The Standard Bank Group which operates in Zambia has Stanbic Bank has lowered the country’s growth prospects for 2015 to 4.2 percent year on year from an average of 6.3 percent.
The Bank expects Zambia’s growth to reach 4.5 percent year on year in 2016.
In a note, Standard Bank Fixed Income and Currency Strategist for Africa Yvette Babb said the slowdown in economic activity follows from a combination of poor weather conditions, sustained power rationing, lower commodity prices, currency instability and higher interest rates.
Ms. Babb said the Bank expects that the current account deficit will reach 5.6% of GDP in 2015, despite higher copper export volumes in quarter two relative to quarter one.
‘Base on copper prices averaging USD5, 038/MT in 2016, the trade balance is likely to be marginally positive, but insufficient to cover the negative balance on services, income and transfers fostering a further C/A deterioration,’ she said.
She observed that under the proposed 2016 budget, the deficit will decline to K7.82 billion which is 3.8% of GDP from K12.8bn which is 6.9% under the revised 2015 budget.
‘The deficit will largely be financed externally, with foreign financing set to reach ZMW6.07bn or 2.9% of GDP. Net domestic financing is set to reach 1.2% of GDP or ZMW 1.75bn in 2016 from ZMW3.64bn under the revised 2015 budget’.
Ms Babb said the government will find it hard to deliver such acute fiscal consolidation.
She said the Bank of Zambia is likely to adjust its policy rate in response to the recent sharp spike in inflation and in a bid to address supply side constraints to private sector credit extension.
‘The upward pressure on government yields looks set to continue amid concern around the currency weakness, inflation and public sector borrowing. Despite the Kwacha halving in value against the USD in 2015, the risks probably still remain towards further ZMW weakness without a catalyst to reverse the present negative sentiment.’
She said although Zambian Eurobonds are arguably pricing more than enough bad news, the Bank await a catalyst to reverse the present negative momentum.
‘The government is battling with the negative shock from lower copper prices Presidential, parliamentary and local government elections will be held in 2016.’