By Wise Sibindi
The 2025 Zambian budget, themed “Building Resilience for Inclusive Growth and Improved Livelihoods,” presents an opportunity to address the nation’s pressing challenges while fostering long-term economic growth. From economic recovery following the 2024 drought to efforts aimed at reducing the country’s debt burden, this budget seeks to enhance resilience, spur development, and uplift the livelihoods of ordinary citizens.
Economic Growth and Recovery
The Zambian economy is poised for a significant rebound in 2025, with the government targeting a 6.6% GDP growth rate. This comes after a tough 2024, which saw the economy shrink by 2.3%, largely due to the adverse effects of drought that hit agricultural output and electricity generation. Agriculture, a backbone of the economy, faced a sharp decline, with maize production falling by 53.6%, leading to food shortages and inflationary pressures.
In 2025, growth is expected to be driven by a recovery in agriculture, bolstered by investments in irrigation, mechanization, and input support programs. The government’s continued focus on the mining sector, particularly copper production, will also play a critical role in stabilizing growth. The reopening of key mining operations such as Konkola Copper Mines and Mopani Copper Mines, alongside increased foreign investments, will contribute significantly to growth. Sectors like information and communication technology, tourism, and construction are also projected to expand, further strengthening the economy.
Inflation Management and Monetary Policy
One of the standout challenges for Zambia has been inflation, which reached 15.6% by September 2024, largely driven by food price increases and the depreciation of the Kwacha. The government, in coordination with the Bank of Zambia, has tightened monetary policy to combat these inflationary pressures, raising the policy rate from 11.0% to 13.5% and increasing the statutory reserve ratio to 26.0%.
Looking ahead to 2025, the government is targeting a reduction in inflation to the 6-8% range. This is an ambitious goal, especially in light of ongoing global economic uncertainties and domestic vulnerabilities. However, if the agricultural sector recovers as expected and the Kwacha stabilizes, inflationary pressures could ease. The Bank of Zambia’s monetary policy stance will remain key, with efforts focused on maintaining price stability while supporting growth.
Revenue, Expenditure, and Fiscal Deficit
The 2025 budget totals K217.1 billion, representing 26.6% of GDP. Of this, 80.2% will be financed through domestic revenues, while 16% will come from borrowing, both domestic and external. Grants from cooperating partners will account for 3.8% of the total budget. The fiscal deficit is expected to shrink to 3.1% of GDP, a marked improvement from the 6.4% deficit recorded in 2024, highlighting the government’s commitment to prudent fiscal management.
Key expenditures include:
- K37.3 billion for domestic debt servicing and K16.7 billion for external debt repayments.
- K48.7 billion for economic affairs, which includes infrastructure development, agriculture, fisheries, and livestock interventions.
- K23.2 billion for health, focusing on improving health infrastructure, drug availability, and personnel recruitment.
- K31.5 billion for education, aimed at expanding access to quality education through infrastructure development and recruitment of additional teachers.
The government’s emphasis on economic resilience is reflected in its allocation to critical sectors. For instance, agriculture, one of the hardest-hit sectors by the drought, will receive K15.4 billion to support irrigation projects, mechanization, and the Farmer Input Support Programme (FISP). This allocation underscores the need to boost food security and reduce the country’s reliance on rain-fed agriculture, making Zambia less vulnerable to future climatic shocks.
Debt Management: A Balancing Act
Zambia’s public debt has been a major concern over the past few years, limiting the country’s fiscal space. The 2025 budget reveals a total external debt of $15.17 billion, with an additional $1.39 billion in publicly guaranteed external debt. However, the government has made significant strides in debt restructuring, which is crucial for unlocking fiscal space for development projects.
For instance, Zambia recently restructured its Eurobond debt, resulting in substantial relief. Without restructuring, the country would have faced debt service obligations totaling $8 billion in 2025, equivalent to K246.4 billion. However, following successful negotiations, Zambia will only be required to pay $599 million, equivalent to K16.7 billion in 2025. This fiscal breathing room will enable the government to focus on essential development programs without the burden of crippling debt repayments.
Sectoral Allocations and Growth Drivers
The mining sector, which is vital to Zambia’s economy, remains a key growth driver. The government has made considerable progress in improving the mining investment climate, which has already attracted major investments, such as the US$2 billion Mingomba Mine Project in Chililabombwe. Copper production, which increased by 6.2% in the first half of 2024, is expected to continue its upward trajectory, contributing to Zambia’s export earnings and job creation.
In addition to mining, Zambia’s focus on diversifying its energy mix is another critical aspect of the budget. The ongoing power shortage, exacerbated by the drought, has highlighted the risks of over-reliance on hydropower. The government’s commitment to increasing investments in solar and thermal power is expected to address the current power deficit while building long-term resilience against climate change.
Social Protection and Human Development
Social protection programs have been allocated K16.1 billion, underscoring the government’s commitment to improving the livelihoods of vulnerable populations. Key programs include the Social Cash Transfer, which will benefit 1.3 million households, and the Cash for Work Programme, which targets communities affected by the 2024 drought. Additionally, the government is investing in education, health, and social infrastructure, which are critical for long-term human capital development.
In the health sector, K23.2 billion will be spent on improving access to healthcare, including the construction of hospitals and health centers, recruitment of 4,000 health personnel, and procurement of essential drugs and medical supplies. Similarly, K31.5 billion will be allocated to the education sector, focusing on addressing the challenges of overcrowded classrooms and poor teacher-to-pupil ratios.
Fiscal Sustainability and Risks
The establishment of a stabilization fund to address future shocks, such as those caused by climate change, is a commendable initiative. By channeling revenues from mineral royalties above projected levels into this fund, the government is taking proactive steps to manage future risks. Additionally, efforts to broaden the tax base and curb revenue leakages through enhanced domestic resource mobilization strategies are crucial for ensuring fiscal sustainability in the long term.
However, despite the government’s efforts to reduce the fiscal deficit, several risks remain. Global economic conditions, including fluctuations in commodity prices and geopolitical tensions, could affect Zambia’s export earnings, particularly from copper. Inflationary pressures, driven by global supply chain disruptions and exchange rate volatility, also pose a challenge to achieving the budget’s economic targets.
Overall Outlook
Zambia’s 2025 budget sets the stage for an ambitious economic recovery, driven by key investments in agriculture, mining, energy, and infrastructure. By focusing on inclusive growth, the government aims to rebuild the economy, reduce inequalities, and uplift the livelihoods of millions of Zambians. However, achieving the targeted 6.6% GDP growth and 6-8% inflation will require sound policy implementation, continued debt management, and proactive responses to both domestic and external risks.
The government’s commitment to debt restructuring, fiscal prudence, and social spending reflects a balanced approach to promoting economic resilience, but sustaining these gains will depend on navigating the ongoing challenges posed by global and domestic economic dynamics.
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