In Zambia, structural reforms have delivered resilient growth, macroeconomic stability, and fiscal discipline despite a series of shocks. However, significant downside risks persist, and the country remains at high risk of debt distress. According to the latest Zambia Economic Update (ZEU), Electricity: Turning Crisis into a Catalyst for Growth, Jobs, and Development, sustaining and deepening these gains will require a deliberate focus on economic diversification and private-sector growth. Energy is central to this effort: a strong, sustainable power sector is critical to support Zambia’s development goals.
Zambia has shown macroeconomic resilience despite a succession of shocks.
Real GDP growth remained solid at 3.8% in 2025 and is expected to strengthen over the medium term, driven by strong agriculture, a rebound in mining, manufacturing, and construction, and sustained energy investment. Inflation fell to 7.1% by March 2026, within the central bank’s target range. The kwacha appreciated by 18.2% in 2025 and 12.9% through March 2026, allowing the central bank to reduce its policy rate for the first time in five years. Fiscal discipline was robust, with a primary surplus of 3.1% of GDP and an overall deficit of 3.8% in 2025. Public debt is expected to drop from just over 100% of GDP in 2025 to 73% by 2028.
Nevertheless, adverse international conditions could raise fuel costs, create inflationary pressures, and dampen investor confidence. The ZEU underscores that maintaining the momentum depends on addressing electricity supply as a critical constraint.
The Economic Update sets out a clear, sequenced pathway to turn the power sector from a crisis into a catalyst for growth, jobs, and development.
Delivering on Zambia’s Integrated Resource Plan and the National Energy Compact requires restoring the sector’s financial health as a core foundation for diversifying generation, expanding access, and attracting private investment. If implemented, these strategies could yield major gains: stronger GDP growth, higher income, a lower debt-to-GDP ratio, and the creation of tens of thousands of jobs.
Achieving these outcomes depends on concrete reforms. The ZEU recommends the following:
- Restoring financial viability. Implementing the Multi-Year Tariff Framework to achieve cost-reflective tariffs by 2027 is essential, alongside targeted protection for vulnerable households. The government should also settle its own arrears to ZESCO, support a structured resolution of arrears to independent power producers, and advance liability management to put the utility on a sound financial footing. In parallel, reducing system losses and strengthening collection would free up fiscal space and improve reliability.
- Managing market reform carefully. The opening of the electricity market to greater competition—including through open access and net metering—must be sequenced and regulated to protect ZESCO’s revenue base during the transition. Regulatory certainty and transparent tariff-setting are prerequisites to deepen competition without destabilizing the utility that remains central to system reliability.
- Diversifying the generation mix. Reducing the economy’s exposure to hydropower requires accelerating solar and wind investments through least‑cost planning and competitive procurement. Regional integration offers an additional avenue for diversifying supply sources and strengthening energy security.
- Expanding access equity. A least‑cost approach that combines grid expansion with off‑grid solutions can reach underserved rural communities faster and more affordably.
The 2024 drought exposed deep structural weaknesses in Zambia’s power system.
Hydroelectricity makes up over three quarters of Zambia’s installed capacity, and the 2024 drought reduced available power by about one third. While mining, which accounts for half of national electricity use, was shielded by grid priority and backup, households, small businesses, and public services suffered. Access gaps compounded the challenge, with power distribution in rural areas standing below 20%, leaving over 10 million Zambians without electricity.
