Inflation eased back inside target, agriculture kept expanding and the trade account swung further into surplus through the second quarter. Fiscal pressure and a squeeze on household budgets show why the recovery still has not reached most Zambians.
By Kelvin Chisanga
KEY TAKEAWAYS
- Zambia carried a strong base into Q2: GDP grew 7.7% in Q1 2026, with agriculture output up 21.4% year on year.
- Inflation fell from 6.8% in April to 6.5% in June, inside the Bank of Zambia’s 6 to 8% target band, while the policy rate held at 13.25%.
- The trade account posted a K14.7 billion Q2 surplus (K85.2 billion in exports against K70.4 billion in imports), and reserves stood near US$6.5 billion, covering about 4.4 months of prospective imports.
- The K253.1 billion 2026 Budget gives government a platform to spend, but tax shortfalls on certain lines and lower grant inflows make execution, not the budget figure itself, the real test.
- Fiscal pressure, energy constraints, mining underperformance, external shocks and weak household purchasing power remain the risks that could stall the recovery before it reaches ordinary Zambians.
A strong base carried into the quarter
Zambia’s economy moved through the second quarter of 2026 on the back of a strong start to the year. GDP grew 7.7% in the first quarter, with agriculture the standout performer, expanding output by 21.4% year on year after a difficult run of poor harvests in preceding seasons. That recovery gave the economy room to absorb the usual second-quarter pressures: a seasonal dip in agricultural marketing activity, continued energy constraints and the fiscal demands of a government still working through its 2026 spending plan.
Q2 did not repeat the first quarter’s growth rate on its own, but the underlying picture held up. Inflation kept falling, the external account strengthened and reserves stayed comfortably above the International Monetary Fund’s usual three-month import cover benchmark.
Inflation eases back inside target
Inflation fell from 6.8% in April to 6.5% in June, settling inside the Bank of Zambia’s 6 to 8% target range for the first time in several years. The decline reflects a steadier kwacha, improved food supply following the stronger agricultural harvest, and the base effects of high prices recorded a year earlier.
The central bank held its policy rate at 13.25% through the quarter. A rate held rather than cut signals the Bank of Zambia is watching for the disinflation trend to prove durable before easing the cost of borrowing further, a caution that matters directly to businesses waiting for cheaper credit to expand.
Trade surplus widens
Zambia recorded a K14.7 billion trade surplus in the second quarter, with exports of K85.2 billion against imports of K70.4 billion. Copper remains the main driver of that export performance, though the scale of the surplus also reflects import compression: businesses and consumers facing tighter budgets tend to buy fewer imported goods, which flatters the trade balance without necessarily reflecting stronger competitiveness.
Reserves stood at around US$6.5 billion, covering approximately 4.4 months of prospective imports, well above the three-month threshold generally considered a minimum safety margin. That buffer gives the Bank of Zambia room to manage kwacha volatility if external conditions turn, whether from a copper price correction or a shift in global interest rates.
The budget: a platform, not a guarantee
The K253.1 billion 2026 Budget gives government the fiscal space to fund the sector priorities that would extend the recovery. But a budget is only as good as its execution, and execution is where the pressure is showing. Certain tax lines have underperformed against target, and grant inflows from cooperating partners have come in lower than projected, both of which narrow the room to spend without adding to debt.
That gap is the difference between a budget that reads well on paper and one that changes what Zambians experience day to day. Revenue mobilisation, particularly VAT administration, needs to close faster than it has to avoid squeezing productive spending in favour of debt servicing and recurrent costs.
Where the risks sit
The main threats to the recovery are not new, but they have not gone away either. Fiscal pressure and debt servicing costs continue to compete with development spending. Energy constraints, still a live issue for industry and mining operations that depend on reliable power, could cap output just as production is recovering. Mining underperformance, whether from operational setbacks or a softer copper price, would hit both export earnings and government revenue directly, given how much of the fiscus depends on the sector. External shocks, from global interest rate moves to shifts in commodity demand, sit largely outside Zambia’s control. And weak household purchasing power means that even as the headline numbers improve, many Zambians are not yet feeling the difference in their monthly budgets.
Five priorities for the second half
Sustaining the improvement through the rest of 2026 depends on where government and the private sector put their effort next. Five priorities stand out: protecting the price stability gained so far rather than treating it as achieved and settled; strengthening domestic revenue mobilisation and closing gaps in VAT administration; steering spending toward productive investment rather than consumption; accelerating energy and infrastructure projects that remove current bottlenecks to production; and creating a more attractive environment for private investment and job creation.
On the sector side, the priorities are agricultural productivity and agro-processing to convert this year’s harvest recovery into lasting capacity, higher copper production with more local value addition, reliable energy supply, manufacturing growth, stronger SME access to finance, and continued investment in infrastructure and digitalisation.
What this means for business, investors and households
For businesses: a policy rate held steady and inflation inside target suggest the cost of borrowing may ease later in the year if the trend holds, making it worth preparing expansion or working-capital plans now rather than waiting for a rate cut that is not yet confirmed.
For investors: a widening trade surplus and reserves near 4.4 months of import cover point to a more stable kwacha in the near term, though the surplus partly reflects weaker import demand rather than pure export strength, a distinction worth factoring into any assessment of underlying competitiveness.
For households: lower inflation should translate into slower price increases at the till, but the improvement is gradual and starts from a high base after several years of cost-of-living pressure. Wages and incomes have not moved at the same pace as the headline numbers, which is the gap the recovery still has to close.
Stability is won. Growth still has to be felt
Zambia has largely won the stabilisation battle: inflation is inside target, the trade account is in surplus, reserves are healthy and the fiscal framework for the year is in place. The harder task is turning that stability into production, investment, jobs and higher incomes, the things that show up in a household budget rather than a Bank of Zambia press release.
A stable economy that stays a number on paper is not the outcome anyone set out to achieve. The test for the second half of 2026 is whether the gains recorded in Q2 start reaching the people the statistics are meant to describe.
Related reading: Zambia’s 7.7% GDP Growth: Why It Doesn’t Feel Like It, Strong Grounds for Take-Off: Zambia Is Entering a Sweet Spot of Economic Positivity, Zambia’s Inflation Eases to 6.2% as Food Price Growth Slows and What the Bank of Zambia Policy Rate Means for Your Loan.
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