Zambia Country Risk Report Q4 2020

Zambia Country Risk Report Q4 2020

We expect that Zambia's economy will enter its first full-year recession since 1998 in 2020 due to the Covid-19 pandemic. Lower global demand for travel will depress tourist arrivals, while domestic restrictions and contagion fears will weaken consumer sentiment and private investment.

We forecast that the Bank of Zambia will lower the policy rate by a further 50 basis points (bps) by the end of 2020, after cuts worth 350bps between May and August, in an effort to support domestic lending and economic activity.

Meanwhile, weaker investor confidence in the country's deteriorating fiscal outlook, as well as stabilising copper prices, will see the kwacha facing further downward pressure in the short term, before paring back some of its losses in 2021.

That said, we expect that imports will continue to lag behind exports in 2020, as domestic demand weakens, contributing to a wider current account surplus, before small deficits become the norm from 2021.

Lastly, there will be an elevated risk of social unrest given public anger at high unemployment and increasing government efforts to narrow the political space ahead of the 2021 elections.

Key Risks

The economy remains closely tied to agriculture, and weather poses substantial risks, as illustrated by severe drought conditions over 2019. The persistence of drought beyond 2019 could pose significant downside risks to our growth forecast.

Zambia's economy also relies extensively on its copper mining industry, which keeps it vulnerable to volatility in global demand and prices.

The kwacha remains highly vulnerable to major sell-offs as the government shows limited progress on fiscal consolidation. Greater-than-anticipated currency depreciation would pose upside risk to inflation, further weakening the economic outlook.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Economy Set For Moderate Recovery After 2020 Recession
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
Wider Current Account Surplus In 2020, Small Deficits Thereafter
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS IMPORTS, 2018
TABLE: TOP FIVE GOODS EXPORTS, 2018
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Bank Of Zambia To Cut Policy Rate Further In 2020, Hold In 2021
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2019 PRELIMINARY)
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
Fiscal Risks To Keep Kwacha Weak Over Coming Quarters
TABLE: CURRENCY FORECAST
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings’ Credit Ratings. Any comments or data included in the report are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.Zambia Country Risk Q4 2020Contents10-Year Forecast
The Zambian Economy To 2029
Copper Mining To Provide Less Support To Economic Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Ruling Party Likely To Win 2021 Election, But Social Stability At Stake
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Erosion Of Democracy Presents Potential Threat To Long-Term Stability
Operational Risk
TABLE: OPERATIONAL RISK
Labour Costs
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE
Legal Environment
TABLE: BUREAUCRATIC PROCEDURES AND BARRIERS
Global Macro Outlook
Recovery Taking Shape, But Headwinds Remain
TABLE: GLOBAL MACROECONOMIC FORECASTS (2019-2024)
TABLE: DEVELOPED MARKETS – 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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