By lusakatimes
Africa-Press – Zambia. Over the past six months, from December 2024 to May 2025, some economic experts and keen observers of the Zambian economy have suggested that they have observed early indicators of an economic recovery especially after the credible Stanbic Bank Purchasing Manager Index which measures Private Sector Business confidence and activity soared to 51.4 points in May, the highest since December 2021.This piece aims to independently examine whether there is credible evidence to support this claim.
CREDIT RATING UPGRADE
In April 2025, Moody’s – the credit rating agency-significantly upgraded Zambia’s credit rating from stable to positive. Moody’s cited Zambia’s economic reforms, including debt restructuring agreements and revenue mobilization which have contributed to improved fiscal stability. The rating upgrade is expected to boost investor confidence and make Zambia more attractive to both domestic and international investors.
Zambia’s economic expert and commentator, Dr. Lubinda Haabazoka welcomed the credit rating upgrade and argued that there are economic benefits that may accrue to the country.
“A positive outlook can also lower borrowing costs. As investor confidence rises, Zambia may benefit from reduced interest rates on loans and bonds, which is key as the country continues its debt restructuring efforts,” Haabazoka told Zambian Monitor. “Finalizing these agreements will solidify Zambia’s fiscal stability and demonstrate a commitment to sustainable debt management.”
STATUS OF KEY ECONOMIC INDICATORS
Since the beginning of 2025, most technical economic indicators have displayed a positive or stable trajectory. These include inflation, exchange rates, monetary policy rates and commercial bank rates as well as gross international reserves.
To highlight a few, inflation has dropped from a high of 16.7 % in December,2024 to 15.3% in May; the Bank of Zambia at its recent meeting kept the Monetary Policy rate at 14.5%, which decision was lauded by the Economic Association of Zambia (EAZ).
“By holding the policy rate steady, the Bank has provided a level of predictability for economic agents, thereby supporting business planning and reducing uncertainty in the credit market. This also allows the economy to absorb and adjust to the cumulative effects of previous tightening cycles without imposing additional constraints on Private sector activity and investment,” EAZ statement released by its President Dr. Oswald Mungule said.
The Zambian kwacha has appreciated in the last six months and half months. It has strengthened by 13.4% against the US dollar between 31st December 2024 and 14 June 2025, from K28.9960 to K25.1110. This was driven by a combination of global US dollar weakness, increased capital inflows from foreign portfolio investors attracted by Zambia’s improving macroeconomic stability, and inflows from mining tax revenues. However, analysts caution that this appreciation does not necessarily signal deeper structural reforms in the economy, given ongoing vulnerabilities such as heavy import reliance and insufficient export diversification.
Supporting the kwacha’s stability has been Zambia’s Gross International Reserves (GIR) which rose to $4.5 billion as of 31st March 2025, up by $200 million from the end of December 2024. This reserve cushion, equivalent to 4.6 months of import cover, has played a critical role in bolstering financial stability and sustaining investor confidence.
PRIVATE SECTOR ACTIVITY AND ECONOMIC GROWTH
The Stanbic Bank Purchasing Managers’ Index (PMI) is a monthly survey tracking private sector activity. A reading above 50.0 indicates improved business conditions, while a figure below 50.0 signals deterioration. Over the past six months (December 2024 to May 2025), readings remained above 50.0, except for March 2025.
In May 2025 PMI posted a reading of 51.4, up from 50.9 in April, to signal back-to-back improvements in business conditions across the Zambian private sector. The latest upturn was the highest since May,2023. This growth was driven by increased output and new orders, supported by stronger customer demand and improved business confidence.
“Zambian business conditions improved the most in two years during May, with strong demand driving growth despite electricity shortages. New orders and employment increased, while firms kept selling price hikes moderate amid rising costs. Business confidence reached its highest level since December 2021,” Musenge Komaki, Head of Sales at Stanbic Bank commented on the result of the survey.
Despite facing a severe drought and an unprecedented energy crisis, Zambia’s economy expanded by 4.5% in 2024. This may have influenced the International Monetary Fund (IMF) growth rate forecasts for 2025 of 6.2% initially, and later at 5.8% in the 5th Review of Zambia’s Extended Credit facility (ECF) Program, while the Ministry of Finance and National Planning projects a slightly higher rate of 6.6%.
However, Economist and Development Finance Associates Senior Partner Trevor Hambayi, has disagreed with both the International Monetary Fund (IMF) and the Ministry of Finance and National Planning projections of GDP growth rate of over 6%, stating that the projected economic growth would not happen.
“There are a few factors that will be going against this assumption. I think we will be lucky to just get to around 4.5 or 5% GDP growth rate”, He told News Diggers in an interview.
