Context: Economic conditions remain favorable and there has been little impact to date from the European crisis. Zambia has achieved sustained high growth and macroeconomic stability over the last decade, but poverty remains high. Inflation has declined to single-digit levels, international reserves have grown to a comfortable position, and debt is low. The key policy challenge is how to make growth more inclusive.
Outlook for 2012: Growth is expected to remain robust in 2012 at around 7.7 percent and inflation to remain close to 6 percent. The authorities plan to widen the fiscal deficit (but reduce net domestic borrowing) and have tightened monetary policy in line with achieving these objectives.
Risks: The principle downside risks are policy slippages that could arise from a failure to implement measures needed to meet their 2012 budget deficit target or a larger than envisaged global downturn that substantially reduces world copper prices. Large deficits in a government pension fund, below cost recovery energy pricing, and contingent liabilities also pose medium-term risks.
Promoting inclusive growth will require reforms on a number of fronts while simultaneously continuing to safeguard macroeconomic stability. These reforms include creating space for growth enhancing and poverty reducing spending; improving access to financial services for the unbanked population; and boosting the agriculture sector and other labor intensive activities.
- The Staff Report for the 2012 Article IV Consultation, 75 pages, dated 26 July 2012, can be accessed here.