Tuesday, 22 March 2016

The Big Zambian Growth Slow Down

The IMF was in town and released a press statement late on Friday (as per their tradition) summarising their findings. The gist of the statement was that the Zambian economy was under "intense pressure" (their words) and it's looking increasingly likely that a bailout is in the works.

For this post, I want to focus on a striking statistic mentioned in the IMF's press statement. According to their preliminary assessment, the rate of growth of the economy (GDP growth rate) for 2015 was only 3%. Their assessment, if accurate, implies that this is the lowest growth rate the economy has registered in 15 years (see the figure below).
                                    Source: World Development Indicators Database

In 2000, the economy grew by about 4% and the rate of growth increased right through that decade. The average growth rate for the decade 2000 to 2010 was a healthy 7% per year and in 2010, for probably the first time in our history, we hit double digit growth. The economy, in that year, grew at 10%! Since then, the trend has been downward, although still respectably healthy. For the four years running from 2011 to 2014, the average rate of growth has been 6%. 

So the 3% for 2015 is really an outlier in what has otherwise been an incredible growth story. 

And growth rates matter. Growing at 7% per year implies that the size of your economy doubles every 10 years (see Rule of 70). Growing at 3%, on the other hand, implies that you take twice as long to double the size of your economy.  

We need to quickly get the economy growing again at about 7% per year. 

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