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Zambia Country Risk Report Q3 2018

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.


Executive Summary
Core Views
Major Forecast Changes
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Concerns Over Hidden Debt Exacerbating Fiscal Pressures
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
External Account Set To Improve Despite Rising Risk
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
Window For Monetary Easing Closed
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Scenarios For Crisis
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2016 PRELIMINARY OUTTURN)
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
ZMW: Downside Risks Threaten Broad Stability
TABLE: BMI ZAMBIAN KWACHA FORECAST
Chapter 2: 10-Year Forecast
The Zambian Economy To 2027
Mines Both A Driver Of And Risk To Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Impeachment To Weigh On Longer-Term Support
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Politics Gets In The Way Of Policy
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Business Crime
TABLE: BUSINESS RESPONSE TO WHITE COLLAR CRIME AND ORGANISED CRIME
Education
Chapter 5: BMI Global Macro Outlook
Key Divergences Emerging In World Economy
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: ZAMBIA – MACROECONOMIC DATA & FORECASTS

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