This week’s Monday Opinion concludes our two-part reflection on Zambia’s macroeconomic stability. Last week, we asked whether the economy had started to breathe. This week, the question is sharper: what must happen for stability to become real economic relief?

Stability must pass through the real economy

A country cannot eat a stronger exchange rate, and households do not feel relief because a chart has improved. Macroeconomic stability matters only when it travels from policy indicators into prices, credit, public services and productive activity.

By June 2026, annual inflation had fallen to 6.5 percent. The Kwacha had strengthened to about K18.29 per US dollar, a year-on-year appreciation of roughly 35.6 percent. Gross international reserves stood at about US$6.0 billion, equivalent to 5.2 months of import cover.

But control is not momentum. The next test is transmission.

Figure 1: The macroeconomic transmission test

The credit channel is still blocked

The clearest place to look is credit. In April 2026, the policy rate stood at 13.5 percent, while the average lending rate was about 28.6 percent. That gap is the difference between macro stability and business reality. At nearly 29 percent, credit is too expensive for many firms to invest, restock, hire or expand.

If Government continues to absorb liquidity through heavy domestic borrowing, banks will remain comfortable holding government paper. The private sector will remain crowded out, even when inflation improves. Avoiding new arrears, managing domestic maturities and reducing refinancing pressure are therefore not accounting exercises. They are growth measures.

Food prices are the missing macro variable

Food prices are not only a household issue; they are a macroeconomic issue. When food supply weakens, inflation rises, social pressure grows, emergency imports increase and the budget is forced into reactive spending.

CTPD analysis shows that Zambia’s inflation problem has been heavily shaped by food-price pressure. Even when exchange-rate conditions improve, food inflation can remain stubborn if production, storage, irrigation, logistics and market systems remain weak. Agriculture policy is now part of inflation policy.

The 2027 Budget should treat food security as macroeconomic insurance. Under CATSP and the FISP e-voucher reform, support should move beyond seasonal input distribution toward drought-risk targeting, climate-smart inputs, soil-health support, water harvesting, irrigation viability and extension-linked advice. The objective is simple: stop the next drought becoming the next inflation shock.

Revenue quality matters as much as revenue size

Rising revenue is good, but not all revenue is equally reliable. CTPD revenue diagnostics show that Zambia’s tax base remains exposed to import-linked taxes, formal-sector concentration and mining cycles. In 2024, VAT on imports alone accounted for about 24 percent of tax revenue, while import-exposed taxes together contributed about 34 percent. Domestic VAT contributed only about 7.5 percent. Mining company tax plus mineral royalty stood at about 14.6 percent in 2024, after falling from about 30.1 percent in 2021 to 13.0 percent in 2023.

That pattern observed two years ago matters in 2026. Mining linked revenues now stand at over 20 percent while import VAT was reported at around 18.5 percent in the first quarter. A budget financed heavily through imports and mineral cycles can look strong in good years but fragile when the exchange rate, commodity prices or import volumes turn. Zambia must move from revenue collection to revenue quality.

This means strengthening domestic VAT performance (which has plunged by over 50 percent in the first quarter of 2026), using Smart Invoice data to improve compliance and refund discipline, improving mineral valuation assurance and ensuring mining windfalls are not swallowed by recurrent spending. The fiscal question is no longer only “how much did we collect?” It is also “how stable and repeatable is it?”

The economy breathes when transmission works

Zambia has achieved something important: the macroeconomic temperature has cooled. But the task now is to turn lower inflation, a stronger Kwacha and improved reserves into cheaper credit, resilient food systems, better revenue quality and credible fiscal space.

Part One asked whether the economy had started to breathe. Part Two offers the answer: it will breathe when stability reaches the people who produce, borrow, trade, farm, hire and pay taxes. Until then, recovery remains incomplete.