Previous Quarterly Editions
Expropriation Risk: 57 58 58 58 ►Political Violence Risk:39 39 39 39 ►Terrorism Risk:16 14 14 12 ►Exchange Transfer and Trade Sanction Risk: 64 64 64 63 ►Sovereign Default Risk:83 83 83 83 ►
TREND ►
Protest intensity to date* 2022 2023 Low Low Unrest risk in 2024**Cost of living: HighAnti-austerity: High
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Since defaulting on its debt in 2020, Zambia has been locked in a protracted process of debt negotiations that were particularly complicated due to the wide range of actors involved and the need to agree on a deal that would be acceptable both to the International Monetary Fund (IMF) and Western creditors and to China. Of the US$6.3 billion owed to foreign governments, some US$4.1 billion was borrowed from the Export-Import Bank of China.
The long delays in concluding negotiations have had major implications for the country’s domestic and international politics. Domestically, the financial constraints on the government have prevented it from undertaking economic reconstruction and have meant that it has insufficient resources to be able to soften the impact of rising food and fuel prices on Zambian citizens. Internationally, the delays threatened to undermine relations between Zambia and its creditors, and between the creditors themselves, as the U.S. government sought to pressure its Chinese counterpart to speed up the restructuring process.
The long-expected breakthrough finally arrived during a summit in Paris in June 2023, with the announcement of a deal that should see Zambia’s debt rescheduled over more than 20 years. Critically for the government of President Hakainde Hichilema, the deal comes with a three-year grace period during which only interest payments are due, which will give his government much-needed breathing space.
The agreement appears to have been in part facilitated by talks between French President Emmanuel Macron and the Chinese government in April 2023. French officials speaking off the record at the event have suggested that private sector creditors are expected to follow suit on the US$6.8 billion they are owed. Significantly, the announcement went together with a review of a further payment of US$189 million from the US$1.3 billion economic bailout agreed with the IMF in September 2022. The news immediately buoyed investor confidence, with Zambia’s international bonds trading and currency trading at recent highs upon news of the breakthrough.
Further good news for Hichilema arrived in September 2023, when talks in Beijing with President Xi Jinping led to an agreement to “upgrade” the relationship between the two countries. It is not entirely clear what this status means, but China Daily reported that it will involve “comprehensive strategic cooperative partnership,” including areas such as green development, the digital economy, investment, and China’s Belt and Road Initiative. President Hichilema had previously warned Western donors that their failure to provide more generous foreign aid allocations would likely force him to pursue closer ties to Beijing, despite his democratic inclinations.
Hichilema’s diplomatic and international achievements have bolstered his standing in Zambia, but his ability to maintain political stability and win the next election will depend more on whether his government can deliver a tangible improvement in the economic condition of ordinary Zambians. One of the largest challenges that Hichilema faces is that the terms of the IMF bailout make this particularly difficult.
The agreement commits the Zambian government to reduce the budget deficit from 6% of GDP in 2021 to 3.2% in 2025. This has already led to increases in the cost of fuel and electricity due to a reduction in subsidies. A plan to broaden the value-added tax base and increase value-added tax over time is also likely to have a regressive effect.
The impact of these rising costs on poverty is supposed to be offset by greater expenditure on social cash transfer from 90 to 110 Zambian kwachas (US$4.3 to US$5.3) per month. Critics have pointed out, however, that this increase is so small that it is unlikely to offset the cumulative impact of falling subsidies and government expenditure on public services.
The critical pinch point of this process is likely to come in 2026, when the three-year grace period will come to an end and Zambia will hold general elections. The government is already showing signs of being concerned about a possible revival in fortunes for the former ruling party, the Patriotic Front, due to growing public discontent. International criticism of mounting evidence of the abuse of power by the police force, and the harassment of former
president and Patriotic Front leader Edgar Lungu, has so far been stymied by concern to support Hichilema during the debt negotiations. Now that those have been largely completed, his government is likely to come under greater international and domestic pressure to continue on the democratic trajectory set out when Hichilema won power, which included far-reaching changes to authoritarian legislation such as the problematic Public Order Act.
Given his demonstrated commitment to repaying the country’s creditors and adopting liberal economic policies, it is highly unlikely that Hichilema’s government will pose an expropriation risk, even though it is likely to come under continued pressure to increase the contribution that foreign investors make to the country.
The government’s response to public pressure is likely to be inclusive and consultative, however. In April 2023, Finance Minister Situmbeko Musokotwane stated that the government had agreed to a different model of royalty payments with First Quantum Minerals, which would see dividend payouts replaced by a royalty-based model. The agreement, which was said to be acceptable to both parties, is expected to result in a doubling of revenue collection from the Kansashi copper mine — Zambia’s largest.
The initial positivity surrounding Hichilema’s honeymoon phase, when inflation fell and the Zambian currency was the best performing in the world, has largely evaporated. Although the president has drawn praise for concluding the debt negotiations with the IMF and securing enhanced ties with China, there is mounting public discontent about the government’s failure to address the high cost of living.
The government’s harassment of former President Edgar Lungu — who has not been allowed to leave the country to receive medical treatment and who was recently prevented from jogging by the police on the basis that he was running with members of his political party — has raised concerns of democratic backsliding, especially if the president’s popularity does not improve.
Critics of the Hichilema government have also come under increasingly vicious attacks by pro-government forces on social media as the ruling party becomes more sensitive to criticism. The risk of political unrest is therefore growing, although Zambia generally does not experience high levels of political violence and this is likely to continue.
There are no terrorist organizations known to be operating in Zambia. The country has not experienced a major terrorist incident; however, any serious deterioration in the country’s stability would reduce the ability of the security services to monitor external threats.
Interest rates were increased from 9% at the end of 2021 to 9.25% in February 2023, 9.5% in May and 10% in August. This was prompted by an increase in month-on-month inflation throughout 2023, with increases of around 1% between May, June, July and August.
The price of copper — so critical to the Zambian economy — has fallen from an average of US$4.25 per pound in 2021 to US$3.67 today, and it has only been above US$4 once this year. This has caused considerable challenges for the government in terms of maintaining a balanced budget, as it is considerably lower than the estimated price of copper included in the 2022 budget.
Having initially appeared to make good progress toward persuading all relevant parties to accept a similar debt restructuring process, Hichilema became increasingly frustrated that progress subsequently stalled. This impasse was broken in July by a statement that a debt restructuring plan had been agreed on with the IMF, which estimates that the arrangement will save Zambia US$7.65 billion by 2026.
While this will significantly ease the pressure on President Hichilema, economic growth is projected to be disappointing, at just 2.7% in 2023, down from 4.7% in 2022, in large part due to contractions in the mining and energy sectors.
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