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AMR: Zambia

AMR: Zambia

We expect GDP growth of 2.5% y/y in 2019 and the C/A deficit to rise to 2.3% of GDP in 2019. We expect the pair USD/ZMW to reach 13.9 by year end.

Nominal GDP
Real GDP growth

GDP growth – likely at least below 4.0%

We forecast GDP growth of 2.5% y/y in 2019 and 2.4% y/y in 2020, from 2.9% y/y and 2.6% y/y previously. While we acknowledge the risks posed by the drought, which not only undermines agricultural production but also hydro electricity generation, there could be some support for economic growth. The British High Commissioner has hinted at this. If the government were to declare an emergency, then there is a possibility for the government to galvanise aid from the international community. Such support would be instrumental in keeping household consumption spending elevated.

Balance of payments – still under pressure

There is a strong chance that FX reserves will decline to USD1.3bn by year-end, covering 1.7-m of goods and services imports, according to our estimates. They will likely fall further to USD1.0bn by the end of 2020, covering 1.2-m of imports. The overall C/A deficit will likely rise to 2.3% of GDP in 2019, from 1.4% of GDP in 2018. This is lower than our previous forecast, owing largely to downward revisions to goods imports in the last few years.

Monetary policy – still could tighten

we still see scope for the committee to tighten further over the coming 12-m. We pencil in 125 bps of hikes by the end of 2020. Drought conditions in parts of the country have undermined crop production, with the shortfall already exerting significant upward pressure on maize meal prices. Another significant upside risk to inflation is represented by the likely trajectory of the exchange rate.

FX outlook – depreciation bias for the ZMW

We doubt that this will prove to be enduring. Hence, we expect it to be trading near 13.90 by year-end, and 14.30 by Mar 20. Since the pair bottomed out just below 9.00 in Jul 17, it has shown a tendency to stick around certain levels before jumping higher. The challenge is that BOP developments do not suggest that the pair can remain stable for a prolonged period, let alone fall durably and meaningfully.


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