Zambia is facing its toughest economic challenge in a decade as weak commodity prices, electricity shortages and slowing growth in China hit growth in Africa’s second-largest copper producer, the World Bank said on Wednesday.
Zambia needs to strengthen its fiscal position to restore confidence in its economy which is expected to grow less than four percent next year before expanding 5-6 percent in 2017, World Bank senior economist Gregory Smith said.
“Tough action is required in 2016 to curb runaway expenditure, double-digit inflation and growing twin deficits,” said Smith, adding that tighter fiscal policy should be a priority.
A further slowdown in China, looming U.S. interest rate hikes and an ongoing domestic electricity crisis could all put further pressure on the economy, he said.
Zambia should charge higher electricity tariffs for its mines to attract investment in power generation, the World Bank said, a move that would be unpopular with mining firms that consume 55 percent of the country’s power.
Zambia’s director of energy Oscar Kalumiana said the government was already talking to mining companies about increasing tariffs to meet the rising cost of electricity.
“We are talking to the mines because the cost of supplying the power is very high,” Kalumiana told Reuters on the sidelines of the World Bank briefing.
In January, Zambia will begin importing an extra 200 megawatts (MW) of electricity from neighbour Mozambique as it seeks to stem power shortages, Kalumiana said.
Zambia already imports 148 MW from Mozambique, he said.
Zambia announced a sharp increase in electricity tariffs on Dec 3, aiming to generate revenue for investment in additional supply, but said mining firms would be exempt.
The average price of electricity was raised to 10.35 U.S. cents per kilowatt hour (KWh) from 6 U.S. cents per KWh.