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MINISTRY OF FINANCE ECONOMIC FACTSHEET - JANUARY 20, 2014 DEVELOPMENTS IN THE ECONOMY Economic growth positive in 2013 but higher growth and greater job creation will require continued investment in economic infrastructure as well as health and education 1. In 2013 real GDP was K125.9 billion compared to K106 billion in 2012. GDP growth in 2013 was 6.5%, with average real growth over the past three years (2011 2013) of 6.9%. 2. Key contributors to real GDP growth in 2013 were: transport, storage and communications (27.1%); construction (24%); community, social and personal services (17.4%); financial institutions and insurance (13.7%); manufacturing (8.2%); and mining (5%). 3. Investment in the economy (Gross Fixed Capital Formation) is currently estimated at 29.7% of GDP in 2013, with average investment over the past three years (2011 2013) of 27.1%. 4. Agriculture, mining, manufacturing, tourism, energy and construction set to be major drivers of GDP growth and job creation over the medium to long term. FISCAL POLICY AND THE BUDGET Expansionary fiscal budget largely aimed at infrastructure development necessary to sustain high levels of economic growth over the medium term. Higher deficit in 2013 reflected structural reforms related to management of strategic reserves (FRA), oil procurement (fuel subsidies), and reform of the public service (wage award). 1. Preliminary data indicates that in 2013 the budget deficit was approximately 6.7% of GDP, compared to the target of 4.3% of GDP. However, this was significantly below the figure of 8.6% of GDP which was initially forecast by the IMF. 2. Average budget deficit over the past three years (2011 2013) stood at a relatively low figure of 3.3% of GDP. 3. Domestic revenues estimated at 20% of GDP in 2013. 4. Expenditures were 26.7% of GDP in 2013, with wages and salaries at approximately 9.5% GDP and Government investment at 6.0% of GDP. 5. Government is committed to reducing fiscal deficit to no more than 3% of GDP over the medium term. This should be possible as Zambia achieves higher growth and greater tax revenues from the mining and other sectors sector as production increases.

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DEBT POLICY Government is mindful of the need to maintain debt sustainability to safeguard macroeconomic stability. 1. Total debt as a percentage of GDP stood at 28% in 2013. 2. External debt stood at US $3.1 billion 2013 or 13.7% of GDP, whilst domestic debt stood at K17.6 billion or approximately 14% of GDP. 3. External and domestic debt levels remain below their international thresholds of 40% and 25%, respectively. 4. Debt service (principal and interest payments) stood at K11 billion or 1.2% of GDP (and approximately 6% of domestic revenue) in 2013.

MONETARY POLICY Monetary policy remains committed to delivering low inflation and a strong financial sector that continues to expand access to finance particularly to SMEs. Increasing attention is also being paid to improving consumer protection and strengthening corporate governance standards. 1. Inflation remains in single digits at 7% in 2013, and goal is to reduce this to no more than 5% by end 2016. 2. Average lending rates have stabilised around 16%. 3. Private sector credit grew by approximately 16.2% on an annual basis (as at November 2013). 4. Financial sector has been strengthened with new capital requirements, and the banking system remains profitable 5. Access to financial services, particularly for SMEs remains a challenge, but significant progress being made in improving the payment systems as well as ways of spreading financial service provision through branchless banking. 6. Government has supported provision of longer term finance by channelling more resources through DBZ and the CEEC. EXTERNAL SECTOR DEVELOPMENTS Current account and trade balance remain positive with strong FDI flows. But declines in trade balance in recent past reflect need to promote greater NTEs by diversifying the export base. Agriculture, energy and manufacturing sectors are going to be important sources of diversification over the medium to long term.

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1. In 2013 the current account balance recorded a surplus of US $216 million or 1% of GDP. 2. The trade balance (goods) also recorded a surplus of US $ 1.4 billion or 6% of GDP. Both the current account and the trade balance have been positive between 2011 and 2013. 3. In 2013, mining sector exports are estimated to have grown by 13% to US $10.4 billion, whilst NTEs grew by 23% to US $3.3 billion. 4. Import growth has also been strong at 16.5% in 2013, driven by both strong FDI flows as well as incentives in the budget for job creating sectors which included customs duty reductions. 5. Capital and intermediate goods continue to account for over 50% of all imports. 6. The nominal exchange rate (Kwacha versus the US Dollar) remains market determined and depreciated by an annual average rate of approximately 4.2% in 2013. 7. Government committed to maintaining a flexible and open exchange rate regime - with stronger monitoring of external flows so that we can better manage the economy and respond to any global financial shocks.

CONCLUSION Zambia needs to achieve higher levels of economic growth to make meaningful headway in creating decent jobs and reducing poverty and inequality. Government remains committed to maintaining macroeconomic stability characterised by low inflation, stable exchange rate, rising international reserves, and expansion in access to credit particularly for SMEs. Real economic growth of between 7%-8% targeted over the medium term (2014 2016) Budget deficits are expected to be consolidated towards a lower figure of 3% of GDP in the medium term. Revenues are projected to rise to 23% of GDP by 2016. Inflation targeted to decline to no more than 5% by 2016. External debt will remain sustainable and well below the threshold of 40% of GDP. Improving access to financial services as well as achieving better health and education outcomes critical in making meaningful progress in reduction of poverty and inequality

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