## 1. GDP Growth Rates in Mining and Agriculture

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### A. Overview and key facts
- Zambia’s growth averaged 3.7 percent in the decade ending in 2021, with high volatility in mining and agriculture.
- Combined average contribution of mining and agriculture to real growth over the decade was 0.2 percent, with large annual fluctuations.
- COVID-19 contributed to debt distress, including defaulting on Eurobonds in November 2020 and accumulating arrears to other creditors.
- New administration (from 2021) committed to restoring macroeconomic stability and focusing on inclusive growth beyond traditional sectors.

### B. Sectoral performance and structure
- Mining
  - Contributed 17.5 percent of GDP in 2021 and secured over 70 percent of export receipts.
  - Accounted for 2 percent of employment in 2021.
  - Faced reduced FDI inflows after 2013 due to tax policy changes and an increasingly unfavorable macroeconomic environment.
- Agriculture
  - Accounted for 24 percent of total employment and contributed 3.4 percent of GDP in 2021.
  - Highly weather-dependent, vulnerable to droughts and floods.
  - Low land productivity and water use efficiency; most production is rain-fed despite fertile land.
  - Subsidy programs (seeds and fertilizers) are very expensive and have not shifted sector beyond subsistence-level farming.
- Services
  - Trade: largest sector, contributed 1/5 of GDP, grew on average by 4.2 percent in the decade ending in 2021, average contribution to real growth of 0.8 percentage points.
  - ICT: 2.3 percent of the economy at market prices in 2021; averaged contribution to growth of 0.6 percentage points during 2011–2021.

### C. Investment and growth linkages
- Growth correlated strongly with private investment over the past decade; link with public investment was weaker.
- Surge in public investment since 2015 did not compensate for the drop in private investment.
- Public investment (especially infrastructure) increased construction-sector growth but with limited evidence of lasting value for money.
- Weak public investment management (project selection, appraisal, execution) and governance issues reduced public investment efficiency.

### D. Labor market, poverty, and inequality
- Four sectors—mining, agriculture, trade, and construction—contribute about half of GDP and 56 percent of employment.
- Labor force participation: only 31 percent of the working-age population is employed.
- Working-age population (15 and older): 10 million; employed: 3.1 million.
- Formal employment: 0.8 million out of 3.1 million employed (2021 Labour Force Survey).
- Poverty and inequality
  - More than 60 percent of Zambia’s population lives below the international poverty line versus 35 percent across Sub-Saharan Africa (latest comparison points).
  - Social cash transfers expanded from fewer than 3,000 beneficiaries in 2006 to around 881,000 in 2021, but needs remain vastly higher.
  - Rural poverty and regional disparities persist; Lusaka and Copperbelt account for over half of GDP.
- Unemployment
  - National unemployment rate: 11.4 percent.
  - Youth unemployment: 17.4 percent (21.2 percent for young women).

### E. Energy constraints
- Electricity sector is hydro-dependent and faces frequent load-shedding.
- Tariffs have been below cost recovery for too long, limiting investment to diversify generation.
- Regulatory action: in April 2023, the regulatory board adopted a 5-year framework to get to cost reflective tariffs.
- Direct contribution of electricity generation to growth averaged 0.1 percentage point over the last decade; indirect effects on investment and economic activity are larger.

### F. Special Economic Zones (MFEZs) and industrial parks
- MFEZ/IPs setup and performance
  - Since mid-2000s, Zambia established 4 multi-facility special economic zones (MFEZ) and two industrial parks (IPs); additional MFEZ/IPs are in the pipeline.
  - Firms in MFEZs report the same deficiencies as firms outside zones: poor infrastructure (electricity, road access), land ownership issues, delays in VAT refunds, limited access to finance; administrative delays and licensing barriers.
  - Fiscal incentives for companies in MFEZs include:
    - Zero taxes on profits and dividends for five years.
    - Reduced corporate income tax (CIT) rate for the next five years of operation.
    - Zero-rated import for raw materials, supplies, machinery and equipment.
    - No withholding taxes on management fees.
    - Investment threshold: US$50,000 for domestic companies and US$500,000 for foreign companies. (The threshold for foreign companies was doubled to US$1m in 2023.)
  - Performance metrics (2021 and comparisons cited)
    - Investment realized within MFEZs in 2021 was 11 percent of total private investment in the economy.
    - Jobs created in MFEZs represented 1 percent of total jobs in the economy (2 percent of private sector jobs).
    - Actualized investment was only at 23 percent and 30 percent respectively versus pledged levels.
    - Manufacturing invested most and provided most jobs within MFEZs.
- Conclusion: Fiscal incentives alone have not compensated for underlying barriers; foregone revenue could have been used to address infrastructure needs. Financing infrastructure alone is insufficient — past inefficient public investment financed by excessive borrowing did not generate expected private-sector follow-on investment.

### G. Access to finance
- Domestic credit to private sector is low: credit-to-GDP ratio in Zambia is less than half the average for Sub-Saharan Africa.
- Interest rates remain prohibitively high (above 20 percent, as referenced in the Financial Sector SIP).

### H. Macroeconomic strategy and reforms (post-2021 government)
- Policy priorities and reforms
  - Government prioritizes restoring macroeconomic stability as precondition for sustainable growth.
  - Supported by the Fund’s ECF arrangement approved in August 2022, Zambia undertook fiscal consolidation by:
    - Eliminating untargeted and inefficient subsidies.
    - Scaling back inefficient investment projects.
    - Providing more targeted support to the most vulnerable via cash transfers.
    - Prioritizing investment in education and health.
  - Business climate reforms:
    - Public-private dialogue forum established in April 2022 to identify and tackle barriers to business.
    - Regulatory certainty and licensing simplification underway in subsectors (e.g., tourism).
    - Focus includes promoting green initiatives and human capital investment beyond traditional sectors.
  - Governance and anti-corruption:
    - Government committed to addressing weaknesses identified in IMF’s Diagnostic Report on Governance and Corruption across anti-corruption, fiscal governance, contract enforcement and property rights, central bank operations, and financial sector oversight.
    - New public debt law increases parliamentary scrutiny and transparency of contracted debt; a new central bank law has been approved; high-profile audits and investigations on misuse of public funds are ongoing.

