The current account deficit narrowed in the first quarter of 2023 as deficits on both primary and services accounts reduced. The primary income deficit reduced on account of lower investment income following a decline in dividend payments on foreign direct investment. Similarly, the services account deficit narrowed, reflecting lower expenditure on transportation attributed to passenger travel. In the medium term, the current account balance is poised to post a surplus due to a faster rise in exports relative to imports on the back of the recovery in global growth. The recovery is underpinned by a rebound in growth in China, unwinding supply-chain constraints, and subsiding disruption to food and energy markets.
According to Bank of Zambia Governor Dr. Denny H. Kalyalya, “The narrowing of the current account deficit in the first quarter of 2023 is a positive development for Zambia’s external balance. Lower investment income and reduced transportation expenditure have contributed to this improvement. As the global economy recovers, we expect a faster rise in exports compared to imports, which will further strengthen our current account position.”
Credit growth slows down, money supply expands, and economic growth to rebound in the medium-term
In March 2023, growth in domestic credit slowed down to 12.1 percent, year-on-year, from 18.7 percent in December 2022 following reduced lending to the government. However, over the same period, credit to the private sector continued to grow—35.9 percent compared to 34.2 percent. Money supply grew further by 30.0 percent in March 2023 compared to 24.5 percent in December 2022 due to increased credit to the private sector and valuation effects relating to US dollar-denominated credit.
Dr. Kalyalya commented on the credit growth slowdown, stating, “The deceleration in domestic credit growth is primarily driven by reduced lending to the government. However, credit to the private sector remains robust, indicating ongoing economic activity and investment. The expansion of money supply is a result of increased credit to the private sector and valuation effects. It is important to strike a balance between credit growth and maintaining stability in the financial system.”
The economy is projected to slowdown in 2023, and rebound in 2024. This is underpinned by the recovery in agriculture and mining sectors as well as sustained growth in information and communications, manufacturing, transport, and financial and insurance sectors. However, a slowdown in global growth, tight global financial conditions, adverse weather conditions due to climate change, and elevated energy and food prices related to the ongoing Russia-Ukraine war continue to be key downside risks to the growth outlook.
Dr. Kalyalya highlighted the economic outlook, stating, “We anticipate a slowdown in the Zambian economy in 2023, but expect a rebound in 2024. The recovery will be driven by the revival of the agriculture and mining sectors, as well as sustained growth in other key sectors. However, we remain mindful of the potential risks, including global economic conditions, adverse weather events, and geopolitical tensions impacting energy and food prices. These factors require close monitoring and appropriate policy responses.”
Preliminary data from the May 2023 Bank of Zambia Quarterly Survey of Business Opinions and Expectations and the Stanbic Bank Zambia PMITM point to a moderation in economic activity in the first quarter of 2023. This was largely attributed to the depreciation of the exchange rate and increase in fuel pump prices.
Dr. Kalyalya commented on the moderation in economic activity, stating, “The depreciation of the exchange rate and the increase in fuel pump prices have had a dampening effect on economic activity. We are closely monitoring these developments and their impact on inflation and overall economic performance. It is important to address these challenges through appropriate policy measures to support a sustainable and inclusive recovery.”