Zambia Country Risk Report Q3 2018
The risk of instability in Zambia has receded in the short term, fol-lowing the release of opposition leader Hakainde Hichilema, who has been held for over four months on treason charges. That said, that Hichilema was arrested in the first place, and increased infight-ing within the ruling Patriotic Front (PF) party over President Edgar Lungu's willingness to run for a third term at the 2021 presidential elections, lead us to believe that Zambia's reputation as a beacon of democracy and stability can fall under threat in the medium to longer term.
Zambia's budget deficit will expand in 2018 as the government at-tempts to dismantle domestic arrears, before narrowing gradually thereafter. Fiscal revenues will be bolstered by rising copper prices and production, while efforts to improve financial management will slow expenditure growth.
Pressures on Zambia's external accounts will moderate in the next two years as the country's crucial copper industry benefits from higher prices and rising output, offering tailwinds to the trade and financial account. That said, increasing concerns over debt sustainability will increase risk going forward, potentially weighing on the country's investment attractiveness.
The Bank of Zambia (BoZ) will keep its policy rate unchanged over the next two years. Rising inflation and stronger economic growth will limit the scope and impetus for further easing.
Rising debt servicing costs and a failure to cut the sizeable public sector wage will weigh on Zambia's ability to enact significant fiscal consolidation in the coming quarters. Recent allegations that the country may have far more external debt than is being reported will only further exacerbate Zambia's fiscal woes, undermining investor sentiment and ramping up borrowing costs.
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