By Chris Mfula
LUSAKA (Reuters) - Zambia is setting its sights on a significant economic growth recovery and a drastic reduction in its budget deficit next year, following the devastating impact of the worst drought in recent memory, according to the country's finance minister on Friday.
The nation aims to achieve a growth rate of 6.6% in 2025, a substantial increase from the projected 2.3% growth in 2024, as announced by Finance Minister Situmbeko Musokotwane in a budget speech.
The El Nino-induced drought has ravaged crops across southern Africa, leading to food shortages and negatively affecting the region's economic outlook for this year.
Musokotwane highlighted that the anticipated rebound in 2025 is reliant on improved performance in the mining and agriculture sectors.
Zambia is looking to reduce its budget deficit to 3.1% of gross domestic product in 2025, in contrast to the 6.4% forecast for 2024.
Approximately 80% of next year's expenditures will be covered by domestic revenues, with 4% coming from grants and 16% from borrowing.
The minister also mentioned that Zambia is currently in negotiations regarding restructuring terms with certain commercial creditors, following the completion of a Eurobond restructuring exercise.
Recently, provisional restructuring agreements have been reached with Industrial and Commercial Bank of China and China Development Bank, which align with Zambia's International Monetary Fund programme and the "Comparability of Treatment principle" to ensure fair treatment among creditors.
Zambia's prolonged debt restructuring process has deterred potential investments and had a negative impact on the local financial markets.
Analysis:
Zambia's efforts to rebound from the severe impact of the drought and achieve significant economic growth in 2025 are crucial for the country's recovery and future prosperity. The planned reduction in the budget deficit will help stabilize the economy and attract much-needed investments. However, the ongoing debt restructuring negotiations with commercial creditors highlight the challenges faced by the nation in managing its financial obligations. Investors should closely monitor Zambia's progress in meeting its economic targets and resolving its debt issues to assess the potential opportunities and risks associated with the country's financial markets.
