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Zambia Overview

CONTEXT STRATEGY RESULTS

Independent since 1964, Zambia has experienced five successful multiparty elections since 1991. The peaceful general election held in September 2011 further strengthened the countrys democratic credentials and underscored the countrys enormous economic potential grounded in its rich endowment of natural resources that include abundant land and water. The country has defined its own development agenda through its Vision 2030 and the Sixth National Development Plan (FNDP). The Plan is organized around the theme of broad based wealth and job creation through citizenry participation and technological advancement. Specific development goals include fostering a competitive and outward-oriented economy, significantly reducing hunger and poverty, and reaching middle income status. The first step came in July 2011 when Zambia was classified a lower middle income country by the World Bank. Zambia has had a decade of rapid economic growth. A combination of prudent macroeconomic management, market liberalization and privatization efforts, investments in the copper industry and related infrastructure, and steep increase in copper prices helped achieve an average annual growth of about 5.7% during the last decade. Foreign direct investment rose from approximately US$164.9 million in 2003 to US$1.73 billion in 2010 with most investments going to mining, manufacturing wholesale and retail trade. The Zambian government consolidated macroeconomic stability under International Monetary Fund (IMF) programs (latest concluded in 2011) and successfully navigated the shocks connected with the 2008 global economic and financial crises. Annual inflation declined from about 30% in 2000 to 7.2% in 2011. Debt relief improved Zambias external position and helped build foreign -exchange reserves to a comfortable level. However, Zambias economic growth has not translated into significant p overty reduction. Sixty percent of the population lives below the poverty line and 42% are considered to be in extreme poverty. Moreover, the absolute number of poor has increased from about six million in 1991 to 7.9 million in 2010, primarily due to population growth. The urban picture is far better than the rural: in the Copperbelt and Lusaka provinces, for example, poverty incidence is fairly low (22% and 34% respectively), whereas in the rest of the country, which is dominated by agriculture, poverty rates are greater than 70%. Almost 90% of Zambians who live below the extreme poverty line are concentrated in rural areas, and the poverty gap ratio (a measure of how far average incomes fall below the poverty line) is far higher for the rural population than their urban counterparts (20% and 3.7%, respectively). Accelerating growth and reducing poverty will necessitate increasing the competitiveness of the Zambian economy by reducing the cost of doing business and ensuring that the rural economy, upon which much of the population depends for its livelihood, contributes meaningfully to overall growth. Despite vast potential and stated commitments to diversification, the mining sector continues to dominate the economy. Historical Perspective Well before attaining its independence, Zambia began to receive World Bank support in 1955, amounting to US$4.6 billion for a total of 250 projects. As of September 2013, IDAs net commitments in Zambia totaled US$575.2 million for eight active projects, supporting programs in infrastructure, energy, the environment, agriculture, finance and private sector development, and human development. Agriculture has been the largest area of support in the last few years and more recently there has been the inclusion of direct budget support. After Zambia reached the Heavily Indebted Poor Countries (HIPC) completion point in 2005, financial support was increased. The World Bank, under the Multilateral Debt Relief Initiative (MDRI) and HIPC, provided a total of US$2.7 billion in debt relief to Zambia. As a result of these initiatives, Zambia saved US$233 million in debt service

obligations between 2000 and 2007. This has resulted in a reduction of debt service obligations as a percentage of gross domestic product (GDP) from 4.2% in 2000 to 0.8% in 2006. The World Bank is one of nine cooperating partners to provide direct budget support to the Zambian government to help fund the governments Poverty Reduction Strategy Papers through the fifth and sixth national development plans. Since 2005 the Bank has provided two budget support credits worth US$100 million supporting government reforms, namely the Financial Sector Development Plan (FSDP), civil service pension system, sale of Zambia National Commercial Bank, public sector reform, pension reform and macroeconomic management particularly the creation of credit reference bureau. The Bank also provides analytical and advisory services designed to help Zambia improve its policy environment and accelerate its development efforts. This non-lending technical assistance program has helped augment the governments capacity to provide quick support to implement policy reforms. The Bank has also helped in the development of legislation on agricultural marketing, strengthening government capacity and reducing the cost of doing business in Zambia. Last updated October 2013