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AMR: Zambia

AMR: Zambia

We expect GDP growth of -3.8% y/y in 2020 and 0.7% in 2021. We expect that the C/A deficit to reach -1.4% of GDP in 2020 and 2% of GDP in 2021. We expect the pair USD/ZMW to reach 19.4 by year end.

Nominal GDP
Real GDP growth

GDP growth – growth restrained

Two factors are likely to prove key determinants of economic growth over the coming 3 – 4 years. Firstly, the impact of the COVID-19 pandemic and its uncertain outcome. As we have seen with other countries, the disruption to economic activity could be dramatic. The second key determinant of the medium-term economic growth outlook is the government’s debt sustainability. It has indicated a desire to commence negotiations with external lenders, with a view to bringing about voluntary restructuring of external government debt.

Balance of payments – near the turning point

It has been obvious for some time that demand for FX by the government is a key contributor to BOP pressures. Much of this demand has been due to the government’s external debt service requirements. Should the government’s proposed voluntary external debt restructuring proceed only slowly, then the pressure on FX reserves is unlikely to relent, increasing the very real possibility of default.

Monetary policy – likely on hold rest of 2020

Following the surprise cut to the policy rate in May, the BOZ’s MPC is likely to leave the policy rate unchanged for the remainder of this year. The committee pivoted to addressing risks to growth due to COVID-19.

FX outlook – ZMW depreciation likely to ease

It may well be that the nearly 23% annualised pace of ZMW depreciation since mid-2017 will persist on a multi-year basis, but we don’t foresee that. Now that external debt restructuring is on the cards, one source of ZMW depreciation will likely diminish in coming years

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