Zambia Can Harness Renewable Resources to Promote Sustainable Growth – World Bank

Zambia Can Harness Renewable Resources to Promote Sustainable Growth

Zambia’s path to economic recovery remains weak, reflecting both exogenous and policy uncertainties, says the latest World Bank’s Economic Brief on Zambia, titled: Wealth Beyond Mining: Leveraging Renewable Natural Capital.

Despite the Zambian economy growing by 3.7 percent in 2018 from 3.5 percent in 2017, a stronger recovery was undermined by lower crop harvest and fiscal slippages that led to the accumulation of new public expenditure arrears and high government borrowing that impacted private sector activity.

Under the current policies, growth is forecast to weaken to 2.5 percent in 2019 and remain below 3 percent over the medium-term. While inflation remained within the authorities’ target range of 6-8 percent in 2018, averaging 7.5 percent for the year, pressures are now mounting, leading the central bank to tighten its monetary policy stance in May 2019 for the first time in over two years.

“Zambia needs to undertake bold fiscal and structural policy reforms to preserve macroeconomic stability, boost business and market confidence, and improve its growth prospects for 2019 and beyond in line with the Zambia Plus,” said Samson Kwalingana, World Bank Senior Economist for Zambia.

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The brief suggests some policy options including (i) front-loading fiscal consolidation to return to medium risk of debt distress and create fiscal space for inclusive growth; (ii) strengthening debt management to reduce the debt service burden and minimize debt related vulnerabilities; (iii) rebuilding foreign exchange reserves to buttress external stability, and (iv) implementing plans to improve the financial and operational sustainability of ZESCO and enhance the transparency of State-Owned Enterprises (SOEs).

The report highlights multiple opportunities that Zambia’s abundant renewable natural resources present to support sustainable economic growth. “Zambia’s economy has thus far been dominated by discoveries, expansion, and fluctuations in the minerals sector, but going forward, the country needs to harness its renewable natural resource endowment to promote sustainable growth. While the contribution of renewable resources like agricultural land, forestry and fishing to GDP has declined in recent years, the sector’s linkages with the rest of the economy remain significant,” said Ina Ruthenberg, World Bank Country Manager for Zambia.

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The Brief notes that the Bank’s recent Systematic Country Diagnostic revealed risks in the current use of Zambia’s natural resources, particularly the increased levels of deforestation from increased agriculture expansion and charcoal production.

Investments in non-timber products and tourism related to natural areas could generate high economic returns for the country without contributing to deforestation. Similarly, licensing for forestry products (i.e. timber, honey, wax and charcoal) can contribute to higher government revenue collection, exports and foreign exchange reserves.