Today: February 10, 2016, 7:55 am

Zambia’s fiscal deficit forecast to total 7.9% of GDP in 2014
Zambia Business Forecast Report Q1 2014 - a new country guide report on 2014-03-17 07:30:10
A recovery in agriculture in 2014 should see the economy grow by 6.9%, up from an estimated 6.3% in 2013.

Although we are expecting Zambia´s external accounts to remain relatively healthy over the years ahead, we believe that the downside risks are greater than the headline balance of payments numbers suggest due to the fact that a fair proportion of copper export earnings never actually enter the country.

Although we are expecting inflation to rise, we believe that it will do so only gradually as slowing food price growth offsets inflationary pressures from a public sector wage increase and a weak domestic currency. We are therefore forecasting that the Bank of Zambia will hold rates at the current level of 9.75% over the course of 2014.

We have increased our forecast for Zambia´s fiscal deficit to 7.9% of GDP in 2014, from a previous expectation of 4.7% on account of a surging public sector wage bill. With copper prices expected to head lower and a Fitch Ratings downgrade suggesting that foreign investors´ sentiment towards the country is deteriorating, we believe that the authorities are likely to struggle to finance spending plans and that capital expenditure will remain below the government´s target.

The most salient risks to Zambia´s economy stem from global economic developments which directly impact the price of copper, Zambia´s chief export, as well as the appetite for frontier market investment. If struggles in Europe, China, and other major markets are more or less pronounced than we currently anticipate, then our forecasts would be rendered either too optimistic or too negative.

We again stress that we believe that President Michael Sata understands the importance of maintaining good relationships with foreign businesses and other private sector stakeholders. However, recent actions threaten Zambia´s reputation for democratic stability, and if the situation worsens, businesses may become more wary.

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