Zambia

The Zambian economy has started recovering from a marked slowdown in growth. In 2015Q4 and most of 2016, it was in near-crisis, reflecting the impacts of exogenous shocks and lax fiscal policy in the lead up to general elections. Tight monetary policy helped to stabilize the exchange rate and lower inflation, but the ensuing liquidity crunch combined with government arrears and subdued economic activity caused a rise in non-performing loans and put the financial system under substantial stress. Public debt has been rising at an unsustainable pace, crowding out lending to the private sector. The government has initiated bold reforms of subsidies in the agriculture and energy sectors, and is scaling up spending on social protection programs. However, ambivalence on key measures is creating uncertainties about its commitment to fiscal consolidation, with potential adverse effects on private investment and growth.