Finance and National Planning Minister Dr. Situmbeko Musokotwane, on the other hand, has stood by his optimistic outlook despite the criticism.
“If in a year of severe drought we recorded four percent growth, why should we doubt that in 2025, with improved agricultural conditions and ongoing investments, we can achieve six percent?” Finance and National Planning Minister, Dr. Situmbeko Musokotwane said when launching new currency notes.
Based on the latest available metrics, and the expected improvements, it is quite possible that the GDP growth rate above 6% can be achieved due to the expected recovery of key production sectors such as agriculture, energy, tourism, and mining.
While challenges persist, the prevailing trends suggest Zambia’s economy is on a gradual recovery path—a view shared by this writer, and likely to be echoed by other objective financial experts and economists monitoring the country’s progress.
IMPACT ON HOUSEHOLDS
Although key economic indicators have shown visible improvement, ordinary citizens have yet to fully experience the benefits in their daily lives. There is usually a lag between macroeconomic improvements and their real-world impact on people’s livelihoods. That said, fuel and meal prices have seen a modest drop, supported by the kwacha’s strengthening and a higher maize supply after a bumper harvest.
According to the Zambia Statistics Agency, the national average price of a 25 kg bag of Breakfast Mealie Meal fell by 4.0% between April and May 2025, dropping from K358.86 to K344.41. Additionally, the Energy Regulations Board (ERB) announced a decrease in fuel prices for June 2025, the second consecutive month of reductions.
However, the Jesuit Centre for Theological Reflection (JCTR) reported that its Basic Needs and Nutrition Basket (BNNB) for May 2025 rose to K11,272.97, marking an increase of K571.84 compared to May 2024. This indicates that the cost of living remains high for most poor Zambians.
TAX REVENUE MOBILIZATION
ZRA has implemented several aggressive tax reforms under IMF supervision to increase tax revenue. And they have been spectaculary successful. In 2020, ZRA collected K57.6billion but in 2024 revenue collection was K148.5 billion which is an extraordinary jump of 148%.
Critics, however, argue that the tax system remains unfair. They contend that ordinary Zambians shoulder the heaviest burden, while mining companies avoid paying their fair share due to excessive capital allowances. These allowances keep many mining firms in perpetual tax-loss positions, allowing them to evade corporate income tax entirely.
Additionally, despite the mining sector only requesting royalty tax deductibility, the government went further by slashing royalty rates by 50% (from 6% to 3%), leading to significant revenue losses. This decision, critics say, prioritizes mining profits over public interest, depriving Zambia of much-needed funds for development. The IMF has even criticized these excessive tax incentives.
“Offering tax incentives narrows the tax base even further while the hope is that it will create higher growth. Research usually shows in both low income and developing countries that tax incentives have not been successful in attracting investment especially FDI,” Zambia’s IMF Resident Representative Eric Lautier, told this writer in a discussion on the successes and failures of Zambia’s IMF supported ECF program.
The Zambian authorities and the IMF ought to careful about the degree to which they take the domestic tax mobilization exercise especially when it is lopsided. They ought to take heed of advice from former British Prime Minister Winston Churchill, who famously expressed skepticism about excessive taxation in 1904, when he said, “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
This quote highlights Churchill’s belief that excessive taxation can be detrimental to economic growth and a nation’s well-being. The overall point being that trying to solve economic problems through taxation alone is an ineffective and potentially harmful approach.
CONCLUSION
While Zambia’s projected economic growth rate of 6.6% in 2025 is positive, it remains insufficient to create the millions of jobs for the youth and lift out of poverty. I have long argued that Zambia’s economic challenges can only be resolved through homegrown solutions and sustained double-digit growth rates of over 10%. A key strategy to achieve this is by transforming the country’s economic structure—specifically, by integrating a substantial portion of the informal sector into the formal economy.
This perspective is supported by empirical evidence and historical precedent, which demonstrate that no nation has ever achieved development with 80–90% of its economy operating informally—a situation Zambia currently faces. Formalizing a significant part of the informal sector is the only viable path to sustaining the high growth rates necessary for meaningful progress.
Currently, government economic planning and analysis focus primarily on the 10% of the economy that is formalized, leaving the vast informal sector unaccounted for. Therefore, I strongly call on the government and its Cooperating Partners to support the Private Sector-led Formalization Initiative led by the Zambia Chamber of Commerce and Industry (ZACCI). This initiative aligns with the ILO’s 2015 Recommendation No. 204 on formalization best practices, which emphasizes public-private partnerships as a critical driver of success.
The writer is a Chartered Accountant, Author, an independent financial analyst, and Economic Commentator.
Source: Lusaka Times
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