Zambia's Economic Temperature: Are We Winning?

1] Currently, the economic temperature of the country is not great. Inflationary pressure emanating from fuel and food is on the rise. July 2024 inflation stands at 15.4%. This is also reflected in the cost of living which has been on the surge.

*This parameter [price levels & cost of living] is a kitchen table issue that’s key to an ordinary citizen [it is like our vitals at the hospital].

2] Private sector output has been affected by energy deficiency caused by the drought. Government has been embarking on some adaptation measures such as Net-metering initiative by ZESCO (near completion) and removal of tax on solar products (short term), and others around climate change adaptation (more long term). Eye-balling the prices, the second initiative doesn’t seem to have the desired effects, at least for now - firms have internalised the benefits from MoFNP removal of taxes.

3] Mining sector: However, there seems to be some hope in the mining sector - production is expected to increase and the prevailing prices is around an average of  $9,450/MT. This will be important for the short term solution - we can’t run away from sending an SOS to the mining sector especially in a crisis period like this.

4] It looks more and more that the reprojected 2.3 percent economic growth by the IMF is more viable than any optimistic upward rebound to defile it. At this point we need to work towards not going below it. The 2025 budget will be key in devising a balance between social spending, resource mobilisation and creating incentives for private sector growth.

//////////////////////////////////////////////////////////Potential way forward//////////////////////////////////////////

5] Should the bank of Zambia intervene by further tightening liquidity? NO. The BoZ should this time around intervene by leaving the MP tools as they are. “No intervention is a sound intervention” in this case. The problem of inflation is emanating from fuel, food, and catalyzed by the volatile exchange rate. If previous tightening initiatives have told us something, near zero response of targeted parameters like inflation is one of them.

6] However, the BoZ should go on with the proposed dedollarisation initiative provided the phenomenon’s prevalence is established significant. There’s nothing controversial about the intervention, it’s solution that ensures you’ve ticked all the boxes as you diagnose or seek for a solution.

7] Government should continue with climate change adaptation and mitigation initiatives. For example, the renewable energy sector has never been more important, therefore, the government should move in to understand the operations of this sector and how they can be best supported in terms of creating an enabling environment.

*Key here is making the products affordable to the ordinary Zambian. This sector is now a strategic sector in the face of our climate change challenges. ZESCO Net Metering is also tapping from this making this critical.

*Further, we need to understand why government intervention of tax removal on solar products did not have an impact, at least for now.

*Exploring potential for mass solar product production within the country is another initiative we need to consider given we will be on this path for long. It has come to stay…

*Further, we also need to have one eye on climate change mitigation. Otherwise, we will be building and taking away on the other side.

*The Ministry of Economy should be one of the high funded ministries

8] Subsidies: there is need to gradually scale up subsidies especially in the energy sector. Government has already started with the removal of tax on solar products. However, it’s a tricky dance to balance given the need for domestic revenue mobilization to meet our internal and external obligations (…debt) and providing an incentives for private sector led growth. Government has a huge task ahead.

The 2025 budget will be an interesting dance on balancing social spending, resource mobilisation to meet our obligations (internal and external), and creating incentives for a thriving private sector.

John Musantu, PhD

29/08/2024