 2021 monthly bulletin upgraded the inflation rate to 21.5% from 19.2% recorded in December 2020. Rising prices of food items drove inflation, a signal that domestic agricultural initiatives and interventions require more strengthening to enhance agricultural productivity as a mechanism to raise output while also curbing rising costs which place upwards pressure on prices. The ERP notes that between 2011 and 2019, the agriculture sector in Zambia shrunk by 0.9%. Moreover, the contribution of the agriculture sector to the Zambian economy has been declining over the past decade, from 9.4% of GDP in 2010 to only 3.2% in 2019.
Policy action therefore should be targeted, ensuring effective and comprehensive assistance to crucial economic activities, while emphasising raising employment and local production. Evidence suggests that aggressive monetary, fiscal and financial sector policies have been crucial in ameliorating the damaging effects of the COVID-19 pandemic. Preventing closures of businesses has been a central policy matter, relying upon transfers to businesses, alongside credit guarantees and fiscal incentives. Meanwhile, as of January 2021, the Targeted Medium-Term Refinancing Facility, also known commonly as the Bank of Zambia K10 billion Stimulus Package, had achieved a 42.9% disbursement rate, exhibiting a low uptake. Efforts should thus be strengthened, to channel resources and buttress capacity to targeted sectors and economic activities within them.
Hazarding the nature of the economic recovery, as the global economy rebounds, commodity – oil and non-oil – prices are expected to rise, which, for low-income net oil importers in particular, can have a scarring effect. Thus, aggressive economic policy which shields economies from potential damaging effects of such dynamics is crucial.
In conclusion, in order to enliven the ERP, to make it more than just a document containing texts assembled as expression of aspiration, attention must be paid to global dynamics and Zambia needs to position itself strategically as the global economic ecosystem rebounds. Aggressive and targeted interventions should nourish the economy as they frame both resource allocation and mobilisation, placing a premium on employment-maximising economic initiatives conveniently situated in agriculture and manufacturing.
In next week’s opinion, I will interrogate the ERP, questioning specifically whether the sectoral interventions proposed depart from what is realistically achievable given regional and global emerging issues as well as Zambia’s own structural contradictions.
About the Author
Dr Gabriel Pollen is a Senior Researcher (Public Finance Management) at the Centre for Trade Policy and Development (CTPD) and a Lecturer with the University of Zambia, Department of Economics.