publication December 7, 2017

Economic Brief: How Zambia Can Borrow Without Sorrow

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  • December 2017
Image

A recycling plant in Zambia turns scrap metal into batteries, pots and pans and other homeware. The plant has received financing from the International Finance Corporation, which is part of the World Bank Group.

Photo: Royd Sibajene


STORY HIGHLIGHTS

  • Economic recovery is subdued at 3.8% in 2017, but is forecast to strengthen to 4.5% in 2018, and 4.7% in 2019.
  • Efforts are needed to calm down the accumulation of debt and strengthen debt management.
  • A well-crafted debt strategy would help lower the cost of borrowing, extend the terms, and diversify the sources of debt funding.

LUSAKA, December 7—Zambia’s economy continues to recover, although growth is forecast to improve only modestly to 3.8% in 2017, up from 3.6% the previous year.

Recovery in Zambia has remained subdued in 2017, according to the World Bank’s new Economic Brief, How Zambia Can Borrow Without Sorrow, despite a bumper harvest, improved electricity generation, and an easing of monetary policy. This follows weak performances of the services, mining, and construction sectors.

Growth is forecast to strengthen to 4.5% in 2018 and to 4.7% in 2019. This forecast assumes the Zambian government will continue to implement its economic reform program, Zambia Plus.

The brief notes that a little over 10 years after a huge debt relief effort, the rapid accumulation of debt has once again put Zambia in the spotlight. Debt is an important source of development finance, and a key tool for eradicating poverty. Countries all over the world borrow to finance their investment and development. Zambia is no different and has huge and immediate infrastructure needs.

“Opportunities for finance should not be an automatic cause for celebration and signatures. Instead, a careful strategy and improved debt management is required,” said Gregory Smith, World Bank Senior Economist, in Lusaka. “The debt needs to be managed carefully and the proceeds of borrowing shrewdly invested,” he added.

The brief highlights that now that Zambia is tapping debt capital markets and has many sources of borrowing, a new active approach to debt management is needed that contrasts with the passive approach to debt management that Zambia has largely pursued since its debts were waived.

Being active means implementing a well-crafted strategy to reduce the cost of borrowing, extend the terms, and diversify the sources of debt funding.

There remains a need to look closely at ways to improve debt management to ensure that economic growth has sustainable foundations, and that borrowed money is invested wisely to ensure inclusive growth,” said Ina-Marlene Ruthenberg, the Bank’s Country Manager for Zambia.