Zambia Country Economic Memorandum, June 2024: Unlocking Productivity and Economic Transformation for Better Jobs

Zambia needs to increase productivity and accelerate economic transformation to achieve sustained and inclusive growth. Zambia’s debt resolution and ongoing reforms are expected to support macroeconomic stability and reignite private-sector investment. By October 2023, the Government of the Republic of Zambia (GRZ) reached an agreement with the Official Creditor’s Committee (OCC) on debt restructuring under the G20 Common Framework and, by late March 2024, it was announced that a deal was reached with bondholders. As of the end of the first quarter of 2024, the Zambian authorities are in the final phase of debt negotiations involving the other private lenders. Since 2021, the GRZ has launched an ambitious reform program. It saw the primary balance improve by 6.6 percentage points in 2022, bringing it to a surplus and cutting inflation by half. The authorities have introduced measures to boost private investment and have rebalanced the composition of government spending. This Country Economic Memorandum (CEM) discusses two pathways that can support Zambia’s productivity-enhancing economic transformation, generate better jobs, and deliver sustained and inclusive growth. Economies transform when more people join the labor force and find jobs, become more productive in them, or reallocate to more productive jobs. These factors cause average labor productivity to rise with labor incomes. But in Zambia, productivity has been on a declining trend, and only the capital-intensive mining sector has seen significant labor productivity increases. Raising the productivity of agriculture is the first pathway for tackling Zambia’s development challenges (Chapter 2). It has enormous potential to drive poverty reduction, but expensive and distortive support programs, coupled with increasing climate hazards, constrain productivity growth and dampen opportunities to diversify beyond maize. The second pathway involves Zambia making critical economy-wide reforms to unlock broad-based private sector productivity growth and increase its role in driving jobs and economic transformation (Chapter 3). Two background papers that take deep dives into these two themes are published alongside this report.