Exchange Rate and Inflation Dynamics in Zambia

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Looking at the bigger picture: effect of performance-based contracting of district health services on equity of access to maternal health services in Zambia

“…The declining level in the annual per capita expenditure at district level during the period under review could be attributed to an increase in population growth, fluctuations in the US$−Zambian Kwacha (ZMW) exchange rate, and high levels of inflation. Zambia’s population grew at a rate of 2.8% per annum during the period 2000−10 ( Central Statistical Office, 2012 ), whereas inflation in Zambia was estimated at 18% on average per annum over the period 1995−2014 ( Roger et al , 2017 ). Further, the level of district health spending during the period under review was hampered by fluctuations in the exchange rate ( Chansa et al , 2018 ).…”

Zambia Health Sector Public Expenditure Review

“…In recent years, the key period of success was 2004-2014 when the economy grew at an annual average of 7.4 percent, and the country was upgraded to lower-middle-income country (LMIC) status in 2011. This growth was boosted by a steady increase in copper production and export earnings from the mining industry (Sikamo, Mwanza, and Mweemba 2016) which were complemented by conducive macroeconomic fundamentals in the 2000s (Roger, Smith, and Morrissey 2017). Zambia also received substantial debt relief after it qualified for the Heavily Indebted Poor Countries (HIPC) initiative in 2005 which improved investors' perception of the country (Roger, Smith, and Morrissey 2017).…”

Republic of Zambia Systematic Country Diagnostic

“…The volatility of copper prices has posed a serious challenge for fiscal and macroeconomic management. A lack of instruments for policy efforts to smooth the economic cycle leads to swings in the real exchange rate (Roger, Smith, and Morrissey, 2017) and volatile flows of public and private investment. Further, the lack of a stabilization fund or adequate fiscal buffers makes fiscal management very challenging.…”

“…External and domestic shocks, coupled with very loose fiscal policy (that required very tight monetary policy) put the economy under pressure in 2015 and 2016. The costs of the tight monetary policy to stabilize the exchange rate and get inflation under control (Roger, Smith, and Morrissey 2017) were increased interest rates, making it difficult for firms to borrow and expand, and increased vulnerabilities (for example, an increase in nonperforming loans and decline in international reserves) (Smith, Davies, and Chinzara 2016).…”