Country Report Zambia June 2008

Outlook for 2008-09

• Winning back urban support, particularly in the economically vital Copperbelt—lost in the September 2006 elections—will be a priority for the president, Levy Mwanawasa.
• The drafting and adoption of a new constitution will progress only slowly during the forecast period. This will be a key source of tension between the government, the opposition and civil society groups.
• Economic policy will be guided by the recently agreed poverty reduction and growth facility (PRGF).
• Continuing with tight fiscal management and building capacity at the ministry level will be key economic policy priorities, as will using the proceeds of the copper boom to diversify the economy.
• The mining sector looks set to be constrained by power shortages in 2008. Real GDP growth is therefore likely to be below potential in 2008, at 6.4%, before improving slightly, to 6.5%, in 2009.
• Continued high oil prices and a regional electricity shortage mean that inflation is forecast to increase in 2008, averaging 10.8%. Lower oil prices and better energy supply should allow inflation to ease to 9% in 2009.
• Strong export earnings from the copper sector will be offset by growing fuel imports as world oil prices increase. The current-account deficit is forecast at 3% of GDP in 2008, rising to 3.8% of GDP in 2009 as copper prices moderate.

Monthly review

• In a dramatic turn of events, Mr Mwanawasa and the leader of the largest opposition party, the Patriotic Front (PF), Michael Sata, reconciled their differences in June, pledging to work together for the good of the country.
• A new PRGF has been agreed with the IMF, with the objectives similar to those under the previous agreement, which expired in September 2007.
• In data projections that accompanied the application for the new PRGF, the government was optimistic about economic prospects in Zambia.
• Zambia's external debt has doubled since 2006, when a number of debt forgiveness deals were signed. Nevertheless, the government is confident that its debt strategy is sustainable.
• Some mining firms have frozen the development of new projects, ostensibly due to the new higher tax regime in the sector.
• The largest-ever initial public offering has taken place on the Lusaka Stock Exchange with the listing of the telecommunications company, Celtel Zambia.

Source: Country Report