At the start of the 2020s, Zambia faced severe macroeconomic instability, with inflation peaking at 22.0% in 2021. This severely reduced the real disposable income of domestic consumers and increased the domestic cost of production, harming the competitiveness of non-copper exports.
By 2024, inflation had stabilized near 9.5% due to tighter monetary policy, though external debt pressures remained a challenge. To support long-term development, Zambia has relied on concessionary financing from international partners like the International Development Association (IDA). Fig. 1 shows the index of IDA assistance per capita alongside GDP per capita in 2024 for six regional countries.
Fig. 1: Index of IDA assistance per capita and GDP per capita 2024 (Base: regional average = 100)
| Country | Index of IDA assistance per capita (X) | Index of GDP per capita (Y) |
|---|---|---|
| Zambia | 125 | 140 |
| Malawi | 195 | 35 |
| Mozambique | 150 | 50 |
| Zimbabwe | 85 | 95 |
| Tanzania | 100 | 110 |
| Angola | 60 | 180 |
To address structural supply-side deficits, the Zambian government has dramatically scaled up public spending. Key programs include the nationwide "Free Education Policy" (eliminating tuition fees up to secondary level), a major rural electrification and hydro-grid expansion, and the Farmer Input Support Programme (FISP), which provides subsidized fertilizers and seeds to smallholders. Economists are divided on the long-term impact of these fiscal measures on the government's budget balance.
Zambia's economy remains highly dependent on primary commodities, with refined copper and cobalt accounting for over 70% of export earnings. Price volatility in global metal markets directly affects government revenues from mining royalties.
Using the stimulus material and your economic knowledge, evaluate whether the increase in Zambia's government spending is likely to increase the government's budget deficit.
