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Zambia 1 Jul 2022

AMR: Zambia

AMR Zambia image sett

We expect GDP growth of 1.92% y/y in 2022 and 2.81% y/y in 2023. We expect that the C/A surplus to reach 7.42% of GDP in 2022 and 7.69% of GDP in 2023. We see the pair USD/ZMW around 16.6 at year-end.

Nominal GDP
USD 21.8billion
Real GDP growth

GDP growth – downside risks still dominate

We maintain our GDP growth forecast at 1.9% y/y for 2022 and 2.8% y/y for 2023, from  3.6% y/y in 2021. However, downside risks still dominate, with high and still rising global  food and oil prices likely to constrain the economic recovery. Buoyant copper exports should  still support net exports though. Poor rainfall might now hamper cereal crop production after the bumper 2021 harvest.  Furthermore, the rising cost of fertilizer would limit the reach of the government’s Affordable  Inputs Programme (AIP), which too would weigh on crop yields. 

Balance of payments – C/A surplus should narrow as import bill rises

We see the C/A surplus narrowing to 7.42% of GDP by end 2022, from 10.78% (or USD2.35bn) by end 2021. However, we expect the current account to remain in surplus,  reaching 7.69% of GDP by end 2023. Foreign portfolio investment inflows in the local debt market slowed in H2:21. Though  Zambia’s progress on debt restructuring is encouraging, though slow, FPI participation will  likely continue at current levels.

Monetary policy – hiking cycle imminent

We expect the MPC to increase the policy rate by at least 100 bps, taking the key policy rate  to 10.0% in the next 12-m. Unwinding base effects have kept headline inflation contained  this year, moving closer to the BOZ’s medium-term target. The BOZ maintains that average  inflation should fall into its 6% - 8% target range by 2023.  However, to restrain inflation  expectations, we expect the MPC to start hiking rates in H2:22. 

FX outlook – some improvement in onshore FX liquidity

We see USD/ZMW reaching 16.96 at end Q3:22 and 16.6 at end Q4:22. Though onshore FX  liquidity conditions have been improving this year, liquidity will likely remain intermittent  because BOZ intervention tends to be irregular. We maintain that FX interbank market inefficiencies predispose the ZMW to sharp swings.  Our bear case models a more aggressive depreciation of the currency following delays in  disbursements of IMF funding and less intervention from the BOZ. Our bear case puts the  USD/ZMW pair at 25.43 by end 2022 and 24.18 by mid-2023.

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