30th August 2021

Huge Debt, Rising Inflation, Low Productivity and Youth Unemployment represent some of the immediate and pressing challenges of the New Government.
Subdued growth, debt servicing and repayment, rising inflation, low productivity and youth unemployment driven by declining growth rates with corresponding job losses are some of the immediate and pressing challenges of the new Government, according to the Zambia Institute for Policy Analysis and Research (ZIPAR).

In a Briefing Note dubbed; ‘The President’s In-Tray’ earmarked for submission to the 7th Republican President Mr. Hakainde Hichilema, ZIPAR Executive Director, Dr. Herrick Mpuku observes that while borrowing is in itself not bad if well invested, Zambia’s borrowing has not yielded enough economic growth to offset the cost of debt and neither has it yielded high returns from investments made. Coupled with that, the advent of COVID-19 has worsened Zambia’s debt sustainability and growth prospects, plunging the economy into a recession in 2020.

Dr, Mpuku also observes that Government debt has increased in recent years to approximately 117% of GDP in 2020, from 25% in 2012. Zambia’s debt is now in the unsustainable ranges. For example debt servicing costs have taken a greater share of the Government’s resources accounting for more than 45% of domestic revenues. He cautions that even though this ratio came down to around 38% of domestic revenues in 2020 on account of the debt service suspension the Government received, debt servicing costs will soar again when the suspension is lifted.

Also looming on the horizon is a large principal payment (US$ 750 million) to private bond holders in 2022. Therefore, ZIPAR urges the new Government to work with both domestic and international investment bankers to immediately plot a way of how to secure an IMF package and restructure or refinance the Eurobonds and other debt liabilities before the lenders come calling.
On the rising rate of inflation, Dr. Mpuku points out that high government expenditure, relatively low public revenues and the escalating budget deficit have disproportionately driven Zambia’s inflation rate. The August 2021 annual inflation stood at 24.6% away from the medium-term target range of 6-8% set by the Bank of Zambia. In order to reverse the trend, Government should decisively deal with the drivers of inflation highlighted above.

On unemployment in Zambia, estimated at 12.5%, Dr. Mpuku points out that the country is facing a momentous jobs challenge. While jobs targeting fell to the wayside in the last administration, it needs to be restored. The youth are the hardest hit with 17.9% unemployed at a time when the country is confronted with a burgeoning youthful population eager to be put to productive use. Therefore, ZIPAR urges the new administration to prioritise jobs targeting because it helps to put a human face to the growth dynamics in the economy and is important for harnessing the demographic dividend.

Other aspects that the ‘President’s In-Tray’ covers includes: the old tale of economic diversification and industrialization, carving out space in international trade, the subtle environment and development agenda, promoting and sustaining livelihoods, promoting education and skills training, rationalizing support to the agriculture sector by reforming FISP and FRA, and strengthening institutions of governance.

By: Euphrasia Mapulanga Knowledge Manager
For Zambia Institute for Policy Analysis and Research
Contact: 0211 252559/0977 445864, Email: emapulanga@zipar.org.zm