By  SYLVESTER  MWALE –
THE World Bank says the medium-term economic outlook for Zambia is positive with the country’s Gross Domestic Product (GDP) growth expected to average more than seven per cent over the next 12 months.
The global bank says the growth would be driven by a strengthening economy in China – Zambia’s largest trading partner – as well as continued strong Foreign Direct Investment (FDI) inflows.
According to the Diagnostics Trade Integration Study (DTIS) by the Bank, inflation and the current account deficit are expected to decline.
“Inflation is expected to fall to five per cent in 2016, based on the assumption that the Bank of Zambia will significantly tighten monetary policy,” added the report which was released in Lusaka during the week.
The current account started showing a negative balance in 2013, but the deficit is expected to fall gradually from 3.2 per cent in 2013 to close to 3.4 per cent by 2015.
However, the World Bank noted that the country faced moderate risks of debt distress.
As a result of becoming a low-middle-income country Zambia faced reduced access to funding on highly concessional terms.
This has forced the Government to resort to increased non-concessional borrowing amounting to US $1.61 billion between June 2011 and April 2013.
It stated that total public debt stood at close to 33 per cent of GDP in 2013 and is expected to increase to slightly above 34.5 per cent by 2016.
The World Bank warned that Zambia should implement a prudent debt management approach to address the changing composition of its debt and manage the risk exposure of potential variations in the cost of debt servicing.
Growth prospects may be affected by developments in the global economy although the country is sensitive to changes in commodity prices, and any fluctuation in copper prices is key to its economic trajectory.
“Moderate decline in global copper prices can be absorbed by the Zambian economy, but steeper-than-projected declines could delay or cancel planned investments in the mining sector, thereby slowing construction and reducing government revenues,” it stated.
“The consequences could be serious, including slowing infrastructure investment and potential macroeconomic instability as the kwacha depreciates, and/or reserves are depleted.”
On the domestic front, the World Bank noted that the main risk to growth is a slowdown of economic reforms or policy reversals.
It states that Zambia has seen far too many unexpected policy changes in the recent past adding that persistent or heightened perceptions of an uncertain policy environment could cause investments to be weaker than expected and reduce GDP growth.
The risks of fiscal slippages could also undermine macroeconomic stability in the Zambian economy and undo some of the hard-earned gains of recent years.
The World Bank study also noted that Zambia’s robust economic growth has not led to diversification or declines in poverty.
Despite numerous achievements the economy, however, remains excessively dependent on the copper sector that has not generated the jobs and income levels needed to reach the country’s poverty reduction goals.
While Zambia’s growth performance remains strong, copper exports continue to dominate Zambia’s merchandise exports and about 60 percent of the population still lives below the poverty line.
In the same vein, Job creation has not been commensurate with economic growth with formal wage being created very slowly due to the current structure of the economy and the sources of growth.