Economic situation High levels of public debt

After many years of strong growth, annual economic growth in Zambia has fallen since 2015 to around three to four per cent. In 2020 economic performance fell by 2.8 per cent, not least as a result of the COVID-19 pandemic. In 2021, however, growth rates returned to 3.6 per cent.

Payment for large energy imports in times of drought, foreign borrowing going into the billions and excessively expensive public investment projects have been major factors in the state accumulating a massive level of public debt, amounting to 129 per cent of gross domestic product in 2020. The temporary drop in world market prices for the country’s main export commodity copper and the costs related to the COVID-19 pandemic are an additional burden for Zambia’s budget. Interest payments that were due in November 2020 could not be met – making Zambia the first country to default on its debts due to the COVID-19 crisis.

The government that was newly elected in 2021 immediately took steps to overcome the debt crisis. In December 2021, Zambia concluded a first agreement with the IMF, which is meant to serve as the basis for a support programme to assist economic recovery and stabilise the country. The IMF approved a first support programme in August 2022 after the main creditors made commitments to it. Zambia has requested a debt treatment under the G20 Common Framework for Debt Treatments. The country’s complex debt structure – with a large number of private and Chinese creditors – is making negotiations difficult.

High dependence on extractive industries

Zambia is rich in mineral resources. Metal ores, especially copper, account for roughly three quarters of its exports. And demand is increasing, for instance for cobalt, which like copper is needed for the construction of electric cars. Because it is so dependent on exporting, however, Zambia's economy is very vulnerable to fluctuations in prices on the international commodities market.

Slag pile of the Mopani Glencore copper mine in Zambia in January 2019

Development potential

Zambia’s agricultural sector, in particular, offers huge development opportunities, not least because the country has comparatively large water resources. At the same time, agricultural production is increasingly affected by climate change. Up until now, it has accounted for only about three per cent of gross domestic product, despite employing roughly half the population. Large numbers of people in Zambia depend on small-scale farming and use no farming machinery at all. Experts believe that Zambia could produce significantly more food and even export to other countries in the region.

The Hichilema government is planning reforms in the energy sector, also aimed at overcoming the high level of debt accumulated by Zambia’s public electricity utility ZESCO. Roughly 80 per cent of the country’s electricity is generated by means of hydropower. So far, only 43 per cent of Zambia’s people have access to electricity and in rural regions the rate is as low as 14 per cent. One answer to the problem could be off-grid solutions.

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As at: 13/12/2022