Zambia economy under strain as prices surge, growth outlook cut

November 30, 2015, 4:52am

By Matthew Hill and Rene Vollgraaff, Bloomberg Business  

Zambia’s economy is under increasing strain as the inflation rate surged to almost 20 percent and the World Bank cut its growth outlook for the copper-dependent nation.

Inflation accelerated to 19.5 percent last month, the highest since September 2005, from 14.3 percent in October, the Central Statistical Office said in a report released on Thursday in the capital, Lusaka. Prices rose 5 percent in the month.

Growth in Africa’s second-largest copper producer probably won’t reach 4 percent this year, according to the World Bank. That would be the slowest pace since 1998 and down from 6 percent in 2014.

Zambia is facing the “toughest economic challenges in at least a decade,” Ina-Marlene Ruthenberg, the bank’s country manager, told reporters in Lusaka. “The economy has come under significant strain.’’

Copper prices have fallen to six-year lows, slashing revenue in a nation already struggling to cope with drought and a power crisis. Mining companies such as Glencore Plc are cutting production and firing thousands of workers.

The kwacha has lost 42 percent of its value against the dollar this year, boosting inflation and forcing the central bank to raise interest rates.

“They have a balance of payments deficit and a huge problem with their foreign-exchange earnings in the sense that copper prices keep on falling,” Thea Fourie, an economist for sub-Saharan Africa at global risk adviser IHS Inc., said by phone from South Africa’s capital, Pretoria.

The economy is under pressure partly due to “the slow implementation of policy adjustments to the crisis.” The kwacha gained 4.2 percent to 11.11 against the dollar as of 1:40 p.m. in Lusaka.

The government has pledged to curb its budget deficit to help bring debt under control and restore market confidence. Finance Minister Alexander Chikwanda forecast the shortfall will ease to 3.8 percent of gross domestic product next year from an estimated 6.9 percent this year.

While the repeated fiscal deficits are a problem, the outlook for medium-term is “more rosy,” Ruthenberg said.