### I. Human capital investment and long-run growth simulations
- Government actions
  - Free secondary education extended; number of teachers increased by over 30,000 with an additional 4,500 planned in 2023; priority deployment to rural areas; vulnerable children receive bursaries.
  - Health sector: 11,000 new health personnel recruited in 2022 with an additional 3,000 to be hired in 2023; increased drug procurement and investments in health facilities.
- Modeling results (World Bank LTGM; assumptions preserved)
  - Assumption: investments lead Zambia to reach the median of lower middle income countries’ performance in education and health indicators over time.
  - If education and health improvements are paired with a boost in private investment (simulated 10 percent increase compared to current levels):
    - Growth would be 0.5 percentage points higher than otherwise from 2032 and sustained going forward.
    - Most impactful boost is an increase of 0.5 percentage points by 2023 when education and health improvements are complemented by the simulated 10 percent increase in private investment.
  - Other quantitative findings (Box 1)
    - Current years of schooling: 8.8 years; target (50th percentile of LMI economies): 10.5 years.
    - Improving years of schooling from 8.8 to 10.5:
      - Increases human capital growth by 0.25 percentage points over the 2023-50 period.
      - Increases GDP growth by 0.17 percentage points over the 2023-50 period.
    - Health improvements (combined ASR and stunting indicators):
      - Add almost 0.11 percentage points to human capital growth over 2023-50.
      - Add 0.07 percentage points to GDP growth over 2023-50.
    - Increasing private investment by 10 percent by 2030 vs business-as-usual:
      - Improves growth rate by 0.13 percentage points on average from 2023-2032.
      - Improves growth rate by 0.15 percentage points thereafter.
    - Combined scenario (education + health + 10% private investment):
      - Boosts GDP growth by 0.5 percentage points starting in 2032 and sustained through the model horizon (until 2050).
- Policy implication: Boosting years of schooling is the single most impactful reform among the modeled human-capital improvements; health improvements add positively but smaller; combining human-capital improvements with measures that raise private investment is essential given long lags before full effects materialize.

### Box: Sovereign–Bank Nexus and banking sector vulnerabilities
- Channels of interaction
  - Sovereign-exposure channel: banks hold large amounts of sovereign debt.
  - Safety net channel: banks are protected by government guarantees.
  - Macroeconomic channel: health of banks and governments affect and are affected by economic activity.
- Banks’ exposures and indicators
  - Banks hold over 27 percent of assets in government T-bills and bonds, equivalent to 240 percent of regulatory capital on average.
  - Sector total capitalization ratio is well above the 10 percent regulatory minimum on average, but wide variation exists; some government-owned banks hold close to half of assets in government securities.
  - Direct lending exposure to government and parastatals: around 18 percent of total lending at end-2022, up from 7 percent in 2018.
- Credit allocation and market dynamics
  - Interest income accounts for 75 percent of gross income on average.
  - Intermediation ratios declined to around 36 percent, down from 52 percent in 2019.
  - At end-2022, average nominal lending rates around 25 percent (15 percent real); 180-day deposit rates around 7 percent (negative real).
  - Outstanding government securities: 213 billion kwacha at end-February 2023 (44 percent of GDP), up from 194 billion a year ago and 130 billion at end-2020.
  - Share of non-resident holders of domestic debt: 23 percent as at end-2022, down from around 29 percent earlier in the year.
- Systemic resilience and stress testing
  - Aggregate CAR under adverse NPL scenarios falls to 17 percent from a baseline of 23 percent pre-shock, remaining above required minimum of 10 percent.
  - NPL provisioning averaging above 90 percent of total NPLs across banks.
  - Pre-shock liquidity positions allow weathering of a moderate liquidity shock; distribution of expected losses uneven across banks.
- Regulatory upgrades and unwinding forbearance
  - Recent BoZ reforms include Crisis Management and Resolution Unit (2013), new policies (2020), Deposit Insurance Scheme provisions (2021), amended Securities Bill (2022), and new Bank of Zambia Act (2022) enabling an inter-agency Financial Stability Committee and macro-prudential surveillance.
  - BoZ conducted an asset quality review in 2022; reclassified around 16 percent of restructured COVID-19 facilities as non-performing.
  - Sequenced unwinding of relief measures with collateral transition arrangements extended to end-2023.
- Financial inclusion and capital markets
  - Low savings rate; around a third of adults banked; low financial literacy.
  - Initiatives: SME guarantee scheme, BoZ’s “Go Cashless” initiative, 2022 Capital Markets Master Plan proposing sequenced reforms and new private financing forms.
- Policy implications
  - Strengthening regulatory framework, resolution schemes, and risk surveillance is critical to break incentives that favor government securities holdings at the expense of private-sector intermediation and to support financial stability and growth.

### Agriculture: sector overview, policies, and constraints
- Importance and targets
  - Agriculture provides food, employment, and income for more than 70 percent of the population.
  - 8NDP identifies agriculture as key for economic transformation and job creation; CASP envisions:
    - increasing agriculture growth rate per annum to at least 10 percent;
    - increasing agriculture exports to above US$2 billion by 2026.
- Contribution to GDP and employment (key statistics)
  - Agriculture share of GDP: 9.4 percent in 2010; 3.4 percent in 2021.
  - Industrial sector share: 32.2 percent in 2010; 42.5 percent in 2021.
  - Services sector share: 52.8 percent in 2010; 49.9 percent in 2021.
  - Average contribution to GDP growth: Agriculture 0.1 percentage points; Services 2.8 percentage points; Industrial 1.3 percentage points.
  - Employment in agriculture: 64.3 percent of total employment in 2010; 49.6 percent in 2019 (decline of 14.7 percentage points).
  - Small-scale farmers: 1.5 million cultivate less than 20 hectares, producing about 80 percent of domestic grain supply; over 3,000 commercial farmers.
  - At beginning of 2023, export earnings from agricultural products accounted for 19 percent of non-traditional exports.
- Seed subsector
  - Private sector supplies about 80 percent of seed on the domestic market; public companies supply 20 percent.
  - Seed industry players include Zamseed, Pannar, Seedco, MRI, Pioneer, Monsanto and Kamano.
- Key constraints to production and productivity
  - Climate change (droughts, floods); policy instability (ad hoc maize export bans); inadequate policy implementation; insufficient electricity; high cost of production; lack of credit and limited access to financing for small-scale farmers (linked to limited title deeds); lack of market access; high pre- and post-harvest losses; low technology uptake and R&D investment; insufficient extension services; reliance on rainfed production and low irrigation uptake; limited land rights; lack of crop diversification; pests and diseases; other structural impediments.
- Policy bias toward maize
  - Significant fiscal outlays subsidizing maize input and output markets.
  - Maize production increased largely via expansion of harvested area rather than yield improvements; yields remained largely the same.
  - Bias toward maize contributed to dietary and nutritional deficiencies in rural communities.

### Food security, nutrition, and FRA operations
- Nutrition indicators (2018 DHS)
  - 35 percent of children under 5 were stunted; 12 percent were severely stunted.
- FRA operations and effects
  - Crops purchased: maize grain (largest proportion), soya beans, paddy rice.
  - Optimal strategic food reserve: 500,000 metric tons of grains.
  - Storage losses estimated between 15 to 30 percent of purchased grains due to inadequate facilities.
  - Cost associated with storing and releasing grains grew at 83.3 percent while maize production contracted by 2 percent between 2014 and 2021.
  - FRA interventions have limited sector development by crowding out private sector participation and distorting prices; FRA acting as buyer of last resort tends to discourage private investment and profit margins.
- Trade policy impacts
  - Frequent discretionary banning of maize exports has prevented development of a reliable maize export base, limited market access, exacerbated maize price volatility, and discouraged long-term investors.

### Climate change impacts and CSA
- Vulnerability and projections
  - Dominance of rain-fed production increases vulnerability to droughts and floods; FAO projections indicate by 2050 more arable land will be required per unit of maize output as number of harvests per year decreases and yields do not rise sufficiently.
  - FAO scenarios (Business As Usual; Towards Sustainability; Stratified Societies) show worse food insecurity under Business As Usual and Stratified Societies vs Towards Sustainability.
  - Annual deforestation rate in Zambia in 2021 estimated at 300,000 hectares per year; deforestation linked to agricultural activities and is a significant contributor to GHG emissions after charcoal production.
- CSA potential and limitations
  - CSA practices (conservation agriculture, agroforestry, minimal soil disturbance, residue retention) can reduce post-harvest losses and improve long-term welfare, but short-term effects are uncertain.
  - Adoption risk: some CSAs perform better in wet conditions; adoption in Zambia has been partial with dis-adoption rates up to 95 percent in some cases.
- Commitments and targets
  - NDC pledges: unconditional reduction of GHG emissions by 25 percent relative to 2010 base level; conditional commit to 47 percent reduction with substantial international support.
  - Conditional on funding, 38 M_tCO_2 e emission reduction target includes agriculture, forestry, and other land use.

### Farmer Input Support Program (FISP) and reforms
- FISP delivery (Direct Input Supply typical DIS pack)
  - one 10kg bag of maize seed;
  - 6 bags of fertilizer;
  - beneficiary deposit of K400 towards the subsidy program;
  - either a 25kg bag of soya beans seed or 20kg bag of groundnuts seed.
- Implementation challenges
  - Late delivery of inputs; standardized distribution inappropriate for some agro-ecological zones; crowding out private sector; poor targeting.
  - Fiscal and governance outcomes: most funds allocated to agriculture diverted to input subsidy program; actual expenditure often exceeded planned expenditure; about 30-35 percent of the time fertilizer input did not reach intended beneficiaries; non-transparency in tendering produced significant fiscal drain.
  - Program effectiveness: FISP critical for maize self-sufficiency but dietary limitations and nutritional deficiency remain elevated; subsidies have squeezed out private sector in input/output markets and increased exposure to climate shocks.
- CASP and e-voucher migration
  - CASP aims to address FISP shortcomings, incorporate irrigation and extension services, and is outlined in 8NDP and MTEF.
  - Migration path: CASP will fully transition input subsidy to e-voucher modality over three years by the 2025/2026 farming season.
  - 2023/2024: start with 43 districts with over 80 percent 3G/4G coverage and developed agro-dealership network; top 10 maize producing districts will have DIS procured but redeemed through e-voucher to safeguard food security.
  - Advantages of e-voucher:
    - Greater flexibility for beneficiaries to buy preferred inputs suited to local circumstances.
    - Enables livestock and fisheries producers to purchase chosen inputs.
    - Encourages private sector growth through agro-dealing and crop diversification.
    - Lower treasury cost by removing tendering, transportation, storage, and handling costs.
    - Savings could be diverted to high-yield programs, agricultural apparatus, social transfers, and irrigation (drip systems).
  - Supporting measures: national crop diversification strategy under development.

### Implementation requirements and operational recommendations for CASP and CSA scaling
- Evidence-based requirements for successful CASP implementation:
  - Allow vouchers to be spent on a wide array of inputs at a dealer of choice.
  - Allow sufficient time for release of funds.
  - Earmark funds for internet and related infrastructure.
  - Structure beneficiary contributions throughout the year.
  - Provide training time for CASP user manual and adequate sensitization on input availability.
  - Provide ample time for screening and registration of agro-dealers.
  - Educate beneficiaries on seed varieties, fertilizer types, and soil suitability.
  - Identify champions within the ministry for program implementation support.
- Phased migration rationale
  - Phased path ensures conducive environment before full transition: attract input suppliers, install infrastructure, build smallholder capacity, generate soil-type and fertilizer-matching information via nationwide mapping, and set eligibility rules to transfer non-beneficiaries to other programs.
  - Establish monitoring systems to gather and analyze implementation, costs, and impacts; consider collaborating with beneficiary farmers for data collection and analysis.

### Agriculture product market reforms, FRA, and fiscal implications
- FRA reform recommendations
  - FRA should consider clear trigger mechanisms for purchases and releases to ensure purchases are limited to strategic reserves and minimize crowding out of private sector.
  - Reverting FRA to original mandate of only providing strategic food reserves is critical to create room for private sector participation.
- Role of private sector and regional trade
  - Given price disparities with neighboring countries, Zambia could benefit from exporting excess maize; example cited price difference above US$300 per ton between Kenya and Zambia could offset transportation costs.
  - Private sector could export excess grains and bear storage costs, reducing fiscal implications on the treasury.
- Fiscal savings
  - Savings generated from reforms could be channeled to support other programs within the agriculture sector.

*Italic: IMF staff prepared selected issues on Zambia’s growth performance, sectoral dynamics, MFEZs, and human capital investment (June 30, 2023).*

### 1.   GDP Growth Rates in Mining and Agriculture _______________________________________________4

### 1.   GDP Growth Rates in Mining and Agriculture

### A. Overview and key facts
- Zambia’s growth averaged 3.7 percent in the decade ending in 2021, with high volatility in mining and agriculture.
- The combined average contribution of mining and agriculture to real growth over the decade was 0.2 percent, with large annual fluctuations.
- COVID-19 contributed to the country falling into debt distress, including defaulting on its Eurobonds in November 2020 and accumulating arrears to other creditors.
- The new administration (from 2021) committed to restoring macroeconomic stability and focusing on inclusive growth beyond traditional sectors.

### B. Sectoral performance and structure
- Mining:
  - Contributed 17.5 percent of GDP in 2021 and secured over 70 percent of export receipts.
  - Accounted for only 2 percent of employment in 2021.
  - Faced reduced FDI inflows after 2013 due to tax policy changes and an increasingly unfavorable macroeconomic environment.
- Agriculture:
  - Accounted for 24 percent of total employment and contributed 3.4 percent of GDP in 2021.
  - Highly weather-dependent, vulnerable to droughts and floods.
  - Land productivity and water use efficiency are low; most production is rain-fed despite fertile land.
  - Very expensive subsidy programs (seeds and fertilizers) have not shifted the sector beyond subsistence-level farming.
- Services:
  - Trade: the largest sector, contributed 1/5 of GDP, grew on average by 4.2 percent in the decade ending in 2021, with an average contribution to real growth of 0.8 percentage points.
  - ICT: modest share of 2.3 percent of the economy at market prices in 2021, but averaged a contribution to growth of 0.6 percentage points during 2011–2021.

### C. Investment and growth linkages
- Growth correlated strongly with private investment over the past decade; the link with public investment was weaker.
- Surge in public investment since 2015 did not compensate for the drop in private investment.
- Public investment (especially infrastructure) increased construction-sector growth but with limited evidence of lasting value for money.
- Weak public investment management (project selection, appraisal, execution) and governance issues reduced public investment efficiency.

### D. Labor market, poverty, and inequality
- Four sectors—mining, agriculture, trade, and construction—contribute about half of GDP and 56 percent of employment.
- Labor force participation is low: only 31 percent of the working-age population is employed.
- Working-age population (15 and older): 10 million; employed: 3.1 million.
- Formal employment: 0.8 million out of 3.1 million employed (2021 Labour Force Survey).
- Poverty and inequality:
  - More than 60 percent of Zambia’s population lives below the international poverty line versus 35 percent across Sub-Saharan Africa (latest available comparison points).
  - Social cash transfers expanded from fewer than 3,000 beneficiaries in 2006 to around 881,000 in 2021, but needs remain vastly higher.
  - Rural poverty and regional disparities persist; Lusaka and Copperbelt account for over half of GDP.
- Unemployment:
  - National unemployment rate: 11.4 percent.
  - Youth unemployment: 17.4 percent (21.2 percent for young women).

### E. Energy constraints
- Electricity sector is weather-dependent (hydro) and faces frequent load-shedding.
- Tariffs have been below cost recovery for too long, limiting investment to diversify generation.
- Regulatory action: in April 2023, the regulatory board adopted a 5-year framework to get to cost reflective tariffs.
- Direct contribution of electricity generation to growth averaged 0.1 percentage point over the last decade; indirect effects on investment and economic activity are larger.

### F. Special Economic Zones (MFEZs) and industrial parks
- Since mid-2000s, Zambia established 4 multi-facility special economic zones (MFEZ) and two industrial parks (IPs); additional MFEZ/IPs are in the pipeline.
- Firms in MFEZs report the same deficiencies as firms outside zones: poor infrastructure (electricity, road access), land ownership issues, delays in VAT refunds, and limited access to finance; administrative delays and licensing barriers also highlighted.
- Fiscal incentives for companies in MFEZs include:
  - Zero taxes on profits and dividends for five years.
  - Reduced corporate income tax (CIT) rate for the next five years of operation.
  - Zero-rated import for raw materials, supplies, machinery and equipment.
  - No withholding taxes on management fees.
  - Investment threshold: US$50,000 for domestic companies and US$500,000 for foreign companies. (The threshold for foreign companies was doubled to US$1m in 2023.)
- Performance of MFEZs:
  - Investment realized within MFEZs in 2021 was 11 percent of total private investment in the economy.
  - Jobs created in MFEZs represented 1 percent of total jobs in the economy (2 percent of private sector jobs).
  - Actualized investment was only at 23 percent and 30 percent respectively versus pledged levels (comparison across two periods cited in the source).
  - Manufacturing is the sector that invested most and provided the most jobs within MFEZs.
- Conclusion on incentives and infrastructure:
  - Fiscal incentives alone have not compensated for underlying barriers; foregone revenue could have been used to address infrastructure needs.
  - Financing infrastructure alone is not sufficient to induce private investment—past inefficient public investment financed by excessive borrowing did not generate expected private-sector follow-on investment.

### G. Access to finance
- Domestic credit to private sector is low: credit-to-GDP ratio in Zambia is less than half the average for Sub-Saharan Africa.
- Interest rates remain prohibitively high (above 20 percent, as referenced in the Financial Sector SIP).

### H. Macroeconomic strategy and reforms (post-2021 government)
- The government’s new approach (from 2021) prioritizes restoring macroeconomic stability as precondition for sustainable growth.
- Supported by the Fund’s ECF arrangement approved in August 2022, Zambia undertook sizeable fiscal consolidation by:
  - Eliminating untargeted and inefficient subsidies.
  - Scaling back inefficient investment projects.
  - Providing more targeted support to the most vulnerable via cash transfers.
  - Prioritizing investment in education and health.
- Business climate reforms:
  - Public-private dialogue forum established in April 2022 to identify and tackle barriers to business.
  - Regulatory certainty and licensing simplification underway in subsectors (e.g., tourism).
  - Focus includes promoting green initiatives and human capital investment beyond traditional sectors.
- Governance and anti-corruption:
  - Government committed to addressing weaknesses identified in the IMF’s Diagnostic Report on Governance and Corruption in areas including anti-corruption, fiscal governance, contract enforcement and property rights, central bank operations, and financial sector oversight.
  - A new public debt law increases parliamentary scrutiny and transparency of contracted debt; a new central bank law has been approved; high-profile audits and investigations on misuse of public funds are ongoing.

### I. Human capital investment and long-run growth simulations
- Government actions in education and health:
  - Free secondary education extended; number of teachers increased by over 30,000 with an additional 4,500 planned in 2023; priority deployment to rural areas; vulnerable children receive bursaries.
  - Health sector: 11,000 new health personnel recruited in 2022 with an additional 3,000 to be hired in 2023; increased drug procurement and investments in health facilities.
- Modeling results (impact of investing in education and health):
  - Assumption: investments lead Zambia to reach the median of lower middle income countries’ performance in education and health indicators over time.
  - Each improvement in education and health indicators yields positive growth returns; increase in years of schooling is the most effective measure in growth yields.
  - If education and health improvements are paired with a boost in private investment (simulated 10 percent increase compared to current levels), the model finds:
    - Growth would be 0.5 percentage points higher than otherwise from 2032 and sustained going forward.
    - The most impactful boost to growth is an increase of 0.5 percentage points by 2023 when education and health improvements are complemented by the simulated 10 percent increase in private investment.

_Italic: IMF staff prepared selected issues on Zambia’s growth performance, sectoral dynamics, MFEZs, and human capital investment (June 30, 2023)._

### Box 1. Zambia’s Growth  Dividend from Investing in Education and Health

### Box 1. Zambia’s Growth  Dividend from Investing in Education and Health

### Methodology and assumptions
- The World Bank’s Long Term Growth Model (LTGM) is used to simulate long-term growth impacts from improvements in human capital.
- The LTGM is based on the Solow-Swan growth model, with an extension based on the World Bank Human Capital index to analyze learning quality and health outcomes.
- Education indicators: (i) quantitative improvements (years of schooling); (ii) qualitative improvements (normalized test scores).
- Health indicators: (i) adult survival rate (ASR): the fraction of current 15-year-olds who would survive to age 60 assuming current age-specific mortality rates; (ii) child stunting rate: fraction of 5-year-old children with height more than two standard deviations below the median.
- Simulation assumption: other growth drivers, besides human capital, continue at their historical trend rates.
- TFP assumption: as economic reforms take place in Zambia from the 2023-2028 period, TFP growth peaks in 2028 to 2% and then returns to its long-term average of 0.5% by 2050.

### Simulated improvements and timing
- Scenario: Zambia gradually closes the gap between current education and health indicators and the median for lower middle-income (LMI) countries.
- Impacts are estimated for each education and health indicator separately and then jointly.
- Timing: the full impact of improvements in education is achieved by 2035, when today’s children join the workforce; partial impact occurs in the period 2025-2035 as incremental improvements are realized.
- The growth impact from better education and health manifests when the generation achieving improved outcomes enters the labor force; combined impacts begin to materially affect GDP growth around 2032 and persist through 2050.

### Key quantitative findings
- Current years of schooling: 8.8 years.
- Target (50th percentile of LMI economies): 10.5 years.
- Improving years of schooling from 8.8 to 10.5:
  - Increases human capital growth by 0.25 percentage points over the 2023-50 period.
  - Increases GDP growth by 0.17 percentage points over the 2023-50 period.
- Health improvements (combined ASR and stunting indicators):
  - Add almost 0.11 percentage points to human capital growth over 2023-50.
  - Add 0.07 percentage points to GDP growth over 2023-50.
- Private investment scenario:
  - Increasing private investment by 10 percent by 2030 compared to business-as-usual:
    - Improves the growth rate by 0.13 percentage points on average from 2023-2032.
    - Improves the growth rate by 0.15 percentage points thereafter.
- Combined scenario (education + health + 10% increase in private investment):
  - Boosts GDP growth by 0.5 percentage points starting in 2032 and is sustained going forward through the model horizon (until 2050).

### Interpretation and policy-relevant implications
- Boosting years of schooling is the single most impactful reform among the modeled human-capital improvements.
- Health improvements have a positive, though smaller, additive effect on human capital and GDP growth.
- Improvements in education and health are significantly more powerful when accompanied by increased private investment.
- The simulated results emphasize the long lag between public investments in human capital and their full effects on aggregate growth, reflecting the time until improved cohorts enter the labor force.
- Sustainable higher growth therefore requires a multi-pronged strategy combining: education quality and quantity improvements, health outcomes improvements, and policies that raise private investment.

*Source: Box 1. Zambia’s Growth  Dividend from Investing in Education and Health, INTERNATIONAL MONETARY FUND.*

### Box 1 for a broader analysis of the

### 1zmbea2023003 - Box 1 for a broader analysis of the

### Sovereign–Bank Nexus and Channels of Interaction
- Three interacting channels identified between banks and the sovereign:
  - (1) the sovereign-exposure channel: banks hold large amounts of sovereign debt.
  - (2) the safety net channel: banks are protected by government guarantees.
  - (3) the macroeconomic channel: the health of banks and governments affect and is affected by economic activity.

### Banks’ Exposure to Government and Capital Position
- On average, banks in Zambia hold over 27 percent of their assets in government T-bills and bonds, equivalent to 240 percent of regulatory capital.
- Wide variation across individual banks; some government-owned banks hold close to half of their assets in government securities.
- Average sector total capitalization ratio is well above the 10 percent regulatory minimum, but there is wide variation among individual banks.
- Combination of high government exposure and relatively lower capital buffers is a prominent risk factor for a number of medium and large banks.
- Direct lending exposure: the share of lending to government and parastatals represented around 18 percent of total lending at end-2022, up from 7 percent in 2018.

### Credit Allocation, Intermediation, and Profitability
- Credit concentration: main recipients of credit include manufacturing, personal loans, agriculture, and mining.
- Banking credit to the private sector has been decreasing as a percentage of GDP and lagging nominal GDP growth.
- Banks’ preference to invest in government securities has reduced intermediation of the private sector; interest income accounts for 75 percent of gross income on average.
- Intermediation ratios declined to around 36 percent, down from 52 percent in 2019.
- At end-2022, average nominal lending rates were around 25 percent (15 percent real), while 180-day deposit rates were around 7 percent (negative real).
- Targeted Medium Term Re-Financing Facility (TMTRF) policy influence: credit remains concentrated towards strategic sectors and short-term lending preferences persist.

### Sectoral Misalignment and TMTRF Effects
- Manufacturing received around 16 percent of banking sector credit in 2022, but accounts for around 7 percent of the economy and contributed less than 0.4 percentage points to 2021 GDP growth of 4.6 percent.
- Manufacturing accounted for around 25 percent of all TMTRF support.
- Manufacturing accounts for around 10 percent of the labor force; minimum wages in manufacturing rank in the bottom tier of the Zambian economy.

### Domestic Debt Market: Size, Holders, and Market Dynamics
- Outstanding stock of government securities stood at 213 billion kwacha at end-February 2023 (or 44 percent of GDP), up from 194 billion a year ago and 130 billion at end-2020.
- Share of non-resident holders of domestic debt stood at 23 percent as at end-2022, down from a peak of around 29 percent earlier in the year.
- Tighter global financial conditions and uncertainty around the debt restructuring process reportedly led to a pull-back of non-resident investors in early 2023.
- Reported dynamics: demand at bond auctions appears to be declining and domestic yields are trending upwards after a period of rapid decline following the Staff Level Agreement of a Fund-supported program in December 2021.
- Domestic securities holdings (Feb 2023, Kwacha billions): Total 212.7; Bonds 170.6; T-Bills 33.5; Banks 104.8 (Total column context indicates holdings breakdown across categories and holders).

### Systemic Vulnerabilities and Stress Testing
- Systemic vulnerability indicators are generally low and declining compared to the 2019–2020 period, though uncertainty over public sector debt and increasing FX market volatility and net open exposure to FX have picked up as of late 2022.
- Typical micro-prudential stress tests indicate the Zambian banking sector can withstand significant credit, asset quality, and liquidity shocks:
  - Aggregate capital adequacy ratio (CAR) under adverse NPL scenarios falls to 17 percent from a baseline ratio of 23 percent pre-shock, remaining above the required minimum of 10 percent.
  - High NPL provisioning: currently averaging above 90 percent of total NPLs across banks and categories.
  - Banks’ ample pre-shock liquidity positions allow weathering of a moderate liquidity shock.
  - Distribution of expected losses is uneven; larger systemic banks fare relatively better than smaller banks.

### Regulatory and Supervisory Capacity Upgrades
- Key reforms and capacity upgrades by the Bank of Zambia (BoZ) in the last decade include:
  - Crisis Management and Resolution Unit and Framework (2013).
  - New Supervision and Resolution of Problem Institutions Policy (2020).
  - Amendment of the Banking and Financial Services Act (BFSA) to provide for a Special Resolution Regime (2020).
  - Cabinet approval for provisions to setup a Deposit Insurance Scheme within the BoZ (2021).
  - Amendment of the Securities Bill (2022).
  - New Bank of Zambia Act (2022), providing for creation of an inter-agency Financial Stability Committee (FSC) and mandate for macro-prudential surveillance (including a yet-to-be drafted Financial Stability Report).

### Asset Quality Review and Prudential Measures
- In 2022, BoZ conducted a comprehensive review of asset quality to evaluate COVID-19 prudential relief measures, performance of restructured facilities, and compliance with TMTRF terms.
- Findings:
  - Asset quality deemed satisfactory for the bulk of assessed banks due to high NPL coverage ratios.
  - Bulk of restructured facilities under COVID-19 relief deemed performing; BoZ subsequently adversely reclassified around 16 percent of these loans.
  - All banks utilized at least one prudential relief measure.
  - Most relief measures with sunset clauses are subject to winding-down by end-March 2023 with no further extensions planned, except collateral transition arrangements extended to end-2023.
  - Examination confirmed high concentration risk: top borrowers, single borrower limits, and asset concentration to the Government sector.

### BoZ Approach to Unwinding Forbearance
- BoZ applied a risk-based sequencing approach to unwinding temporary prudential measures:
  - Approach informed by detailed data collection and analysis (the asset review).
  - Sequencing avoided cliff-effects and prioritized unwinding of measures incompatible with international accounting standards or representing blanket moratoria.
  - Bank capital distributions were limited and assessed case-by-case.
  - Collateral transition arrangements were extended to end-2023 to avoid cliff effects given systemic weaknesses in valuation and recognition of collateral (mostly real estate and land).

### Financial Inclusion Challenges and Capital Markets Reform
- Financial inclusion remains limited:
  - Low savings rate among the population.
  - Low proportion of formal “bankarization” of adult population (around a third).
  - Low financial literacy and awareness rates.
- Recent initiatives and proposals:
  - SME guarantee scheme and BoZ’s “Go Cashless” initiative using mobile money and fintech tools.
  - 2022 Capital Markets Master Plan proposed a sequenced reform plan on regulatory environment, bond and equities markets, and financial literacy; it explored new forms of private financing including equity, venture capital, and bond financing.

### Conclusion and Policy Implications
- Authorities’ efforts to strengthen the banking sector are critical for safeguarding financial stability and supporting growth.
- Regulatory framework, including liquidity and crisis management policies, strongly influences the sovereign–bank nexus and must address incentives in credit allocation.
- Policies that favor holdings of government securities without adequately addressing credit concentration risk:
  - Strengthen the sovereign–bank nexus.
  - Impede allocation of credit to the private sector.
- Advancing effective resolution schemes and safety nets, and strengthening risk surveillance can encourage greater savings and improve private sector access to capital.

*Source: 1zmbea2023003 - Box 1 for a broader analysis of the (IMF staff text).*

### 1.      Agriculture is a critical sector in the Zambian economy for providing jobs, growth, and

### 1.      Agriculture is a critical sector in the Zambian economy for providing jobs, growth, and livelihoods.

### Sector overview and policy goals
- The agriculture sector is a source of food, employment, and income for more than 70 percent of the population.
- The Eighth National Development Plan (8NDP) identifies agriculture as a key national strategic area critical for economic transformation and job creation, with a key focus on industrialization premised on value addition in the agriculture sector and other relevant sectors.
- The 2012 – 2030 National Agriculture Policy (NAP) goals include:
  - increasing the annual rate of growth of real crop GDP;
  - increasing the value and growth rate of crop exports;
  - contributing to the reduction of poverty; and
  - ensuring food security among small-scale farmers.
- Under the Comprehensive Agriculture Support Program (CASP) the authorities envision:
  - increasing the agriculture growth rate per annum to at least 10 percent; and
  - increasing agriculture exports to above US$2 billion by 2026.

### Government support programs and institutional roles
- Main government support instruments:
  - Farmer Input Support Program (FISP) — evolved from the Fertilizer Support Program (FSP) introduced in 2002 and transformed into FISP during the 2009/2010 farming season.
  - Food Reserve Agency (FRA) — established in 1995 to administer the national food reserve; functions evolved to include marketing, trading, purchasing, importing, selling, trading, exporting designated agricultural commodities, and establishing, managing, leasing and maintaining storage facilities and equipment.
- CASP seeks to address challenges associated with FISP and to incorporate irrigation infrastructure and extension services to minimize climate change impacts.
- Policy emphasis across successive NAPs has generally promoted the private sector as a key stakeholder while retaining government involvement to address poverty among small-scale farmers.

### Contribution to GDP and employment (key statistics)
- Agriculture share of GDP:
  - 9.4 percent in 2010;
  - 3.4 percent in 2021.
- Industrial sector (including mining) share of GDP:
  - 32.2 percent in 2010;
  - 42.5 percent in 2021.
- Services sector share of GDP:
  - 52.8 percent in 2010;
  - 49.9 percent in 2021.
- Average contribution to GDP growth (over the period):
  - Agriculture: 0.1 percentage points;
  - Services: 2.8 percentage points;
  - Industrial: 1.3 percentage points.
- Employment in agriculture:
  - 64.3 percent of total employment in 2010;
  - 49.6 percent of total employment in 2019;
  - Decline of 14.7 percentage points from 2010 to 2019.
- Farmer demographics and production share:
  - 1.5 million small-scale farmers cultivate less than 20 hectares of land.
  - Small-scale farmers produce about 80 percent of the domestic supply of grain.
  - Over 3,000 commercial (large and medium-scale) farmers exist.
  - Commercial farmers’ share of maize sales declined from 53 percent in 2003/2004 to 7 percent in the 2019/2020 agricultural season.
  - At the beginning of 2023, export earnings from agricultural products accounted for 19 percent of the non-traditional exports.

### Seed subsector and private sector role (Box 1 findings)
- Seed policy reforms and privatization since the early 1990s led to deregulation of ZAMSEED and introduction of legislation: Plant Variety and Seeds Acts of 1995, National Seed Policy of 1999, Plant Variety Protection Act of 2007, and endorsement of COMESA seed trade harmonization regulations in 2015.
- Post-reform outcomes:
  - Standardization and certification of seed quality.
  - Private sector supplies about 80 percent of seed on the domestic market; public companies supply the remaining 20 percent.
  - Seed companies active in Zambia include Zamseed, Pannar, Seedco, MRI, Pioneer, Monsanto and Kamano.

### Constraints to production and productivity
- Key sector constraints identified:
  - climate change (increased frequency and magnitude of droughts and floods);
  - policy instability and unpredictable trade policy (notably ad hoc maize export bans);
  - inadequate policy implementation and weak follow-through on national development plans;
  - insufficient electricity supply;
  - high cost of production;
  - lack of credit and limited access to financing for small-scale farmers (linked to limited title deeds);
  - lack of market access and unpredictable markets;
  - high pre- and post-harvest losses;
  - low technology uptake and low investment in research and development;
  - insufficient extension services;
  - heavy reliance on rainfed production and low uptake of irrigation services;
  - limited land rights;
  - lack of crop diversification;
  - high prevalence of pests and diseases; and
  - other structural impediments.
- Policy bias toward maize:
  - Significant fiscal outlays subsidizing input and output markets targeted maize production.
  - Maize production increased over the last decade largely via expansion of harvested area rather than yield improvements; yields remained largely the same.
  - Bias toward maize contributed to dietary and nutritional deficiencies in rural communities with limited access to diversified food markets.

### Food security and nutrition indicators
- 2018 Demographic and Health Survey (DHS):
  - 35 percent of children under 5 were stunted;
  - 12 percent of children under 5 were severely stunted.
- Child stuntedness and malnutrition have reduced over the last decade but remain elevated.

### Climate change impacts and projections
- Dominance of rain-fed production among small-scale farmers makes the sector vulnerable to droughts and floods; major episodes of reduced production in the past decade linked to adverse weather.
- Deforestation pressures:
  - Annual deforestation rate in Zambia in 2021 estimated at 300,000 hectares per year.
  - Deforestation associated with agricultural activities is a significant contributor to GHG emissions after charcoal production.
- Climate change effects projected to be regionally uneven and to continue as a major constraint to agricultural development.
- Figure-based scenario projections (2012–2050, FAO, 2018):
  - Shown trajectories for Crop Yield (Tonnes per hectares), Number of Harvests Per Year, and Arable Land under three pathways: Towards Sustainability; Business As Usual; Stratified Societies (numerical figure series shown in source).

### Impacts of trade and market policies
- Frequent discretionary banning of maize exports has:
  - prevented development of a reliable maize export base;
  - limited access to markets for many farmers;
  - exacerbated volatility of maize prices;
  - discouraged investors from taking long-term positions in the sector, limiting agricultural development.
- FRA and other interventions have not consistently increased incomes for the poorest smallholder households.

### Policy directions and measures highlighted in the source
- CASP aims to:
  - address FISP challenges;
  - incorporate irrigation infrastructure and extension services;
  - increase agriculture growth rate per annum to at least 10 percent; and
  - increase agriculture exports to above US$2 billion by 2026.
- Other adaptation and mitigation measures pursued by policymakers include promotion of climate smart agriculture (CSA) practices.
- National agricultural policies emphasize promoting the private sector and cooperatives, treating farming as a business, and encouraging profitability and competition; limited implementation has constrained the realization of these policy aims.

*Prepared by Bupe Chitumbo (Resident Representative Office).*

### 16.      If left unmitigated, the susceptibility of the agriculture sector to climate risk will

### 1zmbea2023003 - 16.      If left unmitigated, the susceptibility of the agriculture sector to climate risk will

### Climate risk impacts and FAO scenario projections
- Climate change is already making it more difficult to alleviate poverty among small-scale farmers.
- FAO projections indicate that by 2050 more Zambian arable land will be required for producing maize per annum as the number of maize harvests per arable land in a year will decrease and there will be insufficient increases in maize yields.
- FAO designed three alternative scenarios: business as usual, towards sustainability and stratified societies.
- FAO projections indicate that food insecurity will be worse under the business as usual and stratified societies scenarios than the towards sustainability scenario as measured by the prevalence of persons who would be undernourished by 2050.
- FAO assumed that the towards to sustainability scenario would be associated with lower yields than those under the business-as-usual scenario due to limited research information on sustainable production methods.
- Definition preserved from source: "The number of crop harvests on arable land per year is the ratio of harvested area to arable land each year. When the ratio is 1, it implies multiple crops per year on the same arable land; values below 1 indicate that crops were not harvested in all arable land due to various reasons, including climatic conditions."

### Climate-smart agriculture (CSA): potential and evidence
- CSA practices cited with potential benefits: reducing post-harvest losses, conservation agriculture, agroforestry, minimum soil disturbance and residue retentions.
- Evidence indicates that in the long-term CSA practices do have a material positive impact on the welfare of households, but effects are uncertain in the short term (World Bank, 2019; Heusmesser, Christine; Kray, Helper, A, 2019).
- Adoption risk: some CSAs may perform better under wet than dry conditions; risks include drought, increasing temperatures, changes in rainfall patterns, pests, and diseases.
- Adoption outcomes: adoption of CSA practices in Zambia have been partial, and in some cases dis-adoption rates of as high as 95 percent (CIAT; World Bank, 2017).

### National policies, commitments, and integration
- International commitments and national policy milestones:
  - Ratified United Nations Framework on Climate Change (UNFCC) in 1993.
  - Signed the Kyoto Protocol in 2006.
  - National Climate Change Response Strategy (2010) emphasized sustainable land use for food security.
  - Developed National Determined Contributions (NDCs) in response to the Paris Agreement in 2016.
- NDC pledges:
  - Unconditional: reduce GHG emissions by 25 percent relative to the 2010 base level where there was no significant international financial support.
  - Conditional: commit to a 47 percent reduction in the case where there was substantial international support relative to the 2010 base level across different sectors.
  - Conditional on availability of funding, sectors that qualify for the pledged 38 M_tCO_2 e emission reduction includes agriculture, forestry, and other land use, among others.
- Domestic policies shaped by NDCs: National Forestry and Wildlife Policy, National Climate Change Policy, National Disaster Management Policy, and the second National Agriculture Policy (currently being reviewed).
- Integration into national planning: In 2022, NDCs were integrated in line with several strategies under the 8NDP including the Strengthen Climate Change Mitigation and Strengthen Climate Change Adaptation strategies, where CSA practices are embedded.

### Financing, constraints, and examples of CSA support
- Main constraints to wider CSA adoption: lack of adequate financing, lack of markets, and limited capacity building such as extension services.
- Example of a supported project: Community Market for Conservation project improved crop yields in Eastern Province by training small-scale farmers in CSAs and providing markets for their output.
- Policy implication: earmarking public financing for CSA projects is critical to create incentives to attract private sector and cooperating partner funds.
- Role for private sector: promote, develop, disseminate, monitor and evaluate, and coordinate CSA practices.

### Farmer Input Support Program (FISP): design, practice, and challenges
- Delivery model: FISP uses direct input supply (DIS) to distribute subsidized inputs to small-scale farmers.
- Typical DIS input pack per selected beneficiary (normally part of a cooperative):
  - one 10kg bag of maize seed
  - 6 bags of fertilizer
  - beneficiary deposit of K400 towards the subsidy program
  - and either a 25kg bag of soya beans seed or 20kg bag of groundnuts seed to diversify crop production.
- Implementation challenges:
  - Late delivery of inputs.
  - Standardized distribution not appropriate for some agro-ecological zones or soil types.
  - Crowding out of private sector.
  - Poor targeting.
- Fiscal and governance outcomes:
  - Most funds allocated to the agricultural sector have been diverted to the input subsidy program.
  - In many cases actual expenditure exceeded planned expenditure.
  - About 30-35 percent of the time fertilizer input did not reach intended beneficiaries.
  - Non-transparency in tendering processes and governance issues produced significant fiscal drain.
- Program effectiveness:
  - FISP has been critical in ensuring self-sufficiency in maize production and contributing to food security.
  - Nonetheless, dietary limitations and nutritional deficiency remain elevated.
  - Subsidies have squeezed out the private sector in input and output markets, especially in the maize subsector, increasing exposure to climate shocks and likelihood of crop failure and income uncertainty.

### Food Reserve Agency (FRA): operations, losses, and market effects
- Crops purchased by FRA: maize grain, soya beans, and paddy rice (maize grain largest proportion).
- FRA activities: purchases and sales domestically and for export (Zimbabwe, Democratic Republic of Congo, Mozambique, and Namibia).
- Optimal strategic food reserve: 500,000 metric tons of grains.
- Storage losses: some studies estimate losses from management of storage facilities range between 15 to 30 percent of the purchased grains due to inadequate storage facilities.
- Loss dynamics: the extent of losses depends on whether the minimum recommended threshold of 500,000 metric tons has been exceeded; the greater the excess, the higher the incurred loss.
- Cost and production trends: the cost associated with storing and releasing grains grew at a rate of 83.3 percent while maize production contracted by 2 percent between the period 2014 to 2021.
- Fiscal practice: authorities continued to spend considerable amounts on FRA with outturns often higher than budgeted amounts.
- Market distortion effects:
  - FRA interventions have limited development of the agriculture sector by crowding out private sector participation and displacing necessary investments.
  - FRA acting as buyer of last resort and being the largest buyer tends to distort prices, making it difficult for private participants to generate adequate profit margins and discouraging business operations due to uncertainty.

### Comprehensive Agriculture Support Program (CASP) and e-voucher reforms
- CASP objectives: raise productivity, attain climate resilience, and increase output for regional export markets; intended to address FISP shortcomings.
- Policy placement: CASP is outlined in the 8NDP, 2023 - 2025 Medium Term Expenditure Framework (MTEF), and recent national budgets.
- Migration plan:
  - CASP will fully transition the input subsidy program to the e-voucher modality over a three-year migration path by the 2025/2026 farming season.
  - In the 2023/2024 farming season, start with 43 districts that have over 80 percent 3G/4G network coverage and a developed agro-dealership network.
  - Out of the 43 districts, inputs for the top 10 maize producing districts will be procured under the DIS but redeemed through the e-voucher to safeguard food security (Ministry of Agriculture, 2022).
- Advantages of e-voucher:
  - Greater flexibility for beneficiaries to buy preferred fertilizer, seeds, and farming apparatus suited to local circumstances.
  - Enables livestock and fisheries producers to purchase chosen livestock and fisheries inputs.
  - Encourages private sector growth through agro-dealing and promotes crop diversification.
  - Lower cost burden on the treasury by removing costs associated with tendering, transportation, storage, and handling.
  - Savings from electronic platform implementation could be diverted to other high-yield programs, agricultural apparatus, social transfers, and irrigation infrastructure (drip systems).
- Policy signals in budgets:
  - The 2022 National Budget proposed CASP for 2022/2023 farming season; 2022 budget noted climate change contributions to decline in production and productivity and the need to address limited market access for small-scale farmers.
  - The 2023-2025 MTEF indicates sector expansion due to efficiency gains from CASP implementation; 2023 budget stresses e-voucher implementation for cost efficiency and effectiveness.
- Supporting measures to promote diversification: national crop diversification strategy is currently being developed.

### Implementation requirements and operational recommendations for CASP and CSA scaling
- Evidence-based requirements for successful CASP implementation:
  - Allow input vouchers to be spent on a wide array of inputs at a dealer of choice.
  - Allow sufficient time for the release of funds.
  - Earmark funds for internet and related infrastructure.
  - Structure beneficiary contributions to be made throughout the year.
  - Provide training time for CASP user manual.
  - Undertake adequate sensitization on availability of various inputs.
  - Provide ample time for screening and registration of agro-dealers.
  - Educate beneficiaries on different seed varieties, fertilizer types and suitability, and soil quality in their locality.
  - Identify champions within the ministry responsible for implementing the input subsidy program to support successful roll-out.
- Phased migration rationale:
  - A phased path ensures a conducive environment before full transition to e-voucher.
  - Pre-launch planning needed to attract input suppliers, install necessary infrastructure, build smallholder capacity, generate soil-type and fertilizer-matching information via a nation-wide mapping system, and suggest eligibility rules to transfer smallholders not benefiting from current programs to other appropriate transfer programs.
  - Establish a proper and well-functioning monitoring system to gather and analyze implementation, costs, and impacts; consider collaborating with beneficiary farmers for information gathering and analysis.

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1zmbea2023003.pdf*

### 34.      To fully utilize benefits of reforms, the authorities would need to ensure that there are

### 34.      To fully utilize benefits of reforms, the authorities would need to ensure that there are

### Agriculture product market reforms and the Food Reserve Agency (FRA)
- To complement reforms to FISP, the FRA might consider putting in place clear trigger mechanisms for how grains are purchased and released (World Bank, 2021; Chapoto, et al., 2016).
- Clear trigger mechanisms would ensure that only purchases required for strategic reserves are undertaken in areas where little or no crowding out of the private sector would take place.
- The FRA reverting to the original mandate of only providing strategic food reserves is described as critical in creating room for private sector participation.

### Role of private sector and regional trade
- Considering the current price disparity that exists between Zambia and its neighboring countries, the country could benefit from exporting the excess maize grains.
- Example cited: the difference in maize price of above US$300 10  per ton between Kenya and Zambia could more than offset cost in transportation.
- The private sector could:
  - play the role of exporting the excess grains to countries in the region, and
  - bear the cost of grain storage, thereby reducing the fiscal implications on the treasury.

### Fiscal implications and use of savings
- The savings generated from reforms could be channeled to support other programs within the agriculture sector (World Bank, 2021).

*Source: IMF country chapter text (ZAMBIA).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1zmbea2023003.pdf_