Answer to Question #156523 in Macroeconomics for Susan chimese

Question

1.Evaluate the impact of covid 19 on world economies and particularly on financial markets zeroing on Zambia since the pandemic started .

2 outline the structure and size of the zambian financial system .it's structure ,size and composition as at end 2020 .

Answer 1

Many African countries are facing a growing debt crisis as preexisting economic problems are exacerbated by the global economic downturn caused by the COVID-19 pandemic and the catastrophic response from the ruling classes to the pandemic.

Zambia, a country of 17 million people south of central Africa, is one of the first states to default on its debts. With at least $ 12 billion in debt outstanding, Zambia defaulted on $ 42.5 million in European bonds last week. That is, Zambia was unable to pay off the European creditors holding Zambian bonds, on which interest must be paid regularly.

After 15 years of significant socio-economic progress and achieving middle-income status in 2011, Zambia’s economic performance has stalled in recent years. Between 2000 and 2014, the annual real gross domestic product (GDP) growth rate averaged 6.8%. The GDP growth rate slowed to 3.1% per annum between 2015 and 2019, mainly attributed to falling copper prices and declines in agricultural output and hydro-electric power generation due to insufficient rains. In 2019, economic growth declined significantly, from 4% (2018) to 1.4%. The services sector remained the country’s key driver of growth, growing by 3.5% in 2019, but primary and secondary sectors decreased significantly.

The COVID-19 (coronavirus) pandemic has exacerbated Zambia’s macroeconomic vulnerabilities. The country is Africa’s second-largest copper producer; depressed commodity markets have pushed copper prices down by about 14% through May 2020. The supply chain breakdown in major trading partners such as China and South Africa is negatively affecting domestic production and consumption. The Kwacha has depreciated by 30% since the beginning of the year, increasing external debt servicing costs and domestic inflationary pressures. Falling revenues and increased COVID-19-related spending will worsen the 2020 fiscal position, and falling exports and capital inflows will put additional pressure on foreign exchange reserves.

As a result, the economy is projected to contract by about 4.5% in 2020. The mining and services sectors will be impacted by the global commodities demand and price outlook and increased social distancing measures to contain the COVID-19 outbreak. The current account deficit is expected to worsen to 3.4% of GDP, while lower copper export earnings and capital inflows will put pressure on reserves and the Kwacha.

Domestically, increases in the number of COVID-19 cases and related social distancing measures could overwhelm the health system and result in massive business and job losses, especially in the urban informal sector.