World Bank Group2016-01-072016-01-072015-12https://hdl.handle.net/10986/23578Zambia faces its toughest economic challenges in at least a decade. The economy has come under strain in 2015 as external headwinds and domestic pressures have intensified. The main domestic risks are threefold. Firstly, that the power crisis will worsen. Secondly, a deterioration of confidence in the economy, leading to further weakening of the currency and increased levels of inflation. Lastly, a bad harvest that serves to increase food prices and reduce rural and agricultural incomes, with the greatest impact falling on the poorest households. Commodity-exporting countries’ policy makers face increasing challenges across the globe. Zambia is no exception and must grapple with multiple challenges as the economy slows down. Strengthening the fiscal position and restoring fiscal buffers are necessary to increase confidence in the economy, reduce the need for costly borrowing, and build resilience against further exogenous shocks. Economic progress since 2000, driven by mining production and services, has substantially increased the demand for electricity in Zambia. Key to note is that an increase in tariffs to cost-reflective levels is necessary but not sufficient to increase private investment in electricity generation in Zambia. The new generation capacity and emergency measures for 2016 will help in mitigating the impact of the power crisis in the coming year, but global experience shows there is no substitute for effective planning. Particular efforts are needed to improve sector planning and the procurement processes for large power projects.en-USCC BY 3.0 IGOMONETARY POLICYDEFICITRISKSUNCERTAINTIESBUFFERSPOWER PLANTSECONOMIC GROWTHFISCAL BALANCESHYDROELECTRIC POWER STATIONSRESIDENTIAL CONSUMERSDRAG ON GROWTHFISCAL DEFICITSELECTRICITY TARIFFPOWER STATIONFOREIGN EXCHANGE MARKETDEPRECIATIONPOWER STATIONSCOMMON CURRENCYIMPORTVEHICLESPOWER CRISISACTIVITIESINTEREST RATEGENERATIONSURPLUS POWERSHORTFALLDEMAND FOR POWERWINDCOSTS OF ELECTRICITYDOMESTIC MARKETFISCAL POLICYFLUORESCENT LAMPSTABLE CURRENCYPOWER SHORTAGESENERGY GENERATIONGASSLOWDOWNCOMPACT FLUORESCENT LAMPSPRICEPEAK DEMANDEXCHANGE MARKETOIL PRODUCTIONMARKET ACCESSPOWER SYSTEMMINERAL PRICESINFLATIONBILLSPOVERTY REDUCTIONGENERATION CAPACITYTRADE BALANCEPETROLEUMOIL PRICESAGRICULTURAL COMMODITIESOILCURRENCYPOWER GENERATIONDECELERATION IN GROWTHPOWER SECTORCURRENT ACCOUNTINFLATIONARY PRESSURESENERGY SUPPLYELECTRIFICATIONOPTIONSINTEREST RATESWATERPRIVATE INVESTMENTELECTRICITY SUPPLYINFLATION RATEDEFICITSSTRUCTURAL REFORMSINTERNATIONAL DEBTEXPANSIONARY FISCAL STANCEDIRECT INVESTMENTTAX REVENUESDEBT SERVICEGROSS DOMESTIC PRODUCTTHERMAL POWERCOMMODITY PRICEPOWER PRODUCERSCURRENT ACCOUNT POSITIONSFOREIGN CURRENCYPUBLIC INVESTMENTPRIMARY FUELFISCAL DEFICITGRADUAL DEPRECIATIONENERGY SAVINGSCURRENCY RISKSPOWER GENERATION CAPACITYFEDERAL RESERVETOTAL EXPORTSCLIMATE CHANGEDEMAND FOR ELECTRICITYBALANCESLOW GROWTHFINANCIAL CRISISHYDRO POWERUTILITIESFLUORESCENT LAMPSIMBALANCESPOWERELECTRICITYFOREIGN DIRECT INVESTMENTPRICE OF OILCURRENT ACCOUNT BALANCEENVIRONMENTAL IMPACTSDEMANDWIND ENERGYHYDROPOWERELECTRICITY GENERATIONECONOMYPETROLEUM GASCURRENT ACCOUNT DEFICITELECTRICITY TARIFFSFUEL PRICESRELATED SHOCKSTRANSMISSION LOSSESACCESS TO GRID ELECTRICITYFOREIGN EXCHANGESOLAR POWEREXPORTERINFLATION RATESENERGY EFFICIENCYFISCAL IMBALANCESPRIVATE SECTOR INVESTMENTACCESS TO ELECTRICITYENERGY DEMANDCURRENCIESBILLELECTRICITY GENERATION CAPACITYCURRENCY DEPRECIATIONTHERMAL POWER GENERATIONHYDROELECTRIC POWERTURBULENCEGROWTH RATEINVESTMENTRISKUTILITY-SCALESHORTFALLSGROWTH PERFORMANCECOALTARIFFSUPPLYFUELFISCAL BALANCEUNCERTAINTYACCOUNT DEFICITEXTERNAL DEBTINVESTMENTSRENEWABLE SOURCESRAPID GROWTHEXTERNAL FINANCINGEXCHANGE RATERELIABILITY OF SUPPLYPETROLEUM PRODUCTSFOOD PRICESFUEL PUMPDIESELCOMMODITY PRICESTRADING PARTNERDOLLAR EXCHANGE RATEPIPELINEPOLITICAL INSTABILITYPRICESAPPROACHGRID ELECTRICITYFISCAL POSITIONPOWER PLANTECONOMIC CONDITIONSECONOMIESEXTERNAL BORROWINGCONSOLIDATIONENERGYReportWorld Bank10.1596/23578