Zambia’s economy appears increasingly destined for International Monetary Fund (“IMF”) aid, despite comments by President Edgar Lungu (“President Lungu”) that an aid package would only be accepted if terms were suitable. Zambia’s recent economic performance has suffered as a result of power shortages and steep declines in the value of its currency, the Kwacha, which is closely linked to copper, Zambia’s foremost export. Both issues have forced the government to widen its budget deficit to 8.1 percent of gross domestic product (“GDP”) this year in order to pay for imported power and prop up the ailing currency.
Both the IMF and Zambia have agreed that any program would only be finalized after presidential elections have taken place on 8 August. However, the IMF is likely to impose tough measures in a bid to streamline government expenditures, including ending subsidies on fuel and raising power tariffs, which are not currently cost reflective. Such moves are likely to raise inflation beyond 21 percent and squeeze poorer households. The IMF has a checkered reputation in Zambia, having imposed stringent obligations to privatize inefficient state industries during its last intervention in 1991.
On 24 May, President Lungu stated that power problems would continue to affect the Zambian economy for the next three years. A combination of poor rainfall and mismanagement of resources in 2015 had caused hydroelectric generation to fall drastically. The drought this season has affected hydropower stations on which Zambia relies for most of its 2.2 gigawatt (GW) supply of electricity, and its farming sector. However, despite the conditions, Zambia has remained a net exporter of maize in the region. GDP Growth has been slashed from an expected 7 percent to around 3.7 percent. The drought this year also follows a season of poor rainfall in 2014/15. President Lungu’s comments therefore appear to confirm what several sources have told AML about the multi-seasonal impact of the recent rainfall.
On May 26, media reports began to coalesce around a split in the Movement for Multiparty Democracy (“MMD”) party, one of the three main parties contesting elections this year. The reports follow a party leadership convention on 22 May during which Presidential aspirant, Felix Mutati (“Mutati”), won the candidacy unopposed, despite the known aspirations of his party adversary Nevers Mumba (“Mumba”). Despite not attending the convention, Mumba has refused to back down, and has been in talks with United Party for National Development (“UPND”) candidate, Hakainde Hichilema, over a possible coalition, reversing previous overtures he had made with the ruling Patriotic Front (“PF”) party. Mutati (influenced by former president Rupiah Banda) has meanwhile been making approaches to President Lungu over a possible coalition of their own. A local source AML spoke to said that the August elections would likely to be a two horse race now that the MMD had ruptured. Allegations of a divide within the MMD will come at a delicate time for President Lungu, who faces the challenge of maintaining harmony between PF and friendly MMD cadres (the latter of which already includes serving ministers, such as the Energy Minister, Dora Siliya) and reshuffling his existing members of parliament.
In conclusion, Zambia’s economy is set to receive IMF aid, but not until the country’s presidential elections have been contested in August. Tough measures are set to be imposed by the lending institution to rein in the government’s budget deficit, set to reach around 8.1 percent of the country’s US$29 billion economy this year. Elsewhere, infighting within the opposition MMD party may have destroyed it as an effective fighting force in the coming elections. The party’s nominated candidate, Felix Mutati, is understood to be forming a coalition with the ruling PF party, while another senior member, Nevers Mumba, has come out openly in favor of the opposition UPND party. President Lungu faces a challenge harmonizing his party to include coalition partners ahead of what will be a very close election.
Felix is the Southern Africa Client Manager for Africa Matters Limited (AML).
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