Zambia is going through a deep economic crisis fueled by drought, the most serious it has seen in more than a century. This extreme climatic phenomenon has dramatic repercussions on the national economy, with particularly serious consequences on inflation and the financial stability of the country. In response to this alarming situation, the Central Bank of Zambia established a Stability and Resilience Facility, a mechanism aimed at protecting the financial sector from the negative impacts of this unprecedented climate crisis.
Drought a key factor in inflation in Zambia
The country is facing soaring inflation, reaching its highest level in three years. The prolonged drought has not only reduced agricultural harvests, but also caused a shortage of electricity, mainly due to a decline in hydropower production, which accounts for a significant share of national energy production. This electricity shortage has led to higher production costs, directly affecting the prices of essential goods and services. Food products, in particular, have become more expensive, exacerbating pressure on already fragile Zambian households.
Inflation, which has soared to record levels, has direct consequences on the purchasing power of citizens. Mukwandi Chibesakunda, managing director of Zanaco, the country’s largest bank, explained in an exclusive interview with Jennifer Zabasajja, Bloomberg’s chief Africa correspondent, that this situation has created an uncertain economic climate, hampering growth and stability of domestic finances.
The central bank’s reaction: a stability and resilience facility
To mitigate the effects of this devastating drought, the Central Bank of Zambia deployed emergency measures in the form of a Stability and Resilience Facility. This mechanism aims to ensure the liquidity and stability of the financial sector by allowing banks to have additional resources to cope with economic pressures. It is designed to provide a safety net to maintain investor and consumer confidence, while ensuring some resilience to external shocks.
Chibesakunda stressed the importance of this initiative as a necessary response to avert a deeper financial crisis. He also said that Zambia’s banking sector is resilient, but must adapt to new challenges posed by extreme weather conditions which are affecting the country’s agricultural production and energy infrastructure.
The impact of drought on agriculture and energy
Zambia, like many other African countries, relies heavily on agriculture for economic growth. The drought has seriously affected the country’s main crops, particularly corn, a central element of the national diet. Low agricultural yields have led to rising food prices, contributing to rising inflation.
At the same time, the country suffers from an acute energy shortage. As a major producer of hydropower, reduced water levels in dam reservoirs have disrupted energy production, leading to frequent outages and increased energy costs. This affected industrial production, which in turn contributed to rising prices.
Outlook for recovery in 2025
Despite these significant economic challenges, Mukwandi Chibesakunda remains optimistic about the prospects for economic recovery for 2025. In the interview with Bloomberg, he explained that Zambia is implementing economic diversification policies to reduce its dependence on agriculture and hydroelectricity. He also discussed the importance of improving infrastructure and natural resource management to mitigate the impacts of future climate crises.
However, the country will still have to overcome many challenges before achieving stable growth. Drought, combined with high inflation, creates a difficult environment for people and businesses. But with appropriate economic policies and investment in resilient infrastructure, Zambia hopes to reverse the trend and begin a sustainable recovery from 2025.
Moctar FICUU / VivAfrik
