Zambia is expected to experience robust growth as a result of the recently issued US$750mn Eurobond, according to Standard Chartered Bank
The bank's head of Africa Research, Razia Khan, said that the country is expected to grow by more than seven per cent this year due to the utilisation of proceeds from the debut bond on power generation and transport infrastructure projects, rising copper output and agriculture gains.
"Zambia is set to enter a new phase. Despite concerns about capacity for higher spending, infrastructure shortcomings are likely to be less of a constraint on economic activity," Khan explained.
The Zambian government has increased mining sector royalties and streamlined the sector’s tax concessions to not discourage operators.
"While new mine operators may have to start paying taxes before recovering all of their investment, the new fiscal regime is unlikely to discourage existing operators," Khan continued.
On monetary policy, Khan said that the introduction of a policy rate last year with further rate-tightening is likely to offset the liquidity implications on currency rebasing.
The country's ability to keep the inflation rate at six to seven per cent needs close monitoring as the circulation of both new and old currencies on the market may pose potential pressure on the foreign exchange rate.
"With the old and new notes existing side by side for the next six months, higher money supply to facilitate the rebasing, potential pressure on FX (foreign exchange) rate and sequencing with other reforms including bank recapitalisation will need to be carefully monitored," Khan pointed out.
Nawa Mutumweno
