Figure 1: Current Account Balance in Zambia (2016-2024)
Source: IMF 2019, Zambia 2019 Article IV Report. Note: (*) Figures from 2019 onwards are projections.
Total merchandise imports to Zambia increased to USD 9.5 billion in 2018, from an annual average of USD 8.4 billion for 2015 to 2017[1]. Exports increased to USD 9.1 billion in 2018, from an annual average of USSD 7.3 million for 2015 to 2017[2]. The recovery in exports has not been sufficient to improve Zambia’s current account deficit, which widened from an average of -USD 609.3 million (approx. -2.5% of GDP) for 2016 to 2018, to a deficit of -USD 851.0 billion (approx. -3.6% of GDP) in 2019[3]. The wider current account deficit has deteriorated Zambia’s balance of payments and gross official reserves have decreased despite the persistent capital and financial account surplus.
Figure 2: Capital and Financial Account Balance in Zambia (2016-2024)
Source: IMF 2019, Zambia 2019 Article IV Report. Note: (*) Figures from 2019 onwards are projections.
Zambia’s capital and financial account balance improved from a surplus (net inflows) averaging USD 204.0 million (approx. 0.8% of GDP) for 2016 to 2018, to a surplus of USD 611.0 million (approx. 2.6% of GDP) in 2019[4]. As a result, Zambia’s balance of payments improved from a deficit averaging of USD 400.7 million (approx. -1.7% of GDP) for 2016 to 2018, to a deficit of -USD 240.0 million (approx. -1.0% of GDP) in 2019[5]. Gross official reserves decreased from USD 2.4 billion in 2016 to USD 1.6 billion in 2018, and continued decreasing to USD 1.3 billion in 2019[6]. During this period, Zambia experienced decreasing inward FDI inflows.
Figure 3: Gross Official Reserves and Balance of Payment in Zambia (2016-2024)
Source: IMF 2019, Zambia 2019 Article IV Report. Note: (*) Figures from 2019 onwards are projections.
Inward FDI inflows decreased from USD 1.3 billion in 2015 to USD 1.1 billion in 2017, and continued decreasing to USD 569.0 million in 2018[7]. As a result, Zambia’s inward FDI stock increased from an average of USD 18.4 billion for 2015 to 2017, to USD 20.4 billion in 2018[8]. Zambians’ investments abroad have volatile as inward FDI to the country decreased.
Figure 4: Inward Foreign Direct Investment in Zambia (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Outward FDI outflows decreased from USD 125.1 million in 2015 to net repatriations of -USD 72.0 million in 2017, before recovering to USD 32.2 million in 2018[9]. As a result, Zambia’s outward FDI stock increased from an average of USD 1.5 billion for 2015 to 2017, to USD 1.6 billion in 2018[10]. These capital flows have been adverse for Zambia’s balance of payment and the country’s net international FDI position.
Figure 5: Outward Foreign Direct Investment from Zambia (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Zambia’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. Outward FDI flows have been volatile as inward FDI inflows decreased. Zambia’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 17.8 billion (approx. -78.8% of GDP) for 2015 to 2017, to net liabilities amounting -USD 19.4 billion (approx. -72.6% of GDP) in 2018[11].
Figure 6: International Foreign Direct Investment Position in Zambia (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
At these levels Zambia’s foreign liabilities remain unsustainable and are significant as a proportion of GDP. The country will be under significant pressure to increase its exports in order to balance its international payments. Given the relatively narrow domestic capital markets, Zambia should focus on attracting inward FDI in sectors that will expand its productive capacity and diversify its exports because the country is still heavily dependent on raw mineral commodity exports. Nevertheless, Zambia’s balance of payments deficit is projected to improve to a narrower deficit in the medium-term, which is projected to deteriorate gross official reserves.
The persistent capital and financial account surplus and the narrowing current account deficit should support a recovery in Zambia’s balance of payments in the forward-looking medium-term. The current account deficit is projected to narrow from a deficit of -USD 851.0 billion (approx. -3.6% of GDP) in 2019 to an average of -USD 628.6 billion (approx. -2.6% of GDP) from 2020 to 2024[12]. Zambia’s capital and financial account balance is projected to moderate to a narrower surplus (net inflows) averaging USD 469.6 billion (approx. 2.0% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to improve from a deficit of -USD 248.0 million in 2020 to a deficit of -USD 17.0 million in 2024, which is equivalent to an average deficit of -USD 158.8 million (approx. -0.7% of GDP)[14]. Thus, Zambia’s gross official reserves are projected to decrease from USD 1.0 billion in 2020, to USD 473.0 million in 2024[15].
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2019. Zambia 2019 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2019. Zambia 2019 Article IV Consultation, ibid.
[5] IMF 2019. Zambia 2019 Article IV Consultation, ibid. There are relatively significant errors and omissions in Zambia’s balance of payments data equivalent to USD 25.0 million in 2016, USD 31.0 million in 2017, and -USD 43.0 billion in 2018.
[6] IMF 2019. Zambia 2019 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2019. Zambia 2019 Article IV Consultation, ibid.
[13] IMF 2019. Zambia 2019 Article IV Consultation, ibid.
[14] IMF 2019. Zambia 2019 Article IV Consultation, ibid.
[15] IMF 2019. Zambia 2019 Article IV Consultation, ibid.
