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Zambia Country Risk Report Q1 2019

Zambia Country Risk Report Q1 2019

We remain downbeat on Zambia's economic activity, forecasting that real GDP growth in the country will slow to 2 9% in 2019, from an estimated 3 7% in 2018

We believe that a series of tax reforms, to be implemented from January 2019, will weigh on mining sector production, which will record only a slow uptick despite a positive environment for copper prices

Zambia's social stability is set to deteriorate over the period leading up to the 2021 presidential elections, as slowing economic activity is set to increase public resentment towards the ruling Patriotic Front government, provoking some social unrest

Opposition parties are set to capitalise on this discontent to undermine President Lungu's administration and increase their support in the view of the 2021 presidential elections

The Zambian government will struggle to enact rapid fiscal consolidation over 2019 and 2020, as the government will keep public spending elevated despite calling for fiscal consolidation in the budget speech released at the end of September

We believe investor caution over Zambia's fiscal outlook will continue to put pressure on the kwacha over the short term Over the longer term, structurally high inflation and a prolonged period of weakness in sentiment towards emerging markets will continue to exert downward pressure on the unit

We expect that the Bank of Zambia (BoZ) will hike interest rates by 100 basis points, to 10 75%, amid mounting inflationary pressures Major Forecast Changes

We forecast the kwacha will average ZMW12 25/USD in 2019, a substantial downward revision from our prior ZMW11 60/USD projection

Our Mining team has revised down its forecast for copper production growth in Zambia, to 5 0% in 2019 (from 6 0% previously) and 4 0% in 2020 (from 8 0%)

We have revised down the social stability sub-component of Zambia's Short-Term Political Risk Index (STPRI) This reduces Zambia's STPRI score from 54 2 to 52 7, positioning the country just below the SSA regional average of 53 0 – with a higher score signalling greater stability Zambia Country Risk Q1 2019


Executive Summary
Core Views
Major Forecast Changes
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Zambian GDP Growth To Slow Over 2019
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS IMPORTS IN 2017
TABLE: TOP FIVE GOODS EXPORTS IN 2017
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Bank Of Zambia Set To Increase Rates In 2019
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Zambia Will Struggle To Achieve Meaningful Fiscal Consolidation
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2017 PRELIMINARY OUTTURN)
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Zambia Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsCurrency Forecast
Zambian Kwacha To Continue To Weaken
TABLE: CURRENCY FORECAST
10-Year Forecast
The Zambian Economy To 2027
Mines Both A Driver Of And Risk To Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Social Tensions To Increase Significantly In Zambia
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Emerging Threats To Institutional Stability
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Continued Growth Divergence And Policy Risks Ahead
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: ZAMBIA – MACROECONOMIC DATA & FORECASTS

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