Business

ZAMBIA’S BUDGET DEFICIT TO NARROW

By BUUMBA CHIMBULU

ZAMBIA’S budget deficit is set to narrow to 6.8 percent during this year, with government expenditure falling. This is attributed to cuts in foreign financed infrastructure projects, as well as increasing mining receipts which is set to boost growth in revenue, according to PwC 2020 Zambia Bank and Non-Bank Industry Survey Report.

The budget deficit reached an estimated 12.7 percent of Gross Domestic Product (GDP) in 2020. According to the report, an easing of postelection pressures on spending would also help further narrow the budget deficit in 2022 to 4.3 percent of GDP.

The report however stated that negotiations with foreign bondholders and the International Monetary Fund (IMF) would be challenging in the short term, with the country remaining more reliant on domestic financing. “The medium-term growth is also highly uncertain and will be dependent on the effectiveness of policy support, the extent of the economic damages, as well as the intensity of the health shock.

“PwC forecasts a growth of 2.5 percent in real GDP during 2022,” according to the report. The report also stated that in 2020, the Ministry of Finance communicated to government bondholders that the country’s macroeconomic situation necessitated immediate external debt relief. This, the report indicated, was due to the drain of debt service payments on the focus causing arrears in payments to domestic service providers.

 The sharp depreciation of the Kwacha also significantly inflated the foreign-currency debt payments. Nonetheless, the BoZ expects the country’s economy to recover and projects it will grow by 1.5 percent in 2021. This is slightly lower than PwC’s forecast of two percent growth.

According to the central bank, this growth wold be driven by policy support, as well as an easing of restrictions as the Covid-19 vaccination drive picks up. Positive growth in the electricity, mining, gas and water, and information and communication (ICT) sectors will also support this growth.

Sector growth will be driven by, among others, stronger copper prices and demand, favourable rainfall, leveraging of digital payments and infrastructure, and the expected commencement of electricity generation at the Kafue Gorge Lower Hydro Power Station.

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