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Zambia Country Risk Report Q4 2018

Zambia Country Risk Report Q4 2018

Key View:

While rising borrowing costs due to higher sovereign bond yields will continue to put pressure on the Zambian government to pare back spending, we think that structural constraints will undercut fiscal consolidation efforts.

As the government tries to raise fiscal revenues in a bid to maintain elevated levels of expenditure, we see increased risks to the business environment, especially for the copper mining sector.

Only slowly rebounding economic activity in the non-mining sectors of the economy will prevent the Bank of Zambia (BoZ) from reversing its monetary policy direction in 2018. That said, risks are skewed to the upside. Rising food and fuel prices will keep inflation near the upper band of the BoZ's 6.00-8.00% tolerance band, while investors' concerns regarding Zambia's fiscal sustainability might weaken financial inflows in the country, increasing economic pressure on the BoZ to raise interest rates sooner than expected.

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.

Forecast Changes

We have revised down our forecast for 2018 GDP growth from 4.2% to 3.9% and our forecast for 2019 GDP growth from 5.3% to 4.5%.

We have revised up our forecast for Zambia's budget deficit to average 7.8% and 6.9% of GDP in 2018 and 2019 respectively, from 7.1% and 6.4% previously.

We have revised up our forecast for the monetary policy rate to increase by 100 basis points in 2019 due to concerns about inflation and the currency. In our previous view, we expected the BoZ to keep rates unchanged at 9.75%.

We have slightly revised upwards our forecast for the kwacha, now expecting the unit to average ZMW10.24/USD in 2018 and ZMW10.70/USD in 2019, up from ZMW10.09/USD and ZMW10.40/USD.


Executive Summary
Core Views
Forecast Changes
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Zambia Growing Slower Than Expected
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
Zambia's Current Account To Stabilise Amid Rising Risks
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS IN 2017
TABLE: TOP 5 GOODS EXPORTS IN 2017
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Central Bank Will Keep Rates Unchanged In 2018, Hiking In 2019
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Zambia's Struggle To Consolidate Fiscal Deficit Poses Risks To Growth
Zambia Country Risk Q4 2018ContentsStructural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2017 PRELIMINARY OUTTURN)
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
Kwacha Will Face Downside Pressures In The Short Term
TABLE: FITCH SOLUTIONS CURRENCY FORECASTS
10-Year Forecast
The Zambian Economy To 2027
Mines Both A Driver Of Growth And A Risk To It
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Long-Term Political Outlook
Politics Gets In The Way Of Policy
TABLE: POLITICAL OVERVIEW
Global Macro Outlook
Strong Growth, But Greater Headwinds Too
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: ZAMBIA – MACROECONOMIC DATA AND FORECASTS